UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)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 March 31, 20202021
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 Biosciences, Inc. |
(Exact name of registrant as specified in its charter) |
Delaware | 22-2919486 | |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
Morris Corporate Center 1, Building C |
300 Interpace Parkway, Parsippany, NJ 07054 |
(Address of principal executive offices and zip code) |
(855) 776-6419 |
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] | Accelerated filer [ ] | |
Non-accelerated filer [X] | Smaller reporting company [X] | |
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 | |||||
Common Stock, par value $0.01 per share | 4,112,843 |
INTERPACE BIOSICENCES, INC.
FORM 10-Q/A10-Q FOR PERIOD ENDED MARCH 31, 20202021
TABLE OF CONTENTS
On March 25, 2020, the U.S. Securities and Exchange Commission (the “SEC”) issued an order Release No. 34-88465 (the “Order”) pursuant to its authority under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) granting exemptions from certain provisions of that Act and the rules thereunder related to the reporting and proxy delivery requirements for certain public companies. Interpace Biosciences, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 in reliance on the Order, permitting a delay in filing due to circumstances related to COVID-19. The Company filed, on May 15, 2020, a Current Report on Form 8-K (the “May 15th 8-K”) indicating its intention to rely on the Order. As stated in the May 15th 8-K, the Company required additional time to finalize this report due to circumstances related to COVID-19, the disease caused by the coronavirus. The effects of COVID-19 have limited the abilities of the Company’s employees to conduct normal business activities. This, in turn, delayed the Company’s ability to prepare this report.
This Amendment No. 1 on Form 10-Q/A (this Amendment) amends the Company’s Report on Form 10-Q for the quarter ended March 31, 2020, as amended, (the “Original Filing”) and is being filed to show the impact in such quarter of intangible asset amortization and impairment expense for its Barrett’s and Thyroid assets which began in 2014. Subsequent to the issuance of its consolidated financial statements for the year ended December 31, 2019 and the quarters ended March 31, 2020 and June 30, 2020, the Company determined that amortization should have commenced upon acquisition of those assets as opposed to the Company’s previously disclosed policy of beginning asset amortization when the product was launched and generating revenue. The impact of the additional amortization expense for each of the quarters ended March 31, 2020 and March 31, 2019 was approximately $0.1 million. The impact of the other immaterial adjustments for the quarters ended March 31, 2020 and March 31, 2019 was $0.1 million in expense and $0.2 million in a credit to expense, respectively
A description of these adjustments and a summary showing their effect on the restated consolidated statements of operations is provided in Note 1 to the consolidated financial statements. In addition to the errors described above, the restated financial statements also include adjustments to correct certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.
The Company is filing this report in order to amend certain information in Items 1, 2 and 4 of Part I to reflect the restatement of the March 31, 2020 and 2019 unaudited interim consolidated statements of operations and Notes 1,3,5 and 9 to the consolidated financial statements attached hereto solely to the extent necessary to reflect the adjustments described herein; and the principal executive officer and principal financial officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Except for the foregoing items, no other information in the Original Filing is revised by this Amendment.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As Restated | As Restated | |||||||||||||||
March 31, | December 31, | |||||||||||||||
2020 | 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 13,370 | $ | 2,321 | $ | 2,839 | $ | 2,772 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively | 9,799 | 10,338 | ||||||||||||||
Restricted cash | 600 | 600 | ||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $135 and $275, respectively | 7,851 | 8,028 | ||||||||||||||
Other current assets | 4,976 | 3,851 | 2,975 | 2,722 | ||||||||||||
Total current assets | 28,145 | 16,510 | 14,265 | 14,122 | ||||||||||||
Property and equipment, net | 6,610 | 6,814 | 6,900 | 7,349 | ||||||||||||
Other intangible assets, net | 14,734 | 15,849 | 10,238 | 11,351 | ||||||||||||
Goodwill | 8,433 | 8,433 | 8,433 | 8,433 | ||||||||||||
Operating lease right of use assets | 2,811 | 3,892 | 3,980 | 4,384 | ||||||||||||
Other long-term assets | 42 | 42 | 42 | 42 | ||||||||||||
Total assets | $ | 60,775 | $ | 51,540 | $ | 43,858 | $ | 45,681 | ||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 4,456 | $ | 4,709 | $ | 3,008 | $ | 4,511 | ||||||||
Accrued salary and bonus | 1,865 | 2,341 | 2,173 | 3,161 | ||||||||||||
Loan payable - related parties | 5,092 | - | ||||||||||||||
Other accrued expenses | 8,639 | 9,476 | 9,422 | 9,795 | ||||||||||||
Current liabilities from discontinued operations | 766 | 766 | 766 | 766 | ||||||||||||
Total current liabilities | 15,726 | 17,292 | 20,461 | 18,233 | ||||||||||||
Contingent consideration | 2,264 | 2,391 | 1,739 | 1,818 | ||||||||||||
Operating lease liabilities, net of current portion | 1,384 | 2,591 | 3,326 | 3,540 | ||||||||||||
Line of credit | 1,200 | 3,000 | ||||||||||||||
Other long-term liabilities | 4,563 | 4,573 | 4,692 | 4,637 | ||||||||||||
Total liabilities | 25,137 | 29,847 | 30,218 | 28,228 | ||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||||
Commitments and contingencies (Note 12) | ||||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, 270 Series A shares issued and outstanding | - | 26,172 | ||||||||||||||
47,000 Series B shares issued and outstanding | 46,536 | - | ||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 Series B issued and outstanding | 46,536 | 46,536 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 3,932,370 shares issued, respectively; 4,043,673 and 3,920,589 shares outstanding, respectively | 402 | 393 | ||||||||||||||
Stockholders’ deficit: | ||||||||||||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 4,132,507 and 4,075,257 shares issued, respectively; 4,112,843 and 4,055,593 shares outstanding, respectively | 402 | 402 | ||||||||||||||
Additional paid-in capital | 182,580 | 182,514 | 184,798 | 184,404 | ||||||||||||
Accumulated deficit | (192,159 | ) | (185,665 | ) | (216,323 | ) | (212,116 | ) | ||||||||
Treasury stock, at cost (11,781 and 11,781 shares, respectively) | (1,721 | ) | (1,721 | ) | ||||||||||||
Total stockholders’ equity | (10,898 | ) | (4,479 | ) | ||||||||||||
Total liabilities and stockholders’ equity | $ | 14,239 | $ | 25,368 | ||||||||||||
Treasury stock, at cost (19,664 and 19,664 shares, respectively) | (1,773 | ) | (1,773 | ) | ||||||||||||
Total stockholders’ deficit | (32,896 | ) | (29,083 | ) | ||||||||||||
Total liabilities and stockholders’ deficit | $ | (2,678 | ) | $ | (855 | ) | ||||||||||
Total liabilities, preferred stock and stockholders’ equity | $ | 60,775 | $ | 51,540 | ||||||||||||
Total liabilities, preferred stock and stockholders’ deficit | $ | 43,858 | $ | 45,681 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
As Restated | ||||||||||||||||
Three Months Ended March 31, | ||||||||||||||||
2020 | 2019 | Three Months Ended March 31, | ||||||||||||||
2021 | 2020 | |||||||||||||||
Revenue, net | $ | 9,059 | $ | 6,010 | $ | 9,833 | $ | 9,059 | ||||||||
Cost of revenue (excluding amortization of $1,115 and $897, respectively) | 6,113 | 2,622 | ||||||||||||||
Cost of revenue (excluding amortization of $1,112 and $1,115, respectively) | 5,316 | 6,113 | ||||||||||||||
Gross profit | 2,946 | 3,388 | 4,517 | 2,946 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 2,481 | 2,411 | 2,351 | 2,481 | ||||||||||||
Research and development | 809 | 528 | 637 | 809 | ||||||||||||
General and administrative | 4,893 | 2,735 | 2,979 | 4,837 | ||||||||||||
Transition expenses | 1,253 | 56 | ||||||||||||||
Acquisition related amortization expense | 1,115 | 897 | 1,112 | 1,115 | ||||||||||||
Total operating expenses | 9,298 | 6,571 | 8,332 | 9,298 | ||||||||||||
Operating loss | (6,352 | ) | (3,183 | ) | (3,815 | ) | (6,352 | ) | ||||||||
Interest accretion | (109 | ) | (129 | ) | ||||||||||||
Other income (expense), net | 47 | 48 | ||||||||||||||
Interest accretion expense | (135 | ) | (109 | ) | ||||||||||||
Other (expense) income, net | (188 | ) | 47 | |||||||||||||
Loss from continuing operations before tax | (6,414 | ) | (3,264 | ) | (4,138 | ) | (6,414 | ) | ||||||||
Provision for income taxes | 15 | 5 | 15 | 15 | ||||||||||||
Loss from continuing operations, net of tax | (6,429 | ) | (3,269 | ) | ||||||||||||
Loss from continuing operations | (4,153 | ) | (6,429 | ) | ||||||||||||
Loss from discontinued operations, net of tax | (65 | ) | (57 | ) | (54 | ) | (65 | ) | ||||||||
Net loss | (6,494 | ) | (3,326 | ) | (4,207 | ) | (6,494 | ) | ||||||||
Less adjustment for preferred stock deemed dividend | (3,033 | ) | - | - | (3,033 | ) | ||||||||||
Net loss attributable to common stockholders | $ | (9,527 | ) | $ | (3,326 | ) | $ | (4,207 | ) | $ | (9,527 | ) | ||||
Basic and diluted loss per share of common stock: | ||||||||||||||||
From continuing operations | $ | (2.37 | ) | $ | (0.93 | ) | $ | (1.02 | ) | $ | (2.37 | ) | ||||
From discontinued operations | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Net loss per basic and diluted share of common stock | $ | (2.38 | ) | $ | (0.94 | ) | $ | (1.03 | ) | $ | (2.38 | ) | ||||
Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||
Basic | 4,004 | 3,515 | 4,089 | 4,004 | ||||||||||||
Diluted | 4,004 | 3,515 | 4,089 | 4,004 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYDEFICIT
(unaudited, in thousands)
As Restated | As Restated | |||||||||||||||
For The Three Months Ended | For The Three Months Ended | |||||||||||||||
March 31, 2020 | March 31, 2019 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Common stock: | ||||||||||||||||
Balance at January 1 | 3,932 | $ | 393 | 2,877 | $ | 287 | ||||||||||
Common stock issued | 37 | 1 | 9 | 1 | ||||||||||||
Restricted stock issued | 6 | - | - | - | ||||||||||||
Common stock issued through market sales | 80 | 8 | - | - | ||||||||||||
Common stock issued through offerings | - | - | 933 | 94 | ||||||||||||
Balance at March 31 | 4,055 | 402 | 3,819 | 382 | ||||||||||||
Treasury stock: | ||||||||||||||||
Balance at January 1 | 12 | (1,721 | ) | 7 | (1,680 | ) | ||||||||||
Treasury stock purchased | - | - | 3 | (32 | ) | |||||||||||
Balance at March 31 | 12 | (1,721 | ) | 10 | (1,712 | ) | ||||||||||
Additional paid-in capital: | ||||||||||||||||
Balance at January 1 | 182,514 | 175,820 | ||||||||||||||
Common stock issued through offerings, net of expenses | - | 5,868 | ||||||||||||||
Extinguishment of Series A Shares | (828 | ) | - | |||||||||||||
Beneficial Conversion Feature in connection with Series B Issuance | 2,205 | - | ||||||||||||||
Amortization of Beneficial Conversion Feature | (2,205 | ) | - | |||||||||||||
Common stock issued through market sales | 476 | - | ||||||||||||||
Stock-based compensation expense | 418 | 266 | ||||||||||||||
Balance at March 31 | 182,580 | 181,954 | ||||||||||||||
Accumulated deficit: | ||||||||||||||||
Balance at January 1 | (185,665 | ) | (158,981 | ) | ||||||||||||
Net loss | (6,494 | ) | (3,326 | ) | ||||||||||||
Adoption of ASC 842 | - | 55 | ||||||||||||||
Balance at March 31 | (192,159 | ) | (162,252 | ) | ||||||||||||
Total stockholders’ equity | $ | (10,898 | ) | $ | 18,372 |
For The Three Months Ended | For The Three Months Ended | |||||||||||||||
March 31, 2021 | March 31, 2020 | |||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||
Common stock: | ||||||||||||||||
Balance at January 1 | 4,075 | $ | 402 | 3,932 | $ | 393 | ||||||||||
Common stock issued | 9 | - | 37 | 1 | ||||||||||||
Restricted stock issued | 12 | - | 6 | - | ||||||||||||
Common stock issued through market sales | - | - | 80 | 8 | ||||||||||||
Common stock issued through ESPP | 36 | - | - | - | ||||||||||||
Balance at March 31 | 4,132 | 402 | 4,055 | 402 | ||||||||||||
Treasury stock: | ||||||||||||||||
Balance at January 1 | 20 | (1,773 | ) | 12 | (1,721 | ) | ||||||||||
Treasury stock purchased | - | - | - | - | ||||||||||||
Balance at March 31 | 20 | (1,773 | ) | 12 | (1,721 | ) | ||||||||||
Additional paid-in capital: | ||||||||||||||||
Balance at January 1 | 184,404 | 182,514 | ||||||||||||||
Extinguishment of Series A Shares | - | (828 | ) | |||||||||||||
Beneficial Conversion Feature in connection with Series B Issuance | - | 2,205 | ||||||||||||||
Amortization of Beneficial Conversion Feature | - | (2,205 | ) | |||||||||||||
Common stock issued | 108 | - | ||||||||||||||
Common stock issued through market sales | - | 476 | ||||||||||||||
Stock-based compensation expense | 286 | 418 | ||||||||||||||
Balance at March 31 | 184,798 | 182,580 | ||||||||||||||
Accumulated deficit: | ||||||||||||||||
Balance at January 1 | (212,116 | ) | (185,665 | ) | ||||||||||||
Net loss | (4,207 | ) | (6,494 | ) | ||||||||||||
Balance at March 31 | (216,323 | ) | (192,159 | ) | ||||||||||||
Total stockholders’ deficit | $ | (32,896 | ) | $ | (10,898 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
As Restated | ||||||||||||||||
For The Three Months Ended March 31, | ||||||||||||||||
` | For The Three Months Ended | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||
Net loss | $ | (6,494 | ) | $ | (3,326 | ) | $ | (4,207 | ) | $ | (6,494 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 1,319 | 957 | 1,532 | 1,319 | ||||||||||||
Interest accretion | 109 | 129 | ||||||||||||||
Interest accretion expense | 135 | 109 | ||||||||||||||
Bad debt (recovery) expense | (140 | ) | 250 | |||||||||||||
Mark to market on warrants | (26 | ) | (3 | ) | 41 | (26 | ) | |||||||||
Stock-based compensation | 418 | 538 | 259 | 418 | ||||||||||||
Bad debt expense | 250 | - | ||||||||||||||
Amortization of loan costs | 52 | - | ||||||||||||||
Accrued interest | 92 | - | ||||||||||||||
ESPP expense | 27 | - | ||||||||||||||
Change in fair value of contingent consideration | (57 | ) | - | |||||||||||||
Other gains and expenses, net | - | 18 | (3 | ) | - | |||||||||||
Other changes in operating assets and liabilities: | ||||||||||||||||
Decrease (increase) in accounts receivable | 289 | (1,738 | ) | |||||||||||||
(Increase) decrease in other current assets | (1,125 | ) | 11 | |||||||||||||
(Decrease) increase in accounts payable | (253 | ) | 93 | |||||||||||||
(Decrease) increase in accrued salaries and bonus | (476 | ) | 205 | |||||||||||||
(Decrease) increase in accrued liabilities | (1,149 | ) | 99 | |||||||||||||
Decrease in accounts receivable | 317 | 289 | ||||||||||||||
Increase in other current assets | (253 | ) | (1,125 | ) | ||||||||||||
Decrease in accounts payable | (1,534 | ) | (253 | ) | ||||||||||||
Decrease in accrued salaries and bonus | (988 | ) | (476 | ) | ||||||||||||
Decrease in accrued liabilities | (293 | ) | (1,149 | ) | ||||||||||||
Increase in long-term liabilities | 16 | 57 | 14 | 16 | ||||||||||||
Net cash used in operating activities | (7,122 | ) | (2,960 | ) | (5,006 | ) | (7,122 | ) | ||||||||
Cash Flows From Investing Activity | ||||||||||||||||
Purchase of property and equipment | - | (12 | ) | |||||||||||||
Sale of property and equipment | - | 13 | 39 | - | ||||||||||||
Net cash provided by investing activity | - | 1 | ||||||||||||||
Net cash provided by investing activities | 39 | - | ||||||||||||||
Cash Flows From Financing Activities | ||||||||||||||||
Issuance of common stock, net of expenses | 434 | 6,015 | 108 | 434 | ||||||||||||
Issuance of Series B preferred stock, net of expenses | - | 19,537 | ||||||||||||||
Loan proceeds | 5,000 | - | ||||||||||||||
Loan expenses | (74 | ) | - | |||||||||||||
Payments on Line of Credit | (1,800 | ) | - | - | (1,800 | ) | ||||||||||
Issuance of Series B preferred stock, net of expenses | 19,537 | - | ||||||||||||||
Net cash provided by financing activities | 18,171 | 6,015 | 5,034 | 18,171 | ||||||||||||
Net increase in cash and cash equivalents | 11,049 | 3,056 | ||||||||||||||
Cash and cash equivalents – beginning | 2,321 | 6,068 | ||||||||||||||
Cash and cash equivalents – ending | $ | 13,370 | $ | 9,124 | ||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | 67 | 11,049 | ||||||||||||||
Cash, cash equivalents and restricted cash – beginning | 3,372 | 2,321 | ||||||||||||||
Cash, cash equivalents and restricted cash – ending | $ | 3,439 | $ | 13,370 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
1. | OVERVIEW |
Nature of Business
The CompanyInterpace 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 with the goals of delivering safer, more effective drugs to market more quickly, and improving patient care.programs.
Impact of COVID-19 pandemic
We have taken what we believe are all necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We are following the Centers for Disease Control and Prevention’s (“CDC”) guidance and local restrictions. The majorityoutbreak of our employees who do not work in a lab are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our labs require in-person staffing and as of the date of this report, we have been able to successfully operate our labs through a combination of social distancing and protective equipment. Our employees in the lab are wearing what we believe is appropriate protective gear. There can be no assurance that key employees will not become ill or that we will able to continue to operate our labs. We have furloughed a number of employees as a result of reductions in customer demand.
The extent to which the COVID-19 pandemic impactscontinues to impact a significant portion of the regions in which we operate. The continuing impact that the COVID-19 pandemic will have on our operations, is dependent on future developments, which are stillincluding duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time, and includetime. While we believe we have generally recovered from the duration, severity and scope ofadverse impact that the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the spread of the coronavirus globally is adversely affecting global economies and financial markets which could materially and adversely impactCOVID-19 pandemic had on our operations including, without limitation, the functioning of our laboratories, the availability of supplies including reagents, the progress and data collection of our pharma services, customer demand and travel and employee health and availability.
Webusiness during 2020, we believe that the COVID-19 pandemic willcould continue to adversely impact our results of operations, cash flows and financial condition forin the second quarter of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue wasfuture.
As our business operations continue to be impacted by lower than expected clinical service volume throughout March 2020, whichthe pandemic, we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. Our pharma services first quarter revenue increased throughout the first quarter and average daily accessions improved in March 2020 as compared to January and February 2020. However, as of the date of this Report, our overall business is still down approximately 30% from our run rate before the pandemic.
We continue to monitor the rapidly evolving situation and the guidance from authorities, includingthat is being provided by relevant federal, state and local public health authorities andauthorities. We may take additional actions based onupon their recommendations. In these dynamic circumstances, thereHowever, it is possible that we may be developments outside our control requiring ushave to adjustmake further adjustments to our operating plan.plans in reaction to developments that are beyond our control.
At this time,
While we do not anticipate any lab closures at this time beyond periodic, temporary work stoppages from time to time to clean and disinfect the labs. Lab supplies including reagents have been secured to mitigate any potentiallabs, this could change in the future based upon conditions caused by the pandemic. It is also possible that we could experience supply chain issues forshortages if the pandemic worsens and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, andhowever, we aredo not observing any shortages due toanticipate supply chain issues. Our third party clinical services billing and collections company has taken steps to continue operations remotely.
We are monitoring the situation on a daily basis and have developed contingency plans to potentially mitigate the anticipated adverse financial impactshortages of the COVID-19 pandemic. These contingency plans include significant cost saving actions to offset any volume shortfall and additional action plans to react to further potential declines. While we are continuing to make progress on a regular basis in returning to volumes prior to the pandemic there is, however, no guarantee in the future we will recover the business which has been lost or inactive.
Restatementcritical supplies.
We have restated hereindeveloped and will continue to update our unaudited consolidated financial statements as of March 31, 2020 for the three months ended March 31, 2020 and March 31, 2020. We have also restated impacted amounts within the accompanying footnotes to the consolidated financial statements which have been noted as such.
As a result of overall economic conditions related to the coronavirus pandemic, the impact of the coronavirus pandemic on the Company’s financial results, and the decrease in the price of the Company’s common stock noted during the third quarter of fiscal 2020, the Company performed an internal review of its long-lived assets. Due to an extended delay in the launch of the Company’s Barrett’s test, the Company believes there was a triggering event in Fiscal 2016. The Company applied the required procedures under ASC 360 and assessed the estimated future cash flows related to the Barrett’s intangible asset on an undiscounted basis. It was determined that the carrying value of the asset was in excess of the undiscounted cash flows as of December 31, 2016. As a result, the Company performed a formal valuation of the asset on a discounted basiscontingency plans in order to measuremitigate pandemic-related, adverse financial impacts upon our business.
Transition costs
To optimize the related impairment. Additionally,operations of laboratory operations within our pharma services, we transitioned activities from the Company concluded that amortizationRutherford, NJ facility to our Morrisville, NC facility. We invested several million dollars to facilitate this relocation, including but not limited to the transfer of both the Barrett’s intangible asset and its Thyroid intangible assets should have begun at the point in which the asset was ready for use. The Company’s policy had been to amortize such assets upon launchpersonnel, expansion of the test.
On December 7, 2020,Morrisville facility and validation of transferred processes. We believe that this investment will result in a reduction in future operating costs; however, it is not certain whether we will fully realize the Company’s management conferred with the Audit Committee of the Company’s Board of Directors and concluded that (1) a non-cash impairment charge for an intangible asset of approximately $12 million should have been recorded during the Company’s 2016 fiscal year; (2) the Company should have initiated amortization of such intangible asset in fiscal 2014 and therefore each of fiscal years 2014, 2015, 2016, 2017, 2018, and 2019 and the first two quarters of fiscal 2020 require adjustment to record amortization expense; (3) the consolidated financial statements contained in the Company’s Annual Reports on Form 10-K for the years ended December 31, 2014, 2015, 2016, 2017, 2018, and 2019, as well as the consolidated financial statements contained in the Quarterly Reports on Form 10-Q for each quarterly period within those fiscal years as well as the quarterly periods ended March 31, 2020 and June 30, 2020, should no longer be relied upon. As a result the Company is restating its consolidated financial statements for the three months ended March 31, 2020 and March 31, 2019 in this Form 10-Q/A.anticipated savings.
The following tables present reconciliation from our prior periods as previously reported to the restated values for the consolidated balance sheets and the consolidated statement of operations. A description of misstatements is listed below:
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INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
March 31, 2020 | ||||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||
(unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 13,370 | $ | - | $ | 13,370 | ||||||||||
Accounts receivable, net of allowance for doubtful accounts of $275 | 9,799 | - | 9,799 | |||||||||||||
Other current assets | 4,976 | - | 4,976 | |||||||||||||
Total current assets | 28,145 | - | 28,145 | |||||||||||||
Property and equipment, net | 6,610 | 6,610 | ||||||||||||||
Other intangible assets, net | 32,470 | (17,736 | ) | (a) (b) | 14,734 | |||||||||||
Goodwill | 8,433 | - | 8,433 | |||||||||||||
Operating lease right of use assets | 2,811 | - | 2,811 | |||||||||||||
Other long-term assets | 42 | - | 42 | |||||||||||||
Total assets | $ | 78,511 | $ | (17,736 | ) | $ | 60,775 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 4,456 | $ | - | $ | 4,456 | ||||||||||
Accrued salary and bonus | 1,865 | - | 1,865 | |||||||||||||
Other accrued expenses | 8,639 | - | 8,639 | |||||||||||||
Current liabilities from discontinued operations | 766 | - | 766 | |||||||||||||
Total current liabilities | 15,726 | - | 15,726 | |||||||||||||
Contingent consideration | 2,264 | - | 2,264 | |||||||||||||
Operating lease liabilities, net of current portion | 1,384 | - | 1,384 | |||||||||||||
Line of credit | 1,200 | - | 1,200 | |||||||||||||
Other long-term liabilities | 4,563 | - | 4,563 | |||||||||||||
Total liabilities | 25,137 | - | 25,137 | |||||||||||||
Commitments and contingencies (Note 8) | ||||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 Series B shares issued and outstanding | 46,536 | - | 46,536 | |||||||||||||
Stockholders’ equity: | ||||||||||||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 4,043,673 shares issued and outstanding, respectively; | 402 | - | 402 | |||||||||||||
Additional paid-in capital | 182,580 | - | 182,580 | |||||||||||||
Accumulated deficit | (174,423 | ) | (17,736 | ) | (a) (b) (c) | (192,159 | ) | |||||||||
Treasury stock, at cost (11,781 shares) | (1,721 | ) | - | (1,721 | ) | |||||||||||
Total stockholders’ equity | 6,838 | (17,736 | ) | (10,898 | ) | |||||||||||
Total liabilities and stockholders’ equity | $ | 31,975 | $ | (17,736 | ) | $ | 14,239 | |||||||||
Total liabilities, preferred stock and stockholders’ equity | $ | 78,511 | $ | (17,736 | ) | $ | 60,775 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||||||||||
Revenue, net | $ | 9,200 | $ | (141 | ) | (c) | $ | 9,059 | $ | 6,010 | $ | - | $ | 6,010 | ||||||||||||||
Cost of revenue | 6,113 | - | 6,113 | 2,622 | - | 2,622 | ||||||||||||||||||||||
Gross profit | 3,087 | (141 | ) | (c) | 2,946 | 3,388 | - | 3,388 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Sales and marketing | 2,481 | - | 2,481 | 2,411 | - | 2,411 | ||||||||||||||||||||||
Research and development | 809 | - | 809 | 528 | - | 528 | ||||||||||||||||||||||
General and administrative | 4,887 | 6 | (c) | 4,893 | 2,912 | (177 | ) | (c) | 2,735 | |||||||||||||||||||
Acquisition related amortization expense | 1,031 | 84 | (a) | 1,115 | 813 | 84 | (a) | 897 | ||||||||||||||||||||
Total operating expenses | 9,208 | 90 | (a) (c) | 9,298 | 6,664 | (93 | ) | (a) (c) | 6,571 | |||||||||||||||||||
Operating loss | (6,121 | ) | (231 | ) | (a) (c) | (6,352 | ) | (3,276 | ) | 93 | (a) (c) | (3,183 | ) | |||||||||||||||
Interest accretion | (109 | ) | - | (109 | ) | (129 | ) | - | (129 | ) | ||||||||||||||||||
Other income (expense), net | 47 | - | 47 | 48 | - | 48 | ||||||||||||||||||||||
Loss from continuing operations before tax | (6,183 | ) | (231 | ) | (a) (c) | (6,414 | ) | (3,357 | ) | 93 | (a) (c) | (3,264 | ) | |||||||||||||||
Provision for income taxes | 15 | - | 15 | 5 | - | 5 | ||||||||||||||||||||||
Loss from continuing operations, net of tax | (6,198 | ) | (231 | ) | (a) (c) | (6,429 | ) | (3,362 | ) | 93 | (a) (c) | (3,269 | ) | |||||||||||||||
Loss from discontinued operations, net of tax | (65 | ) | - | (65 | ) | (57 | ) | - | (57 | ) | ||||||||||||||||||
Net loss | (6,263 | ) | (231 | ) | (a) (c) | (6,494 | ) | (3,419 | ) | 93 | (a) (c) | (3,326 | ) | |||||||||||||||
Less adjustment for preferred stock deemed dividend | (3,033 | ) | - | (3,033 | ) | - | - | - | ||||||||||||||||||||
Net loss attributable to common stockholders | (9,296 | ) | (231 | ) | (9,527 | ) | (3,419 | ) | 93 | (3,326 | ) | |||||||||||||||||
Basic and diluted loss per share of common stock: | ||||||||||||||||||||||||||||
From continuing operations | $ | (2.31 | ) | $ | (0.06 | ) | $ | (2.37 | ) | $ | (0.96 | ) | $ | 0.03 | $ | (0.93 | ) | |||||||||||
From discontinued operations | (0.01 | ) | - | (0.01 | ) | (0.01 | ) | - | (0.01 | ) | ||||||||||||||||||
Net loss per basic and diluted share of common stock | $ | (2.32 | ) | $ | (0.06 | ) | $ | (2.38 | ) | $ | (0.97 | ) | $ | 0.03 | $ | (0.94 | ) | |||||||||||
Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||||||||||||||
Basic | 4,004 | 4,004 | 4,004 | 3,515 | 3,515 | 3,515 | ||||||||||||||||||||||
Diluted | 4,004 | 4,004 | 4,004 | 3,515 | 3,515 | 3,515 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
As Previously Reported | As Restated | |||||||||||||||||||||||
For The Three Months Ended | For The Three Months Ended | |||||||||||||||||||||||
March 31, 2020 | Restatement | Restatement | March 31, 2020 | |||||||||||||||||||||
Shares | Amount | Amount | Reference | Shares | Amount | |||||||||||||||||||
Common stock: | ||||||||||||||||||||||||
Balance at January 1 | 3,932 | $ | 393 | $ | - | 3,932 | $ | 393 | ||||||||||||||||
Common stock issued | 37 | 1 | - | 37 | 1 | |||||||||||||||||||
Restricted stock issued | 6 | - | - | 6 | - | |||||||||||||||||||
Common stock issued through market sales | 80 | 8 | - | 80 | 8 | |||||||||||||||||||
Common stock issued through offerings | - | - | - | - | - | |||||||||||||||||||
Balance at March 31 | 4,055 | 402 | - | 4,055 | 402 | |||||||||||||||||||
Treasury stock: | ||||||||||||||||||||||||
Balance at January 1 | 12 | (1,721 | ) | - | 12 | (1,721 | ) | |||||||||||||||||
Treasury stock purchased | - | - | - | - | - | |||||||||||||||||||
Balance at March 31 | 12 | (1,721 | ) | - | 12 | (1,721 | ) | |||||||||||||||||
Additional paid-in capital: | ||||||||||||||||||||||||
Balance at January 1 | 182,514 | - | 182,514 | |||||||||||||||||||||
Common stock issued through offerings, net of expenses | - | - | - | |||||||||||||||||||||
Extinguishment of Series A Shares | (828 | ) | - | (828 | ) | |||||||||||||||||||
Beneficial Conversion Feature in connection with Series B Issuance | 2,205 | - | 2,205 | |||||||||||||||||||||
Amortization of Beneficial Conversion Feature | (2,205 | ) | - | (2,205 | ) | |||||||||||||||||||
Common stock issued through market sales | 476 | - | 476 | |||||||||||||||||||||
Stock-based compensation expense | 418 | - | 418 | |||||||||||||||||||||
Balance at March 31 | 182,580 | - | 182,580 | |||||||||||||||||||||
Accumulated deficit: | ||||||||||||||||||||||||
Balance at January 1 | (168,160 | ) | (17,505 | ) | (a)(b)(c) | (185,665 | ) | |||||||||||||||||
Net loss | (6,263 | ) | (231 | ) | (a)(c) | (6,494 | ) | |||||||||||||||||
Adoption of ASC 842 | - | - | - | |||||||||||||||||||||
Balance at March 31 | (174,423 | ) | (17,736 | ) | (192,159 | ) | ||||||||||||||||||
Total stockholders’ equity | $ | 6,838 | $ | (17,736 | ) | $ | (10,898 | ) |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
As Previously Reported | As Restated | |||||||||||||||||||||||
For The Three Months Ended | For The Three Months Ended | |||||||||||||||||||||||
March 31, 2019 | Restatement | Restatement | March 31, 2019 | |||||||||||||||||||||
Shares | Amount | Amount | Reference | Shares | Amount | |||||||||||||||||||
Common stock: | ||||||||||||||||||||||||
Balance at January 1 | 2,877 | $ | 287 | $ | - | 2,877 | $ | 287 | ||||||||||||||||
Common stock issued | 9 | 1 | - | 9 | 1 | |||||||||||||||||||
Restricted stock issued | - | - | - | - | - | |||||||||||||||||||
Common stock issued through market sales | - | - | - | - | - | |||||||||||||||||||
Common stock issued through offerings | 933 | 94 | - | 933 | 94 | |||||||||||||||||||
Balance at March 31 | 3,819 | 382 | - | 3,819 | 382 | |||||||||||||||||||
Treasury stock: | ||||||||||||||||||||||||
Balance at January 1 | 7 | (1,680 | ) | - | 7 | (1,680 | ) | |||||||||||||||||
Treasury stock purchased | 3 | (32 | ) | - | 3 | (32 | ) | |||||||||||||||||
Balance at March 31 | 10 | (1,712 | ) | - | 10 | (1,712 | ) | |||||||||||||||||
Additional paid-in capital: | ||||||||||||||||||||||||
Balance at January 1 | 175,820 | - | 175,820 | |||||||||||||||||||||
Common stock issued through offerings, net of expenses | 5,868 | - | 5,868 | |||||||||||||||||||||
Extinguishment of Series A Shares | - | - | - | |||||||||||||||||||||
Beneficial Conversion Feature in connection with Series B Issuance | - | - | - | |||||||||||||||||||||
Amortization of Beneficial Conversion Feature | - | - | - | |||||||||||||||||||||
Common stock issued through market sales | - | - | - | |||||||||||||||||||||
Stock-based compensation expense | 266 | - | 266 | |||||||||||||||||||||
Balance at March 31 | 181,954 | - | 181,954 | |||||||||||||||||||||
Accumulated deficit: | ||||||||||||||||||||||||
Balance at January 1 | (141,489 | ) | (17,492 | ) | (a)(b)(c) | (158,981 | ) | |||||||||||||||||
Net loss | (3,419 | ) | 93 | (a)(c) | (3,326 | ) | ||||||||||||||||||
Adoption of ASC 842 | 55 | - | 55 | |||||||||||||||||||||
Balance at March 31 | (144,853 | ) | (17,399 | ) | (162,252 | ) | ||||||||||||||||||
Total stockholders’ equity | $ | 35,771 | $ | (17,399 | ) | $ | 18,372 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
For The Three Months Ended March 31, | ||||||||||||||||
2020 | 2020 | |||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||
Net loss | $ | (6,263 | ) | $ | (231 | ) | (a)(c) | $ | (6,494 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 1,235 | 84 | (a) | 1,319 | ||||||||||||
Interest accretion | 109 | - | 109 | |||||||||||||
Mark to market on warrants | (26 | ) | - | (26 | ) | |||||||||||
Stock-based compensation | 418 | - | 418 | |||||||||||||
Bad debt expense | 250 | - | 250 | |||||||||||||
Other gains and expenses, net | - | - | - | |||||||||||||
Other changes in operating assets and liabilities: | ||||||||||||||||
Decrease (increase) in accounts receivable | 148 | 141 | (c) | 289 | ||||||||||||
(Increase) decrease in other current assets | (1,125 | ) | - | (1,125 | ) | |||||||||||
(Decrease) increase in accounts payable | (356 | ) | 103 | (c) | (253 | ) | ||||||||||
(Decrease) increase in accrued salaries and bonus | �� | (476 | ) | - | (476 | ) | ||||||||||
(Decrease) increase in accrued liabilities | (1,052 | ) | (97 | ) | (c) | (1,149 | ) | |||||||||
Increase in long-term liabilities | 16 | - | 16 | |||||||||||||
Net cash used in operating activities | (7,122 | ) | - | (7,122 | ) | |||||||||||
Cash Flows From Investing Activity | ||||||||||||||||
Purchase of property and equipment | - | - | - | |||||||||||||
Sale of property and equipment | - | - | - | |||||||||||||
Net cash provided by investing activity | - | - | - | |||||||||||||
Cash Flows From Financing Activities | ||||||||||||||||
Issuance of common stock, net of expenses | 434 | - | 434 | |||||||||||||
Payments on Line of Credit | (1,800 | ) | - | (1,800 | ) | |||||||||||
Issuance of Series B preferred stock, net of expenses | 19,537 | - | 19,537 | |||||||||||||
Net cash provided by financing activities | 18,171 | - | 18,171 | |||||||||||||
Net increase in cash and cash equivalents | 11,049 | - | 11,049 | |||||||||||||
Cash and cash equivalents – beginning | 2,321 | - | 2,321 | |||||||||||||
Cash and cash equivalents – ending | $ | 13,370 | $ | - | $ | 13,370 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
For The Three Months Ended March 31, | ||||||||||||||||
2019 | 2019 | |||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||
Net loss | $ | (3,419 | ) | $ | 93 | (a)(c) | $ | (3,326 | ) | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
Depreciation and amortization | 873 | 84 | (a) | 957 | ||||||||||||
Interest accretion | 129 | - | 129 | |||||||||||||
Mark to market on warrants | (3 | ) | - | (3 | ) | |||||||||||
Stock-based compensation | 538 | - | 538 | |||||||||||||
Bad debt expense | - | - | - | |||||||||||||
Other gains and expenses, net | 18 | - | 18 | |||||||||||||
Other changes in operating assets and liabilities: | ||||||||||||||||
Decrease (increase) in accounts receivable | (1,738 | ) | - | (1,738 | ) | |||||||||||
(Increase) decrease in other current assets | 11 | - | 11 | |||||||||||||
(Decrease) increase in accounts payable | 93 | - | �� | 93 | ||||||||||||
(Decrease) increase in accrued salaries and bonus | 325 | (120 | ) | (c) | 205 | |||||||||||
(Decrease) increase in accrued liabilities | 156 | (57 | ) | (c) | 99 | |||||||||||
Increase in long-term liabilities | 57 | - | 57 | |||||||||||||
Net cash used in operating activities | (2,960 | ) | - | (2,960 | ) | |||||||||||
Cash Flows From Investing Activity | ||||||||||||||||
Purchase of property and equipment | (12 | ) | - | (12 | ) | |||||||||||
Sale of property and equipment | 13 | - | 13 | |||||||||||||
Net cash provided by investing activity | 1 | - | 1 | |||||||||||||
Cash Flows From Financing Activities | ||||||||||||||||
Issuance of common stock, net of expenses | 6,015 | - | 6,015 | |||||||||||||
Net cash provided by financing activities | 6,015 | - | 6,015 | |||||||||||||
Net increase in cash and cash equivalents | 3,056 | - | 3,056 | |||||||||||||
Cash and cash equivalents – beginning | 6,068 | - | 6,068 | |||||||||||||
Cash and cash equivalents – ending | $ | 9,124 | $ | - | $ | 9,124 |
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 Biosciences, Inc. (the “Company” or “Interpace”),the Company and its wholly-owned subsidiaries Interpace(Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation, Interpace 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, 2019,2020, as filed with the SECSecurities & Exchange Commission (“SEC”) on April 22, 20201, 2021 and as amended on MayApril 29, 2020 and the date hereof (the “Form 10-K”).2021.
The condensed 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 condensed 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 owned subsidiaries: Group DCA, LLC, or Group DCA; InServe Support Solutions; and TVG, Inc. and its Commercial Services (“CSO”) business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three-month period ended March 31, 20202021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. All information related to common stock, stock options, restricted stock units, warrants and earnings per share have been retroactively adjusted to give effect to the reverse stock split (1 for 10) that occurred in January 2020.2021.
3. |
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 recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.
As of March 31, 2020,2021, the Company had cash and cash equivalents, net of $13.4restricted cash of $2.8 million, net accounts receivable of $9.8$7.9 million, total current assets, net of $28.1restricted cash of $13.7 million and total current liabilities of $15.7$20.5 million. For the three-monthsthree month period ended March 31, 2020,2021, the Company had a net loss of $6.5$4.2 million and cash used in operating activities was $7.1$5.0 million.
We do not expect to generate positive cash flows from operations for the year ending December 31, 2020. We intend to meet our ongoing capital needs by using our available cash, proceeds under the Securities Purchase and Exchange Agreement, additional borrowings under the Line As of Credit as well as by increasing our lineMay 10, 2021 we had approximately $6.4 million of credit limit as a result of the additional accounts receivable acquired in July 2019 as part of our acquisition of the Biopharma business of Cancer Genetics, Inc. or CGI, now our pharma services (which requires a modification to the bank agreement and approval by Silicon Valley Bank (“SVB”), revenue growth and margin improvement, collecting accounts receivable, containing costs as well as exploring other financing options. Management believes that the Company has sufficient cash on hand, and sufficient access to cash to sustain operations through at least June 30, 2021.
In September 2019, we entered into the Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell sharesnet of our common stock in an aggregate offering price of up to $4.8 million through the Agent. See Note 16, Equity, for more details. As of March 31, 2020, approximately 178,000 shares of common stock were sold for net proceeds of approximately $0.7 million. As a result of the preferred shares transaction mentioned below, additional shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the preferred shares. See Note 16, Equity, for more detail.restricted cash.
In January 2020, we sold 20,000 Series B preferred shares to investors, led by 1315 Capital II, L.P. (“1315 Capital”), for net proceeds of approximately $19.5$19.2 million. See Note 16, Equity, for more detail.
The Company maintains an up to a $4.0 million secured Line of Credit facility including a 3-year term loan for $850,000 with SVB. The proceeds of the term loan are expected to be used for laboratory capital expenditures and will be repaid monthly. The balance of the Line of Credit is available for working capital purposes as a revolving line of credit and has a three-year term. The borrowing limit of the revolving line of credit is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Term loan outstanding amounts incur interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the “Prime Rate”) and 5.00%. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. As of March 31, 2020, $1.2 million was outstanding and $2.2 million was remaining on the Line of Credit.
See Note 1, Overview, regarding the potential adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition forcondition.
In September 2020, we repaid approximately $3.4 million to Silicon Valley Bank (“SVB”) under our former secured revolving line of credit facility (the “Revolver”), which was part of our Loan and Security Agreement with SVB dated November 13, 2018, as amended March 18, 2019 (as so amended, the second quarter“SVB Loan Agreement”). On January 5, 2021, the Company terminated the SVB Loan Agreement.
On January 7, 2021, the Company entered into a $3 million loan through a secured promissory note with Ampersand 2018 Limited Partnership (“Ampersand”) and a $2 million loan through a secured promissory note with 1315 Capital, its Series B shareholders. Both loans are secured by substantially all of fiscal 2020 and possibly beyond.the Company’s assets. See Note 14, Notes Payable – Related Parties.
During AprilFiscal 2020, the Company applied for various federal stimulus grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of May 1, 2020, weAct (the “CARES Act”) and received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS)(“CMS”) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMSprogram. This advance will be offset against future Medicare billings of the Company andbeginning in the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the usesecond quarter of the proceeds. Based on these restrictions and limitations, the Company is treating the $0.65 million HSS grant as restricted cash until we have clarity on how the funds can be utilized by the Company based on the specific requirements of the HSS.2021.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included inCompany’s cash and cash equivalents as ofbalance is decreasing and we do not expect to generate positive cash flows from operations for the year ending December 31, 20192021. We intend to meet our ongoing capital needs by using our available cash, including the loans from Ampersand and March 31, 2020. These funds1315 Capital, as well as revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the related liability were included in Other Assets and Other Current Liabilities, respectively, aspotential use of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.other financing options.
As of June 17, 2020 we have approximately $16.2 million of cash on hand. Also as of June 17, 2020, the
The Company has no further availability onand may continue to delay, scale-back, or eliminate certain of its credit facility, but is in the processactivities and other aspects of completing an agreement with SVB to expand the credit facility. No assurance can be given thatits operations until such an expansion agreement will be entered into.
Upon the filing of this Form 10Q/A, the Company’s stockholders’ equitytime as of March 31, 2020 was below the minimum required by Nasdaq. In the event the Company is unable to maintain itssuccessful in securing additional funding. The Company is exploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources.
The delisting from Nasdaq listing for itsof our common stock duewhich is now listed for trading on OTCQX and the Company’s inability to a failureuse Form S-3 after it filed its Form 10-K for the fiscal year ended December 31, 2020 may each have an adverse impact on our ability to raise additional capital. In addition, the Company’s announcement on April 22, 2021 that it is considering strategic, financial and operational alternatives may have an impact on our ability to raise additional capital. The future success of the Company is dependent upon its ability to obtain additional funding. There can be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. As of the date of this Report, the Company currently anticipates that current cash and cash equivalents will be sufficient to meet minimum stockholder equityits anticipated cash requirements due tothrough the classification of its preferred stock as temporary equity and as a resultend of the amortization and impairmentsecond quarter of certain intangible assets set forth herein,2021. These factors raise substantial doubt about the Company’s ability to raise additional capital may be adversely impacted. Therefore, there is no guarantee that additional capital can be raised to fund our future operations.continue as a going concern.
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 accounting for valuation allowances related to deferred income taxes, contingent consideration, allowances for doubtful accounts, revenue recognition, unrecognized tax benefits, and asset impairments 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
Our clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’s 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 NRV, 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 estimates the amount of variable consideration that should be included in the transaction 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 contractual allowances, which would affectaffects net revenue in the period such variances become known.
For our pharma services, performanceproject level activities, including study setup and project 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. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results or other deliverables are reported to the customer.
Deferred Revenue
For our pharma services, project level fee revenue is recognized as deferred revenue and recorded at fair value. It represents payments received in advance of services rendered and is recognized ratably over the life of the contract.
Financing and Payment
For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical or diagnostics businessservices 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 Fulfill a Customer Contract
Sales commissions are expensed when incurred becausein the amortization period wouldin which they have been one year or less.earned. These costs are recorded in sales and marketing expense in the condensed consolidated statements of operations.
Accounts Receivable
The Company’s accounts receivables represent unconditional rights to consideration and are generated using its clinical services and pharma services. The Company’s clinical services are fulfilled upon completion of the test, review and release of the test results. In conjunction with fulfilling these services, the Company bills the third-party payer or direct-bill payer. Contractual adjustments represent the difference between the list prices and the reimbursement rates set by third partythird-party payers, including Medicare, commercial payers, and amounts billed to direct-bill payers. Specific accounts may be written off after several appeals, which in some cases may 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 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 March 31, 20202021 and December 31, 2019:2020:
March 31, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Lab supply inventory | 1,885 | 1,825 | $ | 2,227 | $ | 2,052 | ||||||||||
Prepaid expenses | 826 | 971 | 560 | 625 | ||||||||||||
Funds in escrow | 888 | 888 | ||||||||||||||
Due from CGI | 1,297 | 92 | ||||||||||||||
Other | 80 | 75 | 188 | 45 | ||||||||||||
Total other current assets | $ | 4,976 | $ | 3,851 | $ | 2,975 | $ | 2,722 |
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 ten years in acquisition relatedacquisition-related amortization expense in the condensed consolidated statements of 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.
Basic and Diluted Net Loss per Share
A reconciliation of the number of shares of common stock, par value $0.01 per share, (the “Common Stock”), used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, 20202021 and 20192020 is as follows:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Basic weighted average number of common shares | 4,004 | 3,515 | ||||||
Potential dilutive effect of stock-based awards | - | - | ||||||
Diluted weighted average number of common shares | 4,004 | 3,515 |
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Basic weighted average number of common shares | 4,089 | 4,004 | ||||||
Potential dilutive effect of stock-based awards | - | - | ||||||
Diluted weighted average number of common shares | 4,089 | 4,004 |
The Company’s Series B Preferred Stock, on an as converted basis of 7,833,334 shares for the threethree- months ended March 31, 2020,2021, and the following outstanding stock-based awards and warrants, were excluded from the computation of the effect of dilutive securities on loss per share for the following periods as they would have been anti-dilutive (rounded to thousands):
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Options | 578 | 394 | ||||||
Stock-settled stock appreciation rights (SARs) | - | 3 | ||||||
Restricted stock | 6 | - | ||||||
Restricted stock units (RSUs) | 36 | 61 | ||||||
Warrants | 1,420 | 1,420 | ||||||
2,040 | 1,878 |
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Options | 1,061 | 578 | ||||||
Restricted stock and restricted stock units (RSUs) | 395 | 42 | ||||||
Warrants | 1,405 | 1,420 | ||||||
2,861 | 2,040 |
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 March 31, 20202021 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of March 31, 20202021 and December 31, 20192020 are as follows:
As Restated | As Restated | |||||||||||||||||||||
As of March 31, 2020 | As of December 31, 2019 | As of March 31, 2021 | As of December 31, 2020 | |||||||||||||||||||
Life | Carrying | Carrying | Life | Carrying | Carrying | |||||||||||||||||
(Years) | Amount | Amount | (Years) | Amount | Amount | |||||||||||||||||
(unaudited) | ||||||||||||||||||||||
Asuragen acquisition: | ||||||||||||||||||||||
Thyroid | 9 | $ | 8,519 | $ | 8,519 | 9 | $ | 8,519 | $ | 8,519 | ||||||||||||
RedPath acquisition: | ||||||||||||||||||||||
Pancreas test | 7 | 16,141 | 16,141 | 7 | 16,141 | 16,141 | ||||||||||||||||
Barrett’s test | 9 | 6,719 | 6,719 | 9 | 6,682 | 6,682 | ||||||||||||||||
BioPharma acquisition: | ||||||||||||||||||||||
Trademarks | 10 | 1,600 | 1,600 | 10 | 1,600 | 1,600 | ||||||||||||||||
Customer relationships | 8 | 5,700 | 5,700 | 8 | 5,700 | 5,700 | ||||||||||||||||
CLIA Lab | 2.3 | $ | 609 | $ | 609 | 2.3 | $ | 609 | $ | 609 | ||||||||||||
Total | $ | 39,288 | $ | 39,288 | $ | 39,251 | $ | 39,251 | ||||||||||||||
Accumulated Amortization | $ | (24,554 | ) | $ | (23,439 | ) | $ | (29,013 | ) | $ | (27,900 | ) | ||||||||||
Net Carrying Value | $ | 14,734 | $ | 15,849 | $ | 10,238 | $ | 11,351 |
Amortization expense was approximately $1.1 million for both the three-month periods ended March 31, 2021 and 2020, respectively. Estimated amortization expense for the next five years is as follows:
2021 | 2022 | 2023 | 2024 | 2025 | ||||||||||||||
$ | 4,078 | $ | 2,155 | $ | 2,099 | $ | 873 | $ | 873 |
The following table displays a roll forward of the carrying amount of goodwill from December 31, 20192020 to March 31, 2020:2021:
Carrying | ||||
Amount | ||||
Balance as of December 31, 2019 | $ | 8,433 | ||
Adjustments | - | |||
Balance as of March 31, 2020 | $ | 8,433 |
Amortization expense was approximately $1.1 million and $0.9 million for the three-month periods ended March 31, 2020 and 2019, respectively. Estimated amortization expense for the next five years is as follows:
As Restated | ||||||||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||
$ | 4,871 | $ | 4,078 | $ | 2,156 | $ | 1,745 | $ | 873 |
Carrying | ||||
Amount | ||||
Balance as of December 31, 2020 | $ | 8,433 | ||
Adjustments | - | |||
Balance as of March 31, 2021 | $ | 8,433 |
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’s financial liabilities reflected at fair value in the condensed consolidated financial statements include contingent consideration and warrant liability. 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:
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 incorporate certain 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 instruments 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:
As of March 31, 2020 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of March 31, 2020 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Liabilities: | (unaudited) | |||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen (1) | $ | 2,866 | $ | 2,866 | $ | - | $ | - | $ | 2,866 | ||||||||||
Other long-term liabilities: | ||||||||||||||||||||
Warrant liability (2) | 55 | 55 | - | - | 55 | |||||||||||||||
$ | 2,921 | $ | 2,921 | $ | - | $ | - | $ | 2,921 |
As of December 31, 2019 | Fair Value Measurements | As of March 31, 2021 | Fair Value Measurements | |||||||||||||||||||||||||||||||||||||
Carrying | Fair | As of December 31, 2019 | Carrying | Fair | As of March 31, 2021 | |||||||||||||||||||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||||||||||||||||||||||
Asuragen (1) | $ | 2,893 | $ | 2,893 | $ | - | $ | - | $ | 2,893 | $ | 2,175 | $ | 2,175 | $ | - | $ | - | $ | 2,175 | ||||||||||||||||||||
Other long-term liabilities: | ||||||||||||||||||||||||||||||||||||||||
Warrant liability (2) | 82 | 82 | - | - | 82 | 62 | 62 | - | - | 62 | ||||||||||||||||||||||||||||||
$ | 2,975 | $ | 2,975 | $ | - | $ | - | $ | 2,975 | $ | 2,237 | $ | 2,237 | $ | - | $ | - | $ | 2,237 |
As of December 31, 2020 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of December 31, 2020 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen (1) | $ | 2,216 | $ | 2,216 | $ | - | $ | - | $ | 2,216 | ||||||||||
Other long-term liabilities: | ||||||||||||||||||||
Warrant liability (2) | 21 | 21 | - | - | 21 | |||||||||||||||
$ | 2,237 | $ | 2,237 | $ | - | $ | - | $ | 2,237 |
(1)(2) See Note 9, Accrued Expenses and Long-Term Liabilities
In connection with the acquisition of certain assets from Asuragen, Inc., the Company recorded contingent consideration related to contingent payments and other revenue-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.
A roll forward of the carrying value of the Contingent Consideration Liability and the 2017 Underwriters’ Warrants to March 31, 20202021 is as follows:
Cancellation | Adjustment | |||||||||||||||||||||||
of Obligation/ | to Fair Value/ | |||||||||||||||||||||||
December 31, 2019 | Payments | Accretion | Conversions Exercises | Mark to Market | March 31, 2020 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Asuragen | $ | 2,893 | $ | (136 | ) | $ | 109 | $ | - | $ | - | $ | 2,866 | |||||||||||
Underwriters Warrants | 82 | - | - | - | (27 | ) | 55 | |||||||||||||||||
$ | 2,975 | $ | (136 | ) | $ | 109 | $ | - | $ | (27 | ) | $ | 2,921 |
Certain of the Company’s non-financial assets, such as other intangible assets and goodwill, are measured at fair value on a nonrecurring basis when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.
Cancellation | Adjustment | |||||||||||||||||||||||
of Obligation/ | to Fair Value/ | |||||||||||||||||||||||
December 31, 2020 | Payments | Accretion | Conversions Exercises | Mark to Market | March 31, 2021 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Asuragen | $ | 2,216 | $ | (119 | ) | $ | 135 | $ | - | $ | (57 | ) | $ | 2,175 | ||||||||||
Underwriters Warrants | 21 | - | - | - | 41 | 62 | ||||||||||||||||||
$ | 2,237 | $ | (119 | ) | $ | 135 | $ | - | $ | (16 | ) | $ | 2,237 |
7. | LEASES |
Finance lease assets are included in fixed assets, net of accumulated depreciation.
The table below presents the lease-related assets and liabilities recorded in the Condensed Consolidated Balance Sheet:
Classification on the Balance Sheet | March 31, 2020 | Classification on the Balance Sheet | March 31, 2021 | |||||||||
(unaudited) | (unaudited) | |||||||||||
Assets | ||||||||||||
Financing lease assets | Property and equipment, net | $ | 475 | Property and equipment, net | $ | 690 | ||||||
Operating lease assets | Operating lease right of use assets | 2,811 | Operating lease right of use assets | 3,980 | ||||||||
Total lease assets | $ | 3,286 | $ | 4,670 | ||||||||
Liabilities | ||||||||||||
Current | ||||||||||||
Financing lease liabilities | Other accrued expenses | $ | 160 | Other accrued expenses | $ | 150 | ||||||
Operating lease liabilities | Other accrued expenses | 1,251 | Other accrued expenses | 894 | ||||||||
Total current lease liabilities | $ | 1,411 | $ | 1,044 | ||||||||
Noncurrent | ||||||||||||
Financing lease liabilities | Other long-term liabilities | 85 | Other long-term liabilities | 112 | ||||||||
Operating lease liabilities | Operating lease liabilities, net of current portion | 1,384 | Operating lease liabilities, net of current portion | 3,326 | ||||||||
Total long-term lease liabilities | 1,469 | 3,438 | ||||||||||
Total lease liabilities | $ | 2,880 | $ | 4,482 |
The weighted average remaining lease term for the Company’s operating leases was 2.67.2 years as of March 31, 20202021 and the weighted average discount rate for those leases was 6.0%. The Company’s operating lease expenses are recorded within cost“Cost of revenuerevenue” and general“General and administrative expenses. With respect to the Rutherford lease, in March 2020 the Company delivered a notice of early termination which would terminate the lease in March 2021.”
The table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2020:2021:
Operating Leases | Financing Leases | |||||||
2020 | 1,189 | 170 | ||||||
2021 | 878 | 120 | ||||||
2022 | 660 | 13 | ||||||
2023 | 250 | - | ||||||
Total minimum lease payments | 2,977 | 303 | ||||||
Less: amount of lease payments representing effects of discounting | 342 | 58 | ||||||
Present value of future minimum lease payments | 2,635 | 245 | ||||||
Less: current obligations under leases | 1,251 | 160 | ||||||
Long-term lease obligations | $ | 1,384 | $ | 85 |
Operating Leases | Financing Leases | |||||||
2021 | 822 | 133 | ||||||
2022 | 1,028 | 78 | ||||||
2023 | 629 | 65 | ||||||
2024 | 390 | - | ||||||
2025-2030 | 2,327 | - | ||||||
Total minimum lease payments | 5,196 | 276 | ||||||
Less: amount of lease payments representing effects of discounting | 976 | 14 | ||||||
Present value of future minimum lease payments | 4,220 | 262 | ||||||
Less: current obligations under leases | 894 | 150 | ||||||
Long-term lease obligations | $ | 3,326 | $ | 112 |
As of March 31, 2020,2021, contractual 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:
Less than | 1 to 3 | 3 to 5 | After | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
Operating lease obligations | $ | 2,977 | $ | 1,189 | $ | 1,538 | $ | 250 | $ | - |
Less than | 1 to 3 | 3 to 5 | After | |||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | ||||||||||||||||
Operating lease obligations | $ | 5,196 | $ | 822 | $ | 1,657 | $ | 793 | $ | 1,924 | ||||||||||
Total | $ | 5,196 | $ | 822 | $ | 1,657 | $ | 793 | $ | 1,924 |
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.the ordinary course of business.
The Company could 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.
9. | ACCRUED EXPENSES AND LONG-TERM LIABILITIES |
Other accrued expenses consisted of the following as of March 31, 20202021 and December 31, 2019:2020:
As Restated | As Restated | |||||||
March 31, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Accrued royalties | $ | 2,101 | $ | 1,934 | ||||
Contingent consideration | 602 | 502 | ||||||
Operating lease liability | 1,251 | 1,321 | ||||||
Financing lease liability | 160 | 184 | ||||||
Deferred revenue | 354 | 457 | ||||||
Payable to CGI | 888 | 888 | ||||||
Accrued sales and marketing - diagnostics | 167 | 197 | ||||||
Accrued lab costs - diagnostics | 104 | 163 | ||||||
Accrued professional fees | 1,064 | 1,399 | ||||||
Taxes payable | 327 | 403 | ||||||
Unclaimed property | 565 | 565 | ||||||
All others | 1,056 | 1,463 | ||||||
Total other accrued expenses | $ | 8,639 | $ | 9,476 |
March 31, 2021 | December 31, 2020 | |||||||
(unaudited) | ||||||||
Accrued royalties | $ | 2,984 | $ | 2,710 | ||||
Contingent consideration | 437 | 398 | ||||||
Upfront Medicare payment | 2,066 | 2,066 | ||||||
Operating lease liability | 894 | 1,027 | ||||||
Financing lease liability | 150 | 177 | ||||||
Deferred revenue | 52 | 54 | ||||||
Accrued sales and marketing - diagnostics | 75 | 51 | ||||||
Accrued lab costs - diagnostics | 160 | 161 | ||||||
Accrued professional fees | 538 | 854 | ||||||
Taxes payable | 331 | 334 | ||||||
Unclaimed property | 565 | 565 | ||||||
All others | 1,170 | 1,398 | ||||||
Total other accrued expenses | $ | 9,422 | $ | 9,795 |
Long-term liabilities consisted of the following as of March 31, 20202021 and December 31, 2019:2020:
March 31, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Warrant liability | $ | 55 | $ | 82 | ||||
Uncertain tax positions | 4,146 | 4,081 | ||||||
Deferred revenue | 258 | 269 | ||||||
Other | 104 | 141 | ||||||
Total other long-term liabilities | $ | 4,563 | $ | 4,573 |
March 31, 2021 | December 31, 2020 | |||||||
(unaudited) | ||||||||
Warrant liability | $ | 62 | $ | 21 | ||||
Uncertain tax positions | 4,396 | 4,342 | ||||||
Deferred revenue | 123 | 136 | ||||||
Other | 111 | 138 | ||||||
Total other long-term liabilities | $ | 4,692 | $ | 4,637 |
10. | STOCK-BASED COMPENSATION |
Historically, stock options have been granted with an exercise price equal to the market value of the common stock on the date of grant, expirewith expiration 10 years from the date they are granted, and generally vestedvest 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 employees generally have a three-year graded vesting periodBoard members and are subject to accelerated vesting and forfeiture under certain circumstances. Restricted shares and RSUs granted to Board membersemployees generally have a three-year graded vesting period and are subject to 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 three monththree-month periods ended March 31, 20202021 and 2019.2020.
March 31, 2020 | March 31, 2019 | March 31, 2021 | March 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Risk-free interest rate | 1.51 | % | 2.51 | % | 0.78 | % | 1.51 | % | ||||||||
Expected life | 6.0 years | 6.0 years | 6.0 years | 6.0 years | ||||||||||||
Expected volatility | 128.87 | % | 127.81 | % | 134.79 | % | 128.87 | % | ||||||||
Dividend yield | - | - | - | - |
During March 2021, the Company granted 312,500 stock options with an exercise price of $6.00 and 152,500 RSUs. The market value of the Company’s common stock was $5.00 at the grant date of these awards. The Company recognized approximately $0.4$0.3 million and $0.5$0.4 million of stock-based compensation expense during the three-month periods ended March 31, 2021 and 2020, and 2019, respectively.
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 income tax expense on loss from continuing operations and the effective tax rate for three-month periods ended March 31, 2021 and 2020:
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Provision for income tax | $ | 15 | $ | 15 | ||||
Effective income tax rate | (0.4 | %) | (0.2 | %) |
Income tax expense for both the three-month periods ended March 31, 20202021 and 2019:
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Provision for income tax | $ | 15 | $ | 5 | ||||
Effective income tax rate | (0.2 | %) | (0.1 | %) |
Income tax expense for the three-month periods ended March 31, 2020 and 2019 was primarily due to minimum state and local taxes.
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a material impact on the Company’s financial results.
12. | SEGMENT INFORMATION |
We operate under one segment which is the business of developing and selling diagnostic clinical and pharma services.
13. | DISCONTINUED OPERATIONS |
The components of liabilities classified as discontinued operations relate to Commercial Services and consist of the following as of March 31, 20202021 and December 31, 2019:2020:
March 31, 2020 | December 31, 2019 | March 31, 2021 | December 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Accrued liabilities | 766 | 766 | 766 | 766 | ||||||||||||
Current liabilities from discontinued operations | 766 | 766 | 766 | 766 | ||||||||||||
Total liabilities | $ | 766 | $ | 766 | $ | 766 | $ | 766 |
The table below presents the significant components of CSO, Group DCA’s, Pharmakon’s and TVG’s results included within loss from discontinued operations, net of tax in the condensed consolidated statements of operations for the three-months ended March 31, 2021 and 2020.
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Income from discontinued operations, before tax | $ | - | $ | - | ||||
Income tax expense | 54 | 65 | ||||||
Loss from discontinued operations, net of tax | $ | (54 | ) | $ | (65 | ) |
14. |
Secured Promissory Notes On January 7, 2021, the Company entered into promissory notes with Ampersand, in the amount of $3 million, and 1315 Capital, in the amount of $2 million, respectively (together, the “Notes”) and a related security agreement (the “Security Agreement”). Ampersand holds 28,000 shares of the Company’s Series B Convertible Preferred Stock, which are convertible from time to time into an aggregate of 4,666,666 shares of our Common Stock, and 1315 Capital holds 19,000 shares of the Company Series B Convertible Preferred Stock, which are convertible from time to time into an aggregate of 3,166,668 shares of our Common Stock. On an as-converted basis, such shares would represent approximately 39.3% and 26.7% of our fully-diluted shares of Common Stock, respectively. In addition, pursuant to the terms of the Series B Convertible Preferred Stock certificate of designation and an amended and restated investor rights agreement among the Company and Ampersand and 1315 Capital, they each have the right to (1) approve certain of our actions, including our borrowing of money and (2) designate two directors to our Board of Directors; provided, that certain of such rights held by 1315 Capital have been delegated pursuant to the related Support Agreement (See Note 16). As a result, the Company considers the Notes and Security Agreement to be a related party transaction. |
On November 13, 2018 the Company, Interpace Diagnostics Corporation, and Interpace Diagnostics, LLC entered into a Loan and Security Agreement (the “SVB Loan Agreement”) with SVB, which provides for up to $4.0 million of debt financing consisted of a term loan of up to $850,000 and a revolving line of credit based on its outstanding accounts receivable (the “Revolving Line”) of up to $3.75 million. The ability to use the term loan portion of the SVB Loan Agreement expired in 2019.
The amount that may be borrowed under the Revolving Line is the lower of (i) $3.75 million or (ii) 80% of the Company’s eligible accounts receivable (as adjusted by SVB). Revolving Line outstanding amounts incur interest at a rate per annum equal to the Wall Street Journal Prime Rate plus 0.5%. The Company is also required to pay an unused Revolving Line facility fee monthly in arrears in an amount equal to 0.35% per annum of the average unused but available portion of the Revolving Line. The Revolving Line has a maturity date three years from the effective date, or November 13, 2021.
As of March 31, 2020, the Company had drawn $1.2 million of the available funds with the Revolving Line and had $2.55 million of remaining availability. As of December 31, 2019, we were in violation of a financial covenant for which we received a waiver from SVB on March 19, 2020. The Company currently is in compliance with all covenants.
As of June 17, 2020, the Company has maximized its borrowing under its line of credit facility and therefore has no further availability on its credit facility; however, we are in the process of seeking to expand availability under the credit facility on terms similar to existing terms, but there can be no assurance that such credit line extension will be granted or that it will be granted on commercially reasonable and acceptable terms
The rate of interest on the Notes is equal to eight percent (8.0%) per annum and their maturity date is 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. No interest payments are due on the Notes until their maturity date. All payments on the Notes are pari passu.
In connection with the Security Agreement, the Notes are secured by a first priority lien and security interest on substantially all of the assets of the Company. Additionally, if a change of control of the Company occurs (as defined in the Notes) the Company is required to make a prepayment of the Notes in an amount equal to the unpaid principal amount, all accrued and unpaid interest, and all other amounts payable under the Notes out of the net cash proceeds received by the Company from the consummation of the transactions related to such change of control. The Company may prepay the Notes in whole or in part at any time or from time to time without penalty or premium by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. No prepaid amount may be re-borrowed. The Notes contain certain negative covenants which prevent the Company from issuing any debt securities pursuant to which the Company issues shares, warrants or any other convertible security in the same transaction or a series of related transactions, except that Company may incur or enter into any capitalized and operating leases in the ordinary course of business consistent with past practice, or borrowed money or funded debt in an amount not to exceed $4.5 million (the “Debt Threshold”) that is subordinated to the Notes on terms acceptable to Ampersand and 1315 Capital; provided, that if the aggregate consolidated revenue recognized by the Company as reported on Form 10-K as filed with the SEC for any fiscal year ending after January 10, 2020 exceeds $45 million, the Debt Threshold for the following fiscal year shall increase to an amount equal to: (x) ten percent (10%); multiplied by (y) the consolidated revenue as reported by the Company on Form 10-K as filed with the SEC for the previous fiscal year. |
15. | SUPPLEMENTAL CASH FLOW INFORMATION |
Supplemental Disclosures of Non Cash Activities
(in thousands)
Three Months Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
Investing | ||||||||
Preferred Stock Deemed Dividend | $ | - | $ | 3,033 | ||||
Financing | ||||||||
Accrued financing costs | $ | 123 | $ | 314 |
Three Months Ended | ||||||||
March 31, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Operating | ||||||||
Adoption of ASC 842 - right of use asset | $ | - | $ | 2,449 | ||||
Adoption of ASC 842 - operating lease liability | $ | - | $ | (2,536 | ) | |||
Taxes accrued for repurchase of restricted shares | $ | - | $ | 32 | ||||
Financing | ||||||||
Accrued Financing costs | $ | 314 | $ | 53 | ||||
Preferred Stock Deemed Dividend | $ | 3,033 | $ | - |
16. | EQUITY |
Preferred Stock Issuance
Issuance: Securities Purchase and Exchange Agreement
On January 10, 2020, the Company entered into a Securities Purchase and Exchange Agreement (the “Securities Purchase and Exchange Agreement”) with 1315 Capital II, L.P., (“1315 Capital”), and Ampersand 2018 Limited Partnership (“Ampersand” and, together with 1315 Capital,(collectively, the “Investors”) pursuant to which the Company agreed to sell to the Investors an aggregate of $20.0 million in Series B convertible preferred stockPreferred Stock of the Company, par value $0.01 per share (the “Series B Preferred Stock”), 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 existing Series A convertible preferred stock, par value $0.01 per share, held by Ampersand (the “Series A Preferred Stock”), represented by 270 shares of Series A Preferred Stock with a stated 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 $6.00 as compared to a conversion price of $8.00 on the Series A Preferred Stock, but did not include certain rights applicable to the Series A Preferred Stock, including a six-percent (6%) dividend and a conversion price adjustment for any failure by the Company to achieve a revenue target of $34.0 million in 2020 related to its diagnostics businessclinical services or a weighted-average anti-dilution adjustment. Under the terms of the Securities Purchase and Exchange Agreement, Ampersand also agreed to waive all dividends and weighted-average anti-dilution adjustments accrued to date on the Series A Preferred Stock.
A convertible financial instrument includes a beneficial conversion feature if its conversion price is lower than the Company’s stock price at the commitment date. The Company determined that the sale of the Series B Preferred resulted in a beneficial conversion feature with an intrinsic value of $2.2 million, which the Company recorded as a reduction to additional paid-in capital upon the sale of the Series B Preferred stock. The Company calculated the intrinsic value of the beneficial conversion feature as the difference between the estimated fair value of the common stockCommon Stock on January 15, 2020 of $6.79 per share and the effective conversion price per share of $6.00 multiplied by the number of shares of common stock issuable upon conversion. The Company fully amortized the beneficial conversion feature during the three months ended March 31, 2020 in accordance with GAAP. The beneficial conversion feature resulted in an increase in the loss attributable to common shareholders for the three months ended March 31, 2020 in the Condensed Consolidated Statement of Operations, as it representsrepresented a deemed dividend to the preferred shareholders.
ATM program
On September 20, 2019,In April 2020, the Company entered into an Equity Distribution Agreement (the “Agreement”)support agreements with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which the Company may, from time to time, issue and sell shares of its Common Stock, at an aggregate offering price of up to $4.8 million (the “Shares”) through the Agent. Under the terms of the Agreement, the Agent may sell the Shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.
Subject to the terms and conditions of the Agreement, the Agent will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions. The Company has no obligation to sell any of the Shares, and may at any time suspend sales under the Agreement or terminate the Agreement in accordance with its terms. The Company has provided the Agent with customary indemnification rights, and the Agent will be entitled to a fixed commission of 3.0% of the aggregate gross proceeds from the Shares sold. The Agreement contains customary representations and warranties, and the Company is required to deliver customary closing documents and certificates in connection with sales of the Shares. As of March 31, 2020, approximately 178,000 shares have been sold for net proceeds to the Company of approximately $0.7 million.
As a result of the January 15, 2020 Securities Purchase and Exchange Agreement, additional Shares may no longer be sold under the ATM arrangement without a majority approval by the holderseach of the Series B Investors, pursuant to which Ampersand and 1315 Capital, respectively, consented to, and agreed to vote (by proxy or otherwise), all shares of Series B Preferred Stock registered in accordance withits name or beneficially owned by it and/or over which it exercises voting control as of the date of the Support Agreement and any other shares of Series B Preferred Stock legally or beneficially held or acquired by such Series B Investor after the date of the Support Agreement or over which it exercises voting control, in favor of any Fundamental Action desired to be taken by the Company as determined by the Board. 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 AgreementAgreement. The support agreement between the Company and Ampersand was terminated by mutual agreement on July 9, 2020; however, the support agreement entered into on that date.with 1315 Capital remains in effect.
17. | WARRANTS |
Warrants outstanding and warrant activity for the three-months ended March 31, 20202021 are as follows:
Description | Classification | Exercise Price | Expiration Date | Warrants Issued | Warrants Exercised | Warrants Cancelled/ Expired | Balance December 31, 2019 | Balance March 31, 2020 | Classification | Exercise Price | Expiration Date | Warrants Issued | Balance December 31, 2020 | Warrants Cancelled/ Expired | Balance March 31, 2021 | |||||||||||||||||||||||||||||||||||||||
Private Placement Warrants, issued January 25, 2017 | Equity | $ | 46.90 | June 2022 | 85,500 | - | - | 85,500 | 85,500 | Equity | $ | 46.90 | June 2022 | 85,500 | 85,500 | 85,500 | ||||||||||||||||||||||||||||||||||||||
RedPath Warrants, issued March 22, 2017 | Equity | $ | 46.90 | September 2022 | 10,000 | - | - | 10,000 | 10,000 | Equity | $ | 46.90 | September 2022 | 10,000 | 10,000 | 10,000 | ||||||||||||||||||||||||||||||||||||||
Underwriters Warrants, issued June 21, 2017 | Liability | $ | 13.20 | December 2022 | 57,500 | - | (4,000 | ) | 53,500 | 53,500 | Liability | $ | 13.20 | December 2022 | 57,500 | 53,500 | 53,500 | |||||||||||||||||||||||||||||||||||||
Base & Overallotment Warrants, issued June 21, 2017 | Equity | $ | 12.50 | June 2022 | 1,437,500 | (567,286 | ) | - | 870,214 | 870,214 | Equity | $ | 12.50 | June 2022 | 1,437,500 | 870,214 | 870,214 | |||||||||||||||||||||||||||||||||||||
Vendor Warrants, issued August 6, 2017 | Equity | $ | 12.50 | August 2020 | 15,000 | - | - | 15,000 | 15,000 | |||||||||||||||||||||||||||||||||||||||||||||
Warrants issued October 12, 2017 | Equity | $ | 18.00 | April 2022 | 320,000 | - | - | 320,000 | 320,000 | Equity | $ | 18.00 | April 2022 | 320,000 | 320,000 | 320,000 | ||||||||||||||||||||||||||||||||||||||
Underwriters Warrants, issued January 25, 2019 | Equity | $ | 9.40 | January 2022 | 65,434 | - | - | 65,434 | 65,434 | Equity | $ | 9.40 | January 2022 | 65,434 | 65,434 | 65,434 | ||||||||||||||||||||||||||||||||||||||
1,990,934 | (567,286 | ) | (4,000 | ) | 1,419,648 | 1,419,648 | 1,975,934 | 1,404,648 | - | 1,404,648 |
The weighted average exercise price of the warrants is $15.97 and the weighted average remaining contractual life is approximately 1.2 years.
18. | RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Guidance In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendment was effective for annual periods beginning after December 15, 2020. The Company adopted this pronouncement on January 1, 2021 and the impact was not material to the Company’s Consolidated Financial Statements. |
Standards not yet effective
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for annual periods beginning after December 15, 2020. We do not expect that the requirements of ASU 2017-04 will have a material impact on our consolidated financial statements.
19. | SUBSEQUENT EVENTS |
Federal Stimulus Programs in Connection with Coronavirus Pandemic
AsDisposition of May 1, 2020, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, and the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. Based on these restrictions and limitations, the Company is treating the $0.65 million HSS grant as restricted cash until we have clarity on how the funds can be utilized by the Company based on the specific requirements of the HSS. Furthermore, although the Company initially explored the possibility of requesting a loan under the Small Business Administration Paycheck Protection Program, we elected not to complete an application because we are not certain we meet certain criteria of the program.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Current Assets and Other Accrued Expenses, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.
Amendment to Morrisville, North Carolina leaseNew Haven Laboratory
On June 3, 2020,April 15, 2021 the Company closed the agreement to sell its New Haven, CT CLIA certified, CAP accredited laboratory to DiamiR Biosciences, Corp. (“DiamiR”). The agreement had been previously announced on March 17, 2021. Under the agreement, DiamiR will provide overflow lab testing in support of the Company’s molecular thyroid testing products which the Company conducts at its main laboratory in Pittsburgh, PA. DiamiR will also support specific Interpace Pharma Solutions, Inc. (“IPS”), a wholly-owned subsidiaryassay development and validation services on behalf of the Company entered into an agreement with Southport Business Park Limited Partnership (“for the Landlord”)next three quarters. The Company will receive 42,820 shares of DiamiR’s common stock in consideration as well as the services mentioned above.
Amendments to amend its Morrisville, North Carolina lease effective June 1, 2020 (the “Amendment”). This lease was originally entered into on June 12, 2004 by the Landlord and Cancer Genetics, Inc., the Company’s predecessor-in-interest (the “Original Lease”) and was assigned toPromissory Notes
On May 10, 2021, (i) the Company on July 15, 2019 (the “Lease Assignment”). The Original Lease together with all amendments, as assigned byand Ampersand amended the Lease Assignment constitutesAmpersand Note to increase its principal amount to $4.5 million, (ii) the “Lease.” The Company re-affirmedand 1315 Capital amended the 1315 Capital Note to increase its Guaranty of Lease, dated July 15, 2019, inprincipal amount to $3.0 million and (iii) the Amendment, guaranteeingCompany and Ampersand amended the obligations of IPS underSecurity Agreement to include the Lease.
The Amendment provides for an extensionnew total principal amount of the termNotes of $7.5 million. The maturity date and interest rate of the Lease, which consists of approximately 24,906 square feet utilized by IPS as laboratoryNotes remain June 30, 2021 and office space8%, respectively and except with respect to provide its pharma solutions services. Thetheir respective principal amounts, the terms of the Lease were set to expire on May 31, 2020. Pursuant toNotes and the Amendment, the term of the Lease was extended for ten additional years, commencing on June 1, 2020 and continuing until May 31, 2030 (the “Term”). The minimum rent per rentable square foot pursuant to the Amendment is $14.10 from June 1, 2020 to May 31, 2021, with annual increases of 3%. The minimum rent during the first year under the Amendment is $351,174.60, which is subject to a rent abatement consisting of six months of rent forgiveness totaling $175,587, provided there is no outstanding uncured event of default (as defined in the Lease). The Company shall continue to pay to Landlord additional rent, representing the Company’s proportionate share of any direct expenses, as stipulated in the Lease.Security Agreement are otherwise unchanged.
Pursuant to the Amendment, the Company has two options to extend the Term for a period of five years each (the “Extended Terms”). Minimum rent during the Extended Terms, if such options are exercised by the Company, is subject to certain “market value” adjustments as provided for in the Amendment. Also pursuant to the Amendment, the Company has the irrevocable right to terminate the Lease on November 30, 2025, as well as on November 30, 2027, providing certain timely notification is given to Landlord, specified events occur (such as a merger or sale of the Company’s business), and specified termination payments are made to Landlord.
21 |
INTERPACE 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.Act of 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:
● | potential future material adverse impact of Coronavirus (COVID-19) | |
● | the substantial doubt about our ability to continue as a going concern due to | |
● | our ability to timely repay our private equity investors the $7.5 million in outstanding secured promissory notes due June 30, 2021, the failure of which could result in the right to foreclose on our assets; | |
● | our expectations of future revenues, expenditures, capital or other funding requirements; | |
● | we | |
our ability to | ||
● | our revenue recognition is based, in part, on our estimates for future collections and such estimates may prove to be incorrect; |
● | our | |
● | our obligations to make royalty and milestone payments to our licensors; | |
● | our dependence on third parties for the supply of some of the materials used in our | |
● | the | |
● | our reliance on our sales and marketing | |
● | our ability to | |
| ||
● | the potential impact of existing and future contingent liabilities on | |
Please see Part I – Item 1A – “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 20192020 filed with the SEC on April 22, 2020, as amended on May 29, 2020, and January 19,1, 2021, 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.
OVERVIEW
We are an 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 services 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 for evaluating risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. Through 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 and 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 advancesadvance 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.
During fiscal 2019, in connection with the acquisition of our pharma services, we raised $27 million with Ampersand, a diagnostic laboratory private equity investor. This was followed by raising an additional $20 million in early 2020 led by 1315 Capital, another sophisticated private equity investor. We believe that the combination of our clinical services and acquired pharma services uniquely positions us for growth and expansion in the fast-growing biopharma sector where we can provide our unique diagnostic capabilities to a broad customer base.
Impact of COVID-19 pandemic
We have taken what we believe are all necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We are following CDC guidance and local restrictions. All employees who do not work in a lab have been on a telecommunication work arrangement. Our employees in the lab are wearing what we believe is appropriate protective gear. There can be no assurance that key employees will not become ill or that we will able to continue to operate our labs. We have furloughed a number of employees as a result of reductions in customer demand and we have closed our administrative offices. Our labs require in-person staffing and as of the date of this report, we have been able to successfully operate our labs though a combination of social distancing, managing lab scheduling and protective equipment. Our management, finance staff and sales personnel have generally been able to successfully work remotely. As of June 15, 2020 we began allowing general and administrative staff to return to their respective offices on a limited basis.
The extent to whichoutbreak of the COVID-19 pandemic impactscontinues to impact a significant portion of the regions in which we operate. The continuing impact that the COVID-19 pandemic will have on our operations, continues to depend on future developments, which areincluding duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time, and includetime. While we believe we have generally recovered from the duration, severity and scope ofadverse impact that the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the continued spread of the coronavirus globally has adversely affecting global economies and financial markets resulting in an economic downturn which could materially and adversely impactCOVID-19 pandemic had on our operations including, without limitation, the functioning of our laboratories, the availability of supplies including reagents, the progress and data collection of our pharma services, customer demand and travel and employee health and availability.
Webusiness during 2020, we believe that the COVID-19 pandemic will alsocould continue to adversely impact our results of operations, cash flows and financial condition forin the second quarter of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue wasfuture.
As our business operations continue to be impacted by lower than expected clinical service volume throughout March 2020, whichthe pandemic, we believe has resulted fromcontinue to monitor the temporary reductionsituation and the guidance that is being provided by relevant federal, state and local public health authorities. We may take additional actions based upon their recommendations. However, it is possible that we may have to make further adjustments to our operating plans in non-essential testing procedures in connection with the COVID-19 pandemic. Further, we did reduce overall costsreaction to match the lower volumes in the labs.developments that are beyond our control.
However, as of the date of this Report, our overall business is still down approximately 30% from our run rate before the pandemic. We have continued to add resources to support the increased volume consistent with the changing environment. However, as we rebuild our cost structure to support the improved volume, there is risk that the anticipated volume growth will not materialize as planned and we will be required to adjust accordingly.
To optimize the pharma services lab operations we are transitioning lab work from Rutherford, NJ to our facility in Morrisville, NC. We will be investing several million dollars to facilitate the move, transfer personnel, build out facilities and validate processes over the next several months. We believe this investment and transition will result in reduced operating costs in the future: however, there is no guarantee we will be as successful with the move or the benefits expected thereof as we currently plan.
All of our labs are currently operating and we believe we are appropriately staffed for the volume of work. At this time,While we do not anticipate any lab closures at this time beyond periodic, temporary work stoppages from time to time to clean and disinfect the labs. Lab supplies including reagents have been secured to mitigate any potentiallabs, this could change in the future based upon conditions caused by the pandemic. It is also possible that we could experience supply chain issues forshortages if the pandemic worsens and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.
We have developed and will continue to update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.
Transition costs
To optimize the operations of laboratory operations within our pharma services, we aretransitioned activities from the Rutherford, NJ facility to our Morrisville, NC facility. We invested several million dollars to facilitate this relocation, including but not observing any shortageslimited to the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes. We believe that this investment will result in a reduction in future operating costs; however, it is not certain whether we will fully realize the anticipated savings.
Nasdaq delisting
On February 16, 2021, the Company received a delisting determination letter (the “Letter”) from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Staff had determined to delist the Company’s common stock from Nasdaq due to supply chain issues. Our third party clinical services billingthe Company’s failure to regain compliance with the Nasdaq Capital Market’s minimum $2,500,000 stockholders’ equity requirement for continued listing as set forth in Nasdaq Listing Rule 5550(b) (the “Rule”) and collections company has taken stepsthe Company’s failure to continue operations remotely. There have been indications that payer processing may slow down but so far there has been little or no material impacttimely execute its plan to our collections.regain compliance under the Rule.
As of May 2020, we areNasdaq commenced with delisting the Company’s common stock from the Nasdaq Capital Market and, suspended trading in the processCompany’s common stock effective at the open of launching a new product line of antibody testing forbusiness on February 25, 2021.
On February 24, 2021, the COVID-19 virus. Validation is complete; weCompany was approved to have acquired acceptable kits and reference samples and are now offering this testing to our employees and customers. The serological, or antibody, test measuresits common stock quoted on the amount of antibodies present in the blood. In response to an infection, such as COVID-19, the body develops an overall immune response to fight the infection. One componentOTCQX® Best Market tier of the immune system’s response isOTC Markets Group Inc. (the “OTCQX”), an electronic quotation service operated by OTC Markets Group Inc. The trading of the developmentCompany’s common stock commenced on OTCQX at the open of antibodies that attach to the virus and help eliminate it. Antibody tests detect the body’s immune response to the infection caused by the virus rather than detecting the virus itself. The FDA has issued guidance allowing companies to market serological tests that have been validated following notification to FDA. Validated antibody tests offeredbusiness on February 25, 2021 under the policy should, among other things, include in test reports language explaining that negative results do not rule out COVID-19 infection and that follow-up testing with a molecular diagnostic should be considered to rule out infection. There is no guarantee that we will be successful in realizing revenue or benefit from these efforts.trading symbol IDXG.
Additional Reimbursement Coverage and Price Increase During 20202021
Reimbursement progress is key for any molecular diagnostic company.us. We have been successful to date in expanding both the scope and amount of product reimbursement for our clinical services in 2021. Examples of our products in 2020. Specifically, the most significant progress we have made regarding payers to date in 2020 is as follows:include:
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Revenue Recognition
Clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’sOur performance obligation is fulfilled upon completion, review and release of test results to the customer. The Company subsequently billscustomer, at which time we bill third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based onupon 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 by the Company.offered. To the extent that the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company estimateswe estimate the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.
For our clinical services, we regularly review theThe 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 would affectaffects net revenue in the period such variances become known.
ForWith respect to our pharma services, customers,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 or other deliverables are reported to the customer.
Deferred Revenue
For our pharma services, project level fee revenue is recognized as deferred revenue and recorded at fair value. It represents payments received in advance of services rendered and is recognized ratably over the life of the contract.
Cost of Revenue
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.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statements of operations data and have been restated to reflect the additional amortization expense and certain other adjustments.data. The trends illustrated in this table may not be indicative of future results.
Condensed Consolidated Results of Continuing Operations for the Quarter Ended March 31, 20202021 Compared to the Quarter Ended March 31, 20192020 (unaudited, in thousands)
As Restated | ||||||||||||||||||||||||||||||||
Three Months Ended March 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||
2020 | 2020 | 2019 | 2019 | 2021 | 2021 | 2020 | 2020 | |||||||||||||||||||||||||
Revenue, net | $ | 9,059 | 100.0 | % | $ | 6,010 | 100.0 | % | $ | 9,833 | 100.0 | % | $ | 9,059 | 100.0 | % | ||||||||||||||||
Cost of revenue | 6,113 | 67.5 | % | 2,622 | 43.6 | % | 5,316 | 54.1 | % | 6,113 | 67.5 | % | ||||||||||||||||||||
Gross profit | 2,946 | 32.5 | % | 3,388 | 56.4 | % | 4,517 | 45.9 | % | 2,946 | 32.5 | % | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Sales and marketing | 2,481 | 27.4 | % | 2,411 | 40.1 | % | 2,351 | 23.9 | % | 2,481 | 27.4 | % | ||||||||||||||||||||
Research and development | 809 | 8.9 | % | 528 | 8.8 | % | 637 | 6.5 | % | 809 | 8.9 | % | ||||||||||||||||||||
General and administrative | 4,893 | 54.0 | % | 2,735 | 45.5 | % | 2,979 | 30.3 | % | 4,837 | 53.4 | % | ||||||||||||||||||||
Transition expenses | 1,253 | 12.7 | % | 56 | 0.6 | % | ||||||||||||||||||||||||||
Acquisition related amortization expense | 1,115 | 12.3 | % | 897 | 14.9 | % | 1,112 | 11.3 | % | 1,115 | 12.3 | % | ||||||||||||||||||||
Total operating expenses | 9,298 | 102.6 | % | 6,571 | 109.3 | % | 8,332 | 84.7 | % | 9,298 | 102.6 | % | ||||||||||||||||||||
Operating loss | (6,352 | ) | -70.1 | % | (3,183 | ) | -53.0 | % | (3,815 | ) | -38.8 | % | (6,352 | ) | -70.1 | % | ||||||||||||||||
Interest accretion | (109 | ) | -1.2 | % | (129 | ) | -2.1 | % | ||||||||||||||||||||||||
Other income (expense), net | 47 | 0.5 | % | 48 | 0.8 | % | ||||||||||||||||||||||||||
Interest accretion expense | (135 | ) | -1.4 | % | (109 | ) | -1.2 | % | ||||||||||||||||||||||||
Other (expense)income, net | (188 | ) | -1.9 | % | 47 | 0.5 | % | |||||||||||||||||||||||||
Loss from continuing operations before tax | (6,414 | ) | -70.8 | % | (3,264 | ) | -54.3 | % | (4,138 | ) | -42.1 | % | (6,414 | ) | -70.8 | % | ||||||||||||||||
Provision for income taxes | 15 | 0.2 | % | 5 | 0.1 | % | 15 | 0.2 | % | 15 | 0.2 | % | ||||||||||||||||||||
Loss from continuing operations | (6,429 | ) | -71.0 | % | (3,269 | ) | -54.4 | % | (4,153 | ) | -42.2 | % | (6,429 | ) | -71.0 | % | ||||||||||||||||
Loss from discontinued operations, net of tax | (65 | ) | -0.7 | % | (57 | ) | -0.9 | % | (54 | ) | -0.5 | % | (65 | ) | -0.7 | % | ||||||||||||||||
Net loss | $ | (6,494 | ) | -71.7 | % | $ | (3,326 | ) | -55.3 | % | $ | (4,207 | ) | -42.8 | % | $ | (6,494 | ) | -71.7 | % |
Revenue, net
Consolidated revenue, net for the three months ended March 31, 20202021 increased by $3.0$0.8 million, or 51%9%, to $9.1$9.8 million, compared to $6.0$9.1 million for the three months ended March 31, 2019. This2020. The increase was principally attributable to our acquisition of our pharma services business in 2019. Our first quarternet revenue was impactedlargely driven by lower than expected clinical service volume throughout March 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic.increased reimbursement rates.
Cost of revenue
Consolidated cost of revenue for the three months ended March 31, 20202021 was $6.1$5.3 million, as compared to $2.6$6.1 million for the three months ended March 31, 2019.2020. This decrease is primarily attributed to the closing of the lab in Rutherford, New Jersey. As a percentage of revenue, cost of revenue increased to 66%was approximately 54% for the three months ended March 31, 2020 as compared to 44% in2021 and 68% for the comparable same period in 2019. This increase as a percentage of revenue can be primarily attributed to the lower margins associated with pharma services.three months ended March 31, 2020.
Gross profit
Consolidated gross profit was approximately $4.5 million for the three months ended March 31, 2021 and $2.9 million for the three months ended March 31, 2020 and $3.4 million2020. The gross profit percentage was approximately 46% for the three months ended March 31, 2019. The gross profit percentage decreased from 56% in the first quarter of 2019 to3021 and 33% for the first quarter ofthree months ended March 31, 2020. This decreaseThe increase can be attributed to increased reimbursement rates as well as the lower margins associated with pharma services mentioned above andchange in the reduction in net revenue from clinical services.gross profit mix.
Sales and marketing expense
Sales and marketing expense was approximately $2.4 million for the three months ended March 31, 2021 and $2.5 million for the three months ended March 31, 2020, or 27% as2020. As a percentage of net revenue. Forrevenue, sales and marketing expense decreased to 24% from 27% in the comparable prior year period due to the higher revenue for the three months ended March 31, 2019, sales and marketing expense was $2.4 million, or 40% as a percentage of net revenue. The increase in sales and marketing expense primarily reflects the addition of sales and marketing costs associated with pharma services.2021.
Research and development
Research and development expense was $0.6 million for the three months ended March 31, 2021 and $0.8 million for the three months ended March 31, 2020 and $0.5 million fordue to lower professional services costs in the three months ended March 31, 2019. The increase was primarily attributable to costs associated with the acquired pharma services.quarter. As a percentage of revenue, research and development expense stayed the same at approximatelydecreased to 7% from 9% in both periods.the comparable prior year period.
General and administrative
General and administrative expense for the three months ended March 31, 2020 was $4.9 million as compared to $2.7approximately $3.0 million for the three months ended March 31, 2019.2021 and $4.8 million for the three months ended March 31, 2020. The increase wasdecrease can be primarily attributableattributed to the closing of the Rutherford, NJ office and the employee and consulting costs associated with it.
Transition expense
Transition expense was approximately $1.3 million for the acquired pharma services.three months ended March 31, 2021 and $0.1 million for the three months ended March 31, 2020. These expenses are related to the Rutherford, NJ lab closing and subsequent move to North Carolina as well as other cost-saving initiatives.
Acquisition related amortization expense
During the three months ended March 31, 20202021 and March 31, 2019,2020, we recorded amortization expense of approximately $1.1 million, and $0.9 million, respectively in both periods, which is related to intangible assets associated with prior acquisitions. The increase is related to our acquisition of our pharma services in 2019 and the associated intangible assets.
Operating loss
Operating loss from continuing operations was $3.8 million for the three months ended March 31, 2021 as compared to $6.4 million for the three months ended March 31, 2020 as compared to $3.2 million for the three months ended March 31, 2019.2020. The increase can be attributedlower operating loss was primarily attributable to the operating loss associated with our pharma services as well as the reduced revenue andincrease in gross profit in our clinical services.discussed above.
Provision for income taxes
Income tax expense was approximately $15,000 for the three months ended March 31, 20202021 and $5,000$15,000 for the three months ended March 31, 2019.2020. Income tax expense for both periods was primarily driven by minimum state and local taxes.
Loss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately $0.1 million for both the three months ended March 31, 20202021 and a loss from discontinued operations of approximately $0.1 million for the three months ended March 31, 2019.2020.
Non-GAAP Financial Measures
In addition to the United States generally accepted accounting principles, or GAAP, results provided throughout this document, we have provided certain non-GAAP financial measures to help evaluate the results of our performance. We believe that these non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to both management and investors in analyzing our ongoing business and operating performance. We believe that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view our financial results in the way that management views financial results.
In this 10-Q, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the ongoing business. Adjusted EBITDA is defined as income or loss from continuing operations, plus depreciation and amortization, acquisition related expenses, transition expenses, noncash stock based compensation, interest and taxes, and other non-cash expenses including asset impairment costs, bad debt expense, loss on extinguishment of debt, goodwill impairment and change in fair value of contingent consideration, and warrant liability. The table below includes a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.
($ in thousands) |
Quarters Ended | ||||||||
March 31, | ||||||||
2021 | 2020 | |||||||
Loss from continuing operations (GAAP Basis) | $ | (4,153 | ) | $ | (6,429 | ) | ||
Bad debt (recovery) expense | (140 | ) | 250 | |||||
Transition expenses | 1,253 | 56 | ||||||
Depreciation and amortization | 1,532 | 1,319 | ||||||
Stock-based compensation | 286 | 418 | ||||||
Taxes | 15 | 15 | ||||||
Financing interest and related costs | 144 | - | ||||||
Interest accretion expense | 135 | 109 | ||||||
Mark to market on warrant liability | 41 | (26 | ) | |||||
Change in fair value of contingent consideration | (57 | ) | - | |||||
Non-GAAP Adjusted EBITDA | $ | (944 | ) | $ | (4,288 | ) |
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 2020,2021, we had an operating loss of $6.4$3.8 million. As of March 31, 2020,2021, we had cash and cash equivalents of $13.4$2.8 million, net of restricted cash, total current assets of $28.1$13.7 million, net of restricted cash and current liabilities of $15.7$20.5 million. Currently, the Company has no further availabilityAs of May 10, 2021, we had approximately $6.4 million of cash on its credit facility, but is in the processhand, net of completing an agreement with SVB to expand the credit facility. No assurance can be given that such an expansion agreement will be entered into.restricted cash.
During the three months ended March 31, 2021, net cash used in operating activities was $5.0 million. The main component of cash used in operating activities was our net loss of $4.2 million. During the three months ended March 31, 2020, net cash used in operating activities was $7.1 million. The main component of cash used in operating activities was our net loss of $6.5 million. During
For the three months ended March 31, 2019, net2021, cash used in operatingprovided from financing activities was $3.0$5.0 million, all of which was used in continuing operations. The main component of cash used in operating activities during the three months ended March 31, 2019 was$4.9 million were the net loss proceeds from the Company’s secured promissory notes with Ampersand and 1315. See Note 14, Notes Payable - Related Parties of $3.4 million.
the notes to the financial statements. For the three months ended March 31, 2020, there was cash provided from financing activities of $18.2 million, $19.5 million which resulted from the issuance of Preferred Stock in January 2020, and $0.4 million from sales of common stock, and which was partially offset by $1.8 million in a net repayment of funds under our revolving line of credit with SVB. For
In September 2020, we repaid approximately $3.4 million to SVB under our former secured revolving line of credit facility (the “Revolver”), which was part of our Loan and Security Agreement with SVB dated November 13, 2018, as amended March 18, 2019 (as so amended, the three months ended March 31, 2019, there was cash provided from financing activities of $6.0 million which resulted from“SVB Loan Agreement”). On January 5, 2021, the issuance of common stock in our underwritten public offering completed in January 2019.Company terminated the SVB Loan Agreement.
In September 2019, weOn January 7, 2021, the Company entered into secured promissory notes in the Equity Distribution Agreement (the “Agreement”)amount of $3 million and $2 million with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issueAmpersand and sell shares of our common stock in an aggregate offering price of up to $4.8 million through the Agent.1315 Capital, respectively. See Note 16,14, EquityNotes Payable – Related Parties of the notes to the financial statements for more details. In January 2020, 80,341 shares (as adjusted for the reverse stock split) of common stock were sold for net proceeds of approximately $0.4 million..
As of March 31, 2020, the Company had drawn $1.2 million of the $3.75 million of available funds under its Revolving Line with SVB. As of June 17, 2020, we had no funds available on the Revolving Line because we were fully drawn.
In January 2020, we sold 20,000 preferred shares to investors, led by 1315 Capital, for net proceeds of approximately $19.5$19.2 million; see Note 16, Equity of the footnotesnotes to the financial statements for more detail.
AsSee Note 1, Overview, of June 17,the notes to the financial statements, regarding the potential adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition for fiscal 2021 and possibly beyond.
During Fiscal 2020, wethe Company applied for various federal stimulus grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (the “CARES Act”) and received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS)(“CMS”) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMSprogram. This advance will be offset against future Medicare billings of the Company beginning in the second quarter of 2021.
The Company has and the HSS grant is subjectmay continue to delay, scale-back, or eliminate certain conditions regardingof its use, including developing coronavirusactivities and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the useother aspects of the proceeds. Based on these restrictions and limitations,its operations until such time as the Company is treatingsuccessful in securing additional funding. The Company is exploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources. The future success of the $0.65 million HSS grant as restricted cash until we have clarity on how the fundsCompany is dependent upon its ability to obtain additional funding. There can be utilized byno assurance, however, that the Company basedwill be successful in obtaining such funding in sufficient amounts, on the specific requirements of the HSS. Furthermore, althoughterms acceptable to the Company, initially exploredor at all. These factors raise substantial doubt about the possibility of requestingCompany’s ability to continue as a loan under the Small Business Administration Paycheck Protection Program, we elected not to complete an application because we are not certain we meet certain criteria of the program.going concern.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included inCompany’s cash and cash equivalents as of December 31, 2019balance is decreasing and March 31, 2020. These funds and the related liability were included in Other Assets and Other Current Liabilities, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.
We dowe will not expect to generate positive cash flows from operations for the year ending December 31, 2020.2021. We intend to meet our ongoing capital needs by using our available cash, proceeds underincluding the Securities PurchaseAmpersand and Exchange Agreement, additional borrowings under the Line of Credit1315 Capital loans, as well as increasing our line of credit limit as a result of the additional accounts receivable acquired in July 2019 as part of our acquisition of pharma services (which requires a modification to the bank agreement and approval by SVB which cannot be assured, revenue growth and margin improvement, collectingimprovement; collection of accounts receivable, containing costs as well as exploringreceivable; containment of costs; and the potential use of other financing options. Our planned capital expenditures over the next twelve months currently includes several million dollars to be utilized in consolidating our laboratories, which includes equipment purchases, calibration and testing costs, moving and other related costs, and leasehold improvements. Management believes that the Company has sufficient cash on hand and available to sustain operations through at least June 30, 2021. However, in the event the Company is unable to maintain its Nasdaq listing for its common stock due to a failure to meet minimum stockholder equity requirements as a result of the classification of its preferred stock as temporary equity and the amortization and impairment of certain intangible assets, the Company’s ability to raise additional capital may be adversely impacted. Therefore, there is no guarantee that additional capital can be raised to fund our future operations.
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 of inflation on our operating results by controlling operating costs and whenever possible, seeking to insureensure that billing rates reflect increases in costs due to inflation.
Off-Balance Sheet Arrangements
None.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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
As of the end of the period covered by this report, the Company’sOur management, with the participation of theour Chief Executive Officer (“CEO”) and Chief Financial Officer, (“CFO”), carried out an evaluation ofevaluated the effectiveness of the Company’sour disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) ofpursuant to Rule 13a-15 under the Exchange Act). Based upon that evaluation, the then CEO and CFO concluded at that time that the Company’s disclosure controls and procedures were effectiveAct as of the end of the period covered by this report.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.
Subsequent to thisBased on the evaluation and in light of the restatement of the Company’s condensed financial statements for the quarters ended March 31, 2020 and 2019 relating to the amortization and the impairment of certain intangible assets referenced in Note 1, Restatement of Previously Issued Consolidated Financial Statements, the Company’s management, with the participation of the CEO and the CFO, has reevaluated 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 March 31, 2020, including whether the errors identified wereCompany and the resultChief Financial Officer of a material weakness in the Company’s internal control over financial reporting. Based on this assessment, management has identified a material weakness in the Company’s internal control over financial reporting related to properly identifying all the events that could trigger an asset impairment. The Company did not properly amend policies and procedures associated with its valuation process for asset impairment, specifically for intangible assets, and as a result failed to develop appropriate control activities to adequately respond to the triggering events identified. As a result, the CEO and CFOhave concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2020 as a result of this material weakness.
Remediation Plan - The Company plans to amend its control activities designed to mitigate the significant risks identified, including updating its policies and procedures regarding the recognition of asset impairments, specifically to review the procedures identifying and considering all outside triggering events that can cause such impairments. The Company believes implementation of these processes and appropriate testing of their effectiveness will remediate this material weakness.2021.
Reference should be made to our Form 10-K filed with the SEC on April 1, 2021 for additional information regarding discussion of the effectiveness of the Company’s controls and procedures.
Changes in internal controlsInternal Controls
There 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.
None.
Not applicable as we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 1.01. Entry into a Material Definitive Agreement
On January 7, 2021, the Company entered into promissory notes with Ampersand 2018 Limited Partnership (“Ampersand”), in the amount of $3 million (the “Ampersand Note”), and 1315 Capital II, L.P. (“1315 Capital”), in the amount of $2 million (the “1315 Capital Note”), respectively (together, the “Notes”), and a related security agreement (the “Security Agreement”).
On May 10, 2021, (i) the Company and Ampersand amended the Ampersand Note to increase its principal amount to $4.5 million, (ii) the Company and 1315 Capital amended the 1315 Capital Note to increase its principal amount to $3.0 million and (iii) the Company and Ampersand amended the Security Agreement to include the new total principal amount of the Notes of $7.5 million. The maturity date and interest rate of the Notes remain June 30, 2021 and 8%, respectively and except with respect to their respective principal amounts, the terms of the Notes and the Security Agreement are otherwise unchanged.
Ampersand holds 28,000 shares of the Company’s Series B Convertible Preferred Stock (“Series B”), which are convertible from time to time into an aggregate of 4,666,666 shares of the Company’s Common Stock, and 1315 Capital holds 19,000 shares of the Company’s Series B, which are convertible from time to time into an aggregate of 3,166,668 shares of the Company’s Common Stock. On an as-converted basis, such shares would represent approximately 39.1% and 26.5% of our fully-diluted shares of Common Stock, respectively. As discloseda result, the Company considers the May 10, 2021 amendments to the Notes and Security Agreement to be related party transactions.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth in Item 8.011.01 above is incorporated by reference into this Item 2.03.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
On May 10, 2021 Company entered into an at-will employment agreement with Thomas Freeburg (the “Freeburg Employment Agreement”), as of February 1, 2021 (the “Effective Date”). Mr. Freeburg will serve as Chief Financial Officer of the May 15th 8-K and inCompany. As previously reported on the Company’s definitive proxy statement, ascurrent report on Form 8-K filed February 4, 2021, the Company agreed to pay to Mr. Freeburg a base salary of $225,000 annually during the initial term, increasing to $250,000 on August 1, 2021, to be paid in accordance with the SEC on June 10, 2020 (the “Proxy Statement”),Company’s payroll practices. Mr. Freeburg is also eligible to receive additional annual incentive compensation with an annual target of up to 40% of the base salary, paid out in cash, less applicable taxes and deductions and/or stock as determined by the Chief Executive Officer of the Company plans to hold its 2020 Annual Meeting of Stockholders(“CEO”) and the Company’s Compensation and Management Development Committee (the “2020 Annual Meeting”“Compensation Committee”) on July 9, 2020 at 10:00 a.m., Eastern Time. The 2020 Annual Meeting will be held in a virtual format only, via the Internet, with no physical in-person meeting. Additional details regarding the location via the Internet and matters to be voted on at the 2020 Annual Meeting are available in the Proxy Statement..
TheOn March 10, 2021, the Company awarded to Mr. Freeburg under the Company’s 2019 Annual MeetingEquity Incentive Plan, as amended, (the “Plan”) (i) an option to purchase 50,000 shares of Stockholders (the “2019 Annual Meeting”the Company’s common stock, par value $0.01 per share (“Common Stock”) was heldwith an exercise price equal to $6.00 per share (such option, the “Initial Time-Vesting Option”), and (ii) restricted stock units with respect to 50,000 shares of Common Stock (such grant, the “Initial Time-Vesting RSUs”). The Initial Time-Vesting Option and the Initial Time-Vesting RSUs shall be subject to the terms of the Plan and an applicable award agreement by and between Mr. Freeburg and the Company, and shall vest in equal installments on October 10, 2019. Becauseeach of the first three anniversaries of the date of grant, subject to Mr. Freeburg’s continued employment with the 2020 Annual Meeting represents a change of more than 30 days fromCompany through the anniversary dateapplicable vesting date; provided that, notwithstanding the terms of the 2019 Annual Meeting,Plan and the applicable award agreement, the Initial Time-Vesting Options, the Initial Time-Vesting RSUs and any other then-outstanding awards of Mr. Freeburg under the Plan shall vest and become exercisable in full immediately prior to the occurrence of a Change in Control, as defined in the Plan, subject to Mr. Freeburg’s continuous employment through such Change in Control following the grant of the Initial RSUs. Mr. Freeburg will be eligible to receive equity awards under the Plan as determined by the CEO and Board. Mr. Freeburg will also be entitled to receive certain other benefits such as housing and participation in retirement and welfare plans.
In the event that Mr. Freeburg’s employment is terminated by the Company disclosedwithout Cause or by Mr. Freeburg for Good Reason (in each case, as defined in the May 15th 8-KFreeburg Employment Agreement), then subject to, among other things, Mr. Freeburg’s execution and non-revocation of a new deadline for the submission of stockholder proposals. In accordance with Rule 14a-5(f) of the Exchange Act and consistent with the Amended and Restated ByLawsrelease agreement in favor of the Company, effective November 12, 2019,Mr. Freeburg would be entitled to( i) severance equal to six (6) months’ base salary (as in effect as of the termination date), payable semi-monthly on the Company’s regularly scheduled payroll dates, (ii) if Mr. Freeburg properly and timely elects to continue health and dental coverage under the Company’s plans in accordance with the continuation requirements of COBRA, payment for the cost of the premiums for such coverages for Mr. Freeburg for a six (6) month period beginning on the termination date, or if earlier, through the date on which Mr. Freeburg becomes eligible for other group health coverage in connection with new employment and (iii) all outstanding equity awards that were scheduled to vest during the 24-month period following the termination date, but for the termination, would become fully vested and exercisable.
In addition to the Freeburg Employment Agreement described herein, the Company informed stockholdersand Mr. Freeburg will enter into the Company’s standard form of indemnification and confidentiality agreements.
During employment with the Company through the twelve month period following termination of employment, Mr. Freeburg agrees not to set up or engage in any business enterprise that a proposal would be in competition with the Company in its oncology-based laboratory services and/or noticepharma services businesses. Mr. Freeburg is also subject to limitations on Schedule 14N under Rule 14a-18 under the Exchange Act (i) intended to be includedsolicitation of Company personnel and on disclosure of confidential information (as defined in the Proxy Statement under Rule 14a-8 under the Exchange Act or (ii) intendedFreeburg Employment Agreement), and Mr. Freeburg agreed to be presented at the 2020 Annual Meeting other than by inclusion in the Proxy Statement, must have been received byassign to the Company onany work product developed or prior to 5:00 p.m. Eastern Time on May 28, 2020 to be considered timely. Any proposal or nomination received after such date will be considered untimely.made while so employed.
* Filed herewith.
+ | 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. | |
* | ||
Denotes compensatory plan, compensation arrangement or management contract. |
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: | Interpace Biosciences, Inc. |
(Registrant) | |
/s/ Thomas W. Burnell | |
Thomas W. Burnell | |
President and Chief Executive Officer | |
(Principal Executive Officer) | |
Date: | |
| /s/ Thomas Freeburg |
Thomas Freeburg | |
Chief | |
(Principal |