UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A10-Q
Amendment No. 1
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 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, NJ07054 |
(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 | Smaller reporting company | |
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] ☐ No [X] ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class | Shares Outstanding | |
Common Stock, par value $0.01 per share |
INTERPACE BIOSICENCES, INC.
FORM 10-Q FOR PERIOD ENDED JUNE 30, 20202021
TABLE OF CONTENTS
2 |
On August 14, 2020, the Company filed a Form 12b-25 notifying the SEC of its inability to file its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 on a timely basis. In July 2020, the Company had received letters from employees, one of whom has left the Company’s employ, concerning certain employment and billing and compliance matters. In response, the Company informed its Audit Committee and Regulatory Compliance Committee as well as its independent registered public accounting firm. The Audit Committee commenced an investigation of these matters with the assistance of independent counsel and advisors thereto. The investigation was unable to be completed by the filing deadline for this Report which delayed the filing. The Audit Committee concluded that the allegations were not substantiated and that there was no evidence of any illegal acts.
This Amendment No. 1 on Form 10-Q/A amends the Company’s Report on Form 10-Q for the quarter ended June 30, 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 the three and six-month periods ended June 30, 2020 and June 30, 2019 was approximately $0.1 million and $0.2 million, respectively. The impact of the other immaterial adjustments for the six months ended June 30, 2020 and June 30, 2019 was $0.1 million in expense and $0.2 million as 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 June 30, 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.
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 30, | December 31, | |||||||
2021 | 2020 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 3,791 | $ | 2,772 | ||||
Restricted cash | 250 | 600 | ||||||
Accounts receivable, net of allowance for doubtful accounts of $135 and $275, respectively | 7,327 | 8,028 | ||||||
Other current assets | 3,270 | 2,722 | ||||||
Total current assets | 14,638 | 14,122 | ||||||
Property and equipment, net | 6,930 | 7,349 | ||||||
Other intangible assets, net | 9,126 | 11,351 | ||||||
Goodwill | 8,433 | 8,433 | ||||||
Operating lease right of use assets, net | 3,768 | 4,384 | ||||||
Other long-term assets | 290 | 42 | ||||||
Total assets | $ | 43,185 | $ | 45,681 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,479 | $ | 4,511 | ||||
Accrued salary and bonus | 2,442 | 3,161 | ||||||
Notes payable - related parties | 7,720 | - | ||||||
Other accrued expenses | 9,407 | 9,795 | ||||||
Current liabilities from discontinued operations | 766 | 766 | ||||||
Total current liabilities | 22,814 | 18,233 | ||||||
Contingent consideration, net of current portion | 1,716 | 1,818 | ||||||
Operating lease liabilities, net of current portion | 3,109 | 3,540 | ||||||
Other long-term liabilities | 4,801 | 4,637 | ||||||
Total liabilities | 32,440 | 28,228 | ||||||
Commitments and contingencies (Note 12) | - | - | ||||||
Preferred stock, $ | par value; shares authorized, Series B issued and outstanding46,536 | 46,536 | ||||||
Stockholders’ deficit: | ||||||||
Common stock, $ | par value; shares authorized; and shares issued, respectively; and shares outstanding, respectively402 | 402 | ||||||
Additional paid-in capital | 185,349 | 184,404 | ||||||
Accumulated deficit | (219,769 | ) | (212,116 | ) | ||||
Treasury stock, at cost ( | and shares, respectively)(1,773 | ) | (1,773 | ) | ||||
Total stockholders’ deficit | (35,791 | ) | (29,083 | ) | ||||
Total liabilities and stockholders’ deficit | $ | (3,351 | ) | $ | (855 | ) | ||
Total liabilities, preferred stock and stockholders’ deficit | $ | 43,185 | $ | 45,681 |
As Restated | As Restated | |||||||
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 15,106 | $ | 2,321 | ||||
Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively | 7,239 | 10,338 | ||||||
Other current assets | 3,751 | 3,851 | ||||||
Total current assets | 26,096 | 16,510 | ||||||
Property and equipment, net | 7,249 | 6,814 | ||||||
Other intangible assets, net | 13,619 | 15,849 | ||||||
Goodwill | 8,433 | 8,433 | ||||||
Operating lease right of use assets | 5,172 | 3,892 | ||||||
Other long-term assets | 42 | 42 | ||||||
Total assets | $ | 60,611 | $ | 51,540 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,348 | $ | 4,709 | ||||
Accrued salary and bonus | 2,247 | 2,341 | ||||||
Other accrued expenses | 9,737 | 9,476 | ||||||
Current liabilities from discontinued operations | 766 | 766 | ||||||
Total current liabilities | 16,098 | 17,292 | ||||||
Contingent consideration | 2,207 | 2,391 | ||||||
Operating lease liabilities, net of current portion | 3,940 | 2,591 | ||||||
Line of credit | 3,400 | 3,000 | ||||||
Other long-term liabilities | 4,557 | 4,573 | ||||||
Total liabilities | 30,202 | 29,847 | ||||||
Commitments and contingencies (Note 8) | ||||||||
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 | - | ||||||
Stockholders’ equity: | ||||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 3,932,370 shares issued, respectively; 4,036,595 and 3,920,589 shares outstanding, respectively | 402 | 393 | ||||||
Additional paid-in capital | 182,980 | 182,514 | ||||||
Accumulated deficit | (197,739 | ) | (185,665 | ) | ||||
Treasury stock, at cost (18,859 and 11,781 shares, respectively) | (1,770 | ) | (1,721 | ) | ||||
Total stockholders’ equity | (16,127 | ) | (4,479 | ) | ||||
Total liabilities and stockholders’ equity | $ | 14,075 | $ | 25,368 | ||||
Total liabilities, preferred stock and stockholders’ equity | $ | 60,611 | $ | 51,540 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
2021 | 2020 | 2021 | 2020 | |||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue, net | $ | 11,155 | $ | 5,446 | $ | 20,989 | $ | 14,504 | ||||||||
Cost of revenue (excluding amortization of $1,112 and $1,115 for the three months and $2,224 and $2,230 for the six months, respectively) | 5,800 | 3,850 | 11,116 | 9,963 | ||||||||||||
Gross profit | 5,355 | 1,596 | 9,873 | 4,541 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 2,776 | 1,596 | 5,128 | 4,077 | ||||||||||||
Research and development | 424 | 550 | 1,060 | 1,360 | ||||||||||||
General and administrative | 3,326 | 3,983 | 6,305 | 8,819 | ||||||||||||
Transition expenses | 858 | 124 | 2,111 | 180 | ||||||||||||
Gain on DiamiR transaction | (235 | ) | - | (235 | ) | - | ||||||||||
Acquisition related amortization expense | 1,112 | 1,115 | 2,224 | 2,230 | ||||||||||||
Total operating expenses | 8,261 | 7,368 | 16,593 | 16,666 | ||||||||||||
Operating loss | (2,906 | ) | (5,772 | ) | (6,720 | ) | (12,125 | ) | ||||||||
Interest accretion expense | (135 | ) | (167 | ) | (270 | ) | (276 | ) | ||||||||
Other (expense) income , net | (331 | ) | 438 | (520 | ) | 485 | ||||||||||
Loss from continuing operations before tax | (3,372 | ) | (5,501 | ) | (7,510 | ) | (11,916 | ) | ||||||||
Provision for income taxes | 16 | 13 | 31 | 28 | ||||||||||||
Loss from continuing operations | (3,388 | ) | (5,514 | ) | (7,541 | ) | (11,944 | ) | ||||||||
Loss from discontinued operations, net of tax | (58 | ) | (66 | ) | (112 | ) | (130 | ) | ||||||||
Net loss | (3,446 | ) | (5,580 | ) | (7,653 | ) | (12,074 | ) | ||||||||
Less adjustment for preferred stock deemed dividend | - | - | - | (3,033 | ) | |||||||||||
Net loss attributable to common stockholders | $ | (3,446 | ) | $ | (5,580 | ) | $ | (7,653 | ) | $ | (15,107 | ) | ||||
Basic and diluted loss per share of common stock: | ||||||||||||||||
From continuing operations | $ | (0.83 | ) | $ | (1.37 | ) | $ | (1.84 | ) | $ | (3.73 | ) | ||||
From discontinued operations | (0.01 | ) | (0.01 | ) | (0.03 | ) | (0.03 | ) | ||||||||
Net loss per basic and diluted share of common stock | $ | (0.84 | ) | $ | (1.38 | ) | $ | (1.87 | ) | $ | (3.76 | ) | ||||
Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||
Basic | 4,102 | 4,033 | 4,095 | 4,018 | ||||||||||||
Diluted | 4,102 | 4,033 | 4,095 | 4,018 |
As Restated | ||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenue, net | $ | 5,446 | $ | 6,270 | $ | 14,504 | $ | 12,280 | ||||||||
Cost of revenue (excluding amortization of $1,115 and $897, for the three months and $2,230 and $1,794 for the six months, respectively) | 3,850 | 3,031 | 9,963 | 5,654 | ||||||||||||
Gross profit | 1,596 | 3,239 | 4,541 | 6,626 | ||||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,596 | 2,959 | 4,077 | 5,369 | ||||||||||||
Research and development | 550 | 647 | 1,360 | 1,175 | ||||||||||||
General and administrative | 4,107 | 2,788 | 8,999 | 5,122 | ||||||||||||
Acquisition related expense | - | 1,295 | - | 1,696 | ||||||||||||
Acquisition amortization expense | 1,115 | 897 | 2,230 | 1,794 | ||||||||||||
Total operating expenses | 7,368 | 8,586 | 16,666 | 15,156 | ||||||||||||
Operating loss | (5,772 | ) | (5,347 | ) | (12,125 | ) | (8,530 | ) | ||||||||
Interest accretion | (167 | ) | (91 | ) | (276 | ) | (220 | ) | ||||||||
Other income (expense), net | 438 | 74 | 485 | 123 | ||||||||||||
Loss from continuing operations before tax | (5,501 | ) | (5,364 | ) | (11,916 | ) | (8,627 | ) | ||||||||
Provision for income taxes | 13 | 5 | 28 | 10 | ||||||||||||
Loss from continuing operations, net of tax | (5,514 | ) | (5,369 | ) | (11,944 | ) | (8,637 | ) | ||||||||
(Loss) income from discontinued operations, net of tax | (66 | ) | 65 | (130 | ) | 7 | ||||||||||
Net loss | (5,580 | ) | (5,304 | ) | (12,074 | ) | (8,630 | ) | ||||||||
Less adjustment for preferred stock deemed dividend | - | - | (3,033 | ) | - | |||||||||||
Net loss attributable to common stockholders | $ | (5,580 | ) | $ | (5,304 | ) | $ | (15,107 | ) | $ | (8,630 | ) | ||||
Basic and diluted loss per share of common stock: | ||||||||||||||||
From continuing operations | $ | (1.37 | ) | $ | (1.41 | ) | $ | (3.73 | ) | $ | (2.36 | ) | ||||
From discontinued operations | (0.01 | ) | 0.02 | (0.03 | ) | - | ||||||||||
Net loss per basic and diluted share of common stock | $ | (1.38 | ) | $ | (1.39 | ) | $ | (3.76 | ) | $ | (2.36 | ) | ||||
Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||
Basic | 4,033 | 3,813 | 4,018 | 3,665 | ||||||||||||
Diluted | 4,033 | 3,813 | 4,018 | 3,665 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYDEFICIT
(unaudited, in thousands)
For The Three and Six Months Ended | For The Three and Six Months Ended | |||||||||||||||
June 30, 2021 | June 30, 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 | - | - | - | ||||||||||||
Treasury stock purchased, shares | ||||||||||||||||
Treasury stock purchased | ||||||||||||||||
Extinguishment of Series A Shares | ||||||||||||||||
Beneficial Conversion Feature in connection with Series B Issuance | ||||||||||||||||
Amortization of Beneficial Conversion Feature | ||||||||||||||||
Stock-based compensation expense | ||||||||||||||||
Net loss | ||||||||||||||||
Balance at March 31 | 4,132 | 402 | 4,055 | 402 | ||||||||||||
Common stock issued | 10 | - | - | - | ||||||||||||
Balance at June 30 | 4,142 | 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 | ) | ||||||||||
Treasury stock purchased | - | - | 7 | (49 | ) | |||||||||||
Balance at June 30 | 20 | (1,773 | ) | 19 | (1,770 | ) | ||||||||||
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 | ||||||||||||||
Stock-based compensation expense | 551 | 400 | ||||||||||||||
Balance at June 30 | 185,349 | 182,980 | ||||||||||||||
Accumulated deficit: | ||||||||||||||||
Balance at January 1 | (212,116 | ) | (185,665 | ) | ||||||||||||
Net loss | (4,207 | ) | (6,494 | ) | ||||||||||||
Balance at March 31 | (216,323 | ) | (192,159 | ) | ||||||||||||
Net loss | (3,446 | ) | (5,580 | ) | ||||||||||||
Balance at June 30 | (219,769 | ) | (197,739 | ) | ||||||||||||
Balance at January 1 | (29,083 | ) | - | |||||||||||||
Stock-based compensation expense | - | - | ||||||||||||||
Balance at March 31 | - | - | ||||||||||||||
Stock-based compensation expense | - | - | ||||||||||||||
Total stockholders’ deficit | $ | (35,791 | ) | $ | (16,127 | ) |
As Restated | As Restated | |||||||||||||||
For The Six Months Ended | For The Six Months Ended | |||||||||||||||
June 30, 2020 | June 30, 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 | ||||||||||||
Common stock issued | - | - | 10 | 1 | ||||||||||||
Balance at June 30 | 4,055 | 402 | 3,829 | 383 | ||||||||||||
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 | ) | ||||||||||
Treasury stock purchased | 7 | (49 | ) | - | - | |||||||||||
Balance at June 30 | 19 | (1,770 | ) | 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 | ||||||||||||||
Common Stock issued | - | 72 | ||||||||||||||
Stock-based compensation expense | 400 | 205 | ||||||||||||||
Balance at June 30 | 182,980 | 182,231 | ||||||||||||||
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 | ) | ||||||||||||
Net loss | (5,580 | ) | (5,304 | ) | ||||||||||||
Balance at June 30 | (197,739 | ) | (167,556 | ) | ||||||||||||
Total stockholders’ equity | $ | (16,127 | ) | $ | 13,346 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
2021 | 2020 | |||||||
` | For The Six Months Ended June 30, | |||||||
2021 | 2020 | |||||||
Cash Flows From Operating Activities | ||||||||
Net loss | $ | (7,653 | ) | $ | (12,074 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 2,943 | 2,708 | ||||||
Interest accretion expense | 270 | 276 | ||||||
Bad debt (recovery) expense | (140 | ) | 250 | |||||
Mark to market on warrants | 209 | (49 | ) | |||||
Stock-based compensation | 777 | 818 | ||||||
Amortization of deferred financing fees | 88 | - | ||||||
Accrued interest | 220 | - | ||||||
ESPP expense | 60 | - | ||||||
Change in fair value of contingent consideration | (57 | ) | - | |||||
Gain on DiamiR transaction | (235 | ) | - | |||||
Other gains and expenses, net | (2 | ) | - | |||||
Other changes in operating assets and liabilities: | ||||||||
Decrease in accounts receivable | 841 | 2,849 | ||||||
Increase in other current assets | (548 | ) | (788 | ) | ||||
Decrease in accounts payable | (2,032 | ) | (1,361 | ) | ||||
Decrease in accrued salaries and bonus | (719 | ) | (94 | ) | ||||
(Decrease) increase in accrued liabilities | (802 | ) | 759 | |||||
(Decrease) increase in long-term liabilities | (45 | ) | 33 | |||||
Net cash used in operating activities | (6,825 | ) | (6,673 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Purchase of property and equipment | (48 | ) | (913 | ) | ||||
Sale of property and equipment | 39 | - | ||||||
Net cash used in investing activities | (9 | ) | (913 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Issuance of common stock, net of expenses | 108 | 434 | ||||||
Issuance of Series B preferred stock, net of expenses | - | 19,537 | ||||||
Loan proceeds - related parties | 7,500 | - | ||||||
Deferred financing fees | (105 | ) | - | |||||
Borrowings on Line of Credit | - | 400 | ||||||
Net cash provided by financing activities | 7,503 | 20,371 | ||||||
Net increase in cash, cash equivalents and restricted cash | 669 | 12,785 | ||||||
Cash, cash equivalents and restricted cash – beginning | 3,372 | 2,321 | ||||||
Cash, cash equivalents and restricted cash – ending | $ | 4,041 | $ | 15,106 |
As Restated | ||||||||
For The Six Months Ended June 30, | ||||||||
2020 | 2019 | |||||||
Cash Flows From Operating Activities | ||||||||
Net loss | $ | (12,074 | ) | $ | (8,630 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 2,708 | 1,917 | ||||||
Interest accretion | 276 | 220 | ||||||
Mark to market on warrants | (49 | ) | (45 | ) | ||||
Stock-based compensation | 818 | 990 | ||||||
Bad debt expense | 250 | 499 | ||||||
Other gains and expenses, net | - | 18 | ||||||
Other changes in operating assets and liabilities: | ||||||||
Decrease (increase) in accounts receivable | 2,849 | (3,982 | ) | |||||
Increase in other current assets | (788 | ) | (252 | ) | ||||
(Decrease) increase in accounts payable | (1,361 | ) | 530 | |||||
Decrease in accrued salaries and bonus | (94 | ) | (261 | ) | ||||
Increase in accrued liabilities | 759 | 1,097 | ||||||
Increase in long-term liabilities | 33 | 114 | ||||||
Net cash used in operating activities | (6,673 | ) | (7,785 | ) | ||||
Cash Flows From Investing Activity | ||||||||
Purchase of property and equipment | (913 | ) | (48 | ) | ||||
Sale of property and equipment | - | 13 | ||||||
Net cash used in investing activity | (913 | ) | (35 | ) | ||||
Cash Flows From Financing Activities | ||||||||
Issuance of common stock, net of expenses | 434 | 5,962 | ||||||
Borrowings on Line of Credit | 400 | - | ||||||
Issuance of Series B preferred stock, net of expenses | 19,537 | - | ||||||
Net cash provided by financing activities | 20,371 | 5,962 | ||||||
Net increase (decrease) in cash and cash equivalents | 12,785 | (1,858 | ) | |||||
Cash and cash equivalents – beginning | 2,321 | 6,068 | ||||||
Cash and cash equivalents – ending | $ | 15,106 | $ | 4,210 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
1. OVERVIEW
Nature of Business
Interpace Biosciences, Inc. (“Interpace” or the “Company”) enables personalized medicine, offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications and pharma services. The Company provides molecular diagnostics, bioinformatics and pathology services for evaluation of risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. The Company also provides pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. The Company advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs.
Impact of COVID-19 pandemic
We have taken whatThe outbreak of the COVID-19 pandemic continues to impact a significant portion of the regions in which we believe are necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We continue to follow the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. The majority of our employees who do not work in a lab setting are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our labs require in-person staffing and we have been able to continue to operate our labs, minimizing infection risk to lab staff through a combination of social distancing and appropriate protective equipment. There can be no assurance, however, that key employees will not become ill or that we will able to continue to operate our labs. While a number of employees were furloughed most have returned to work.
operate. The continuing impact that the COVID-19 pandemic will have on our operations, including duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time. Accordingly,While we believe we have generally recovered from the adverse impact that the COVID-19 pandemic had on our business during 2020, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.
Through the second quarter of 2020 our revenues were impacted by lower than expected clinical service volume from March through June 2020, which we believe resulted from the pandemic related temporary reduction in non-essential testing procedures. While our pharma services revenue increased throughout the first quarter of 2020, during the second quarter our pharma services business also softened. Currently, our clinical services business has recovered to levels prior to the pandemic and our pharma services business is also recovering, but more slowly.
As our business operations continue to be impacted by the pandemic, we continue to monitor the situation 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 reaction to developments that are beyond our control.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
While we do not anticipate any lab closures at this time beyond periodic, temporary work stoppages to clean and disinfect the labs, this could change in the future based upon conditions caused by the pandemic. Further, while we have acquired additional inventories of lab supplies, including reagents, itIt is also possible that we could experience supply chain shortages if the pandemic continues for a prolonged periodworsens 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 will continue to monitor the actual and potential impact of the pandemic upon our operations. We have developed and will continue to update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.
RestatementTransition costs
To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford, NJ facility to our Morrisville, NC facility. We have restated herein our unaudited consolidated financial statements asinvested several million dollars to facilitate this relocation, including but not limited to the transfer of June 30, 2020personnel, expansion of the Morrisville facility and forvalidation 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 three and six-months ended June 30, 2020 and June 30, 2019.anticipated savings. We have also restated impacted amounts within the accompanying footnotes to the consolidated financial statements which have been notedundergone several other cost-cutting initiatives and those costs are categorized as such.transition expenses as well.
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 basis in order to measure the related impairment. Additionally, the Company concluded that amortization 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 launch of the test.2. BASIS OF PRESENTATION
On December 7, 2020, 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 and six-months ended June 30, 2020 and June 30, 2019 in this Form 10-Q/A. 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:
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
June 30, 2020 | ||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||
(unaudited) | ||||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 15,106 | $ | - | $ | 15,106 | ||||||||
Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively | 7,239 | - | 7,239 | |||||||||||
Other current assets | 3,751 | - | 3,751 | |||||||||||
Total current assets | 26,096 | - | 26,096 | |||||||||||
Property and equipment, net | 7,249 | 7,249 | ||||||||||||
Other intangible assets, net | 31,439 | (17,820 | ) | (a) (c) | 13,619 | |||||||||
Goodwill | 8,433 | - | 8,433 | |||||||||||
Operating lease right of use assets | 5,172 | - | 5,172 | |||||||||||
Other long-term assets | 42 | - | 42 | |||||||||||
Total assets | $ | 78,431 | $ | (17,820 | ) | $ | 60,611 | |||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Accounts payable | $ | 3,348 | $ | - | $ | 3,348 | ||||||||
Accrued salary and bonus | 2,247 | - | 2,247 | |||||||||||
Other accrued expenses | 9,737 | - | 9,737 | |||||||||||
Current liabilities from discontinued operations | 766 | - | 766 | |||||||||||
Total current liabilities | 19,498 | - | 16,098 | |||||||||||
Contingent consideration | 2,207 | - | 2,207 | |||||||||||
Operating lease liabilities, net of current portion | 3,940 | - | 3,940 | |||||||||||
Line of credit | 3,400 | - | 3,400 | |||||||||||
Other long-term liabilities | 4,557 | - | 4,557 | |||||||||||
Total liabilities | 30,202 | - | 30,202 | |||||||||||
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 4,036,595 shares issued and outstanding, respectively; | 402 | - | 402 | |||||||||||
Additional paid-in capital | 182,980 | - | 182,980 | |||||||||||
Accumulated deficit | (179,919 | ) | (17,820 | ) | (a) (c) | (197,739 | ) | |||||||
Treasury stock, at cost (11,781 shares) | (1,770 | ) | - | (1,770 | ) | |||||||||
Total stockholders’ equity | 1,693 | (17,820 | ) | (16,127 | ) | |||||||||
Total liabilities and stockholders’ equity | $ | 31,895 | $ | (17,820 | ) | $ | 14,075 | |||||||
Total liabilities, preferred stock and stockholders’ equity | $ | 78,431 | $ | (17,820 | ) | $ | 60,611 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||||||||||
Revenue, net | $ | 5,446 | $ | - | $ | 5,446 | $ | 6,270 | $ | - | $ | 6,270 | ||||||||||||||||
Cost of revenue (excluding amortization of $1,115 and $897 for the three months , respectively) | 3,850 | - | 3,850 | 3,031 | - | 3,031 | ||||||||||||||||||||||
Gross profit | 1,596 | - | 1,596 | 3,239 | - | 3,239 | ||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Sales and marketing | 1,596 | - | 1,596 | 2,959 | - | 2,959 | ||||||||||||||||||||||
Research and development | 550 | - | 550 | 647 | - | 647 | ||||||||||||||||||||||
General and administrative | 4,107 | - | 4,107 | 2,788 | - | 2,788 | ||||||||||||||||||||||
Acquisition related expense | - | - | - | 1,295 | - | 1,295 | ||||||||||||||||||||||
Acquisition related amortization expense | 1,031 | 84 | (a) | 1,115 | 813 | 84 | (a) | 897 | ||||||||||||||||||||
Total operating expenses | 7,284 | 84 | (a) | 7,368 | 8,502 | 84 | (a) | 8,586 | ||||||||||||||||||||
Operating loss | (5,688 | ) | (84 | ) | (a) | (5,772 | ) | (5,263 | ) | (84 | ) | (a) | (5,347 | ) | ||||||||||||||
Interest accretion | (167 | ) | - | (167 | ) | (91 | ) | - | (91 | ) | ||||||||||||||||||
Other income (expense), net | 438 | - | 438 | 74 | - | 74 | ||||||||||||||||||||||
Loss from continuing operations before tax | (5,417 | ) | (84 | ) | (a) | (5,501 | ) | (5,280 | ) | (84 | ) | (a) | (5,364 | ) | ||||||||||||||
Provision for income taxes | 13 | - | 13 | 5 | - | 5 | ||||||||||||||||||||||
Loss from continuing operations, net of tax | (5,430 | ) | (84 | ) | (a) | (5,514 | ) | (5,285 | ) | (84 | ) | (a) | (5,369 | ) | ||||||||||||||
Less adjustment for preferred stock deemed dividend | - | - | - | - | - | - | ||||||||||||||||||||||
Loss from continuing operations attributable to common stockholders | (5,430 | ) | (84 | ) | (a) | (5,514 | ) | (5,285 | ) | (84 | ) | (a) | (5,369 | ) | ||||||||||||||
(Loss) income from discontinued operations, net of tax | (66 | ) | - | (66 | ) | 65 | - | 65 | ||||||||||||||||||||
Net loss attributable to common stockholders | $ | (5,496 | ) | $ | (84 | ) | (a) | $ | (5,580 | ) | $ | (5,220 | ) | $ | (84 | ) | (a) | $ | (5,304 | ) | ||||||||
Basic and diluted loss per share of common stock: | ||||||||||||||||||||||||||||
From continuing operations | $ | (1.35 | ) | $ | (0.02 | ) | $ | (1.37 | ) | $ | (1.39 | ) | $ | (0.02 | ) | $ | (1.41 | ) | ||||||||||
From discontinued operations | (0.01 | ) | - | (0.01 | ) | 0.02 | - | 0.02 | ||||||||||||||||||||
Net loss per basic and diluted share of common stock | $ | (1.36 | ) | $ | (0.02 | ) | $ | (1.38 | ) | $ | (1.37 | ) | $ | (0.02 | ) | $ | (1.39 | ) | ||||||||||
Weighted average number of common shares and | ||||||||||||||||||||||||||||
common share equivalents outstanding: | ||||||||||||||||||||||||||||
Basic | 4,033 | 4,033 | 4,033 | 3,813 | 3,813 | 3,813 | ||||||||||||||||||||||
Diluted | 4,033 | 4,033 | 4,033 | 3,813 | 3,813 | 3,813 |
Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | |||||||||||||||||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||||||||||
Revenue, net | $ | 14,645 | $ | (141 | ) | (c) | $ | 14,504 | $ | 12,280 | $ | - | $ | 12,280 | ||||||||||||||
Cost of revenue (excluding amortization of $2,230 and $1,794 for the six months, respectively) | 9,963 | - | 9,963 | 5,654 | - | 5,654 | ||||||||||||||||||||||
Gross profit | 4,682 | (141 | ) | (c) | 4,541 | 6,626 | - | 6,626 | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||
Sales and marketing | 4,077 | - | 4,077 | 5,369 | - | 5,369 | ||||||||||||||||||||||
Research and development | 1,360 | - | 1,360 | 1,175 | - | 1,175 | ||||||||||||||||||||||
General and administrative | 8,993 | 6 | (c) | 8,999 | 5,299 | (177 | ) | (c) | 5,122 | |||||||||||||||||||
Acquisition related expense | - | - | - | 1,696 | - | 1,696 | ||||||||||||||||||||||
Acquisition related amortization expense | 2,062 | 168 | (a) | 2,230 | 1,626 | 168 | (a) | 1,794 | ||||||||||||||||||||
Total operating expenses | 16,492 | 174 | (a) (c) | 16,666 | 15,165 | (9 | ) | (a) (c) | 15,156 | |||||||||||||||||||
Operating loss | (11,810 | ) | (315 | ) | (a) (c) | (12,125 | ) | (8,539 | ) | 9 | (a) (c) | (8,530 | ) | |||||||||||||||
Interest accretion | (276 | ) | - | (276 | ) | (220 | ) | - | (220 | ) | ||||||||||||||||||
Other income (expense), net | 485 | - | 485 | 123 | - | 123 | ||||||||||||||||||||||
Loss from continuing operations before tax | (11,601 | ) | (315 | ) | (a) (c) | (11,916 | ) | (8,636 | ) | 9 | (a) (c) | (8,627 | ) | |||||||||||||||
Provision for income taxes | 28 | - | 28 | 10 | - | 10 | ||||||||||||||||||||||
Loss from continuing operations, net of tax | (11,629 | ) | (315 | ) | (a) (c) | (11,944 | ) | (8,646 | ) | 9 | (a) (c) | (8,637 | ) | |||||||||||||||
Less adjustment for preferred stock deemed dividend | (3,033 | ) | - | (3,033 | ) | - | - | - | ||||||||||||||||||||
Loss from continuing operations attributable to common stockholders | (14,662 | ) | (315 | ) | (a) (c) | (14,977 | ) | (8,646 | ) | 9 | (a) (c) | (8,637 | ) | |||||||||||||||
(Loss) income from discontinued operations, net of tax | (130 | ) | - | (130 | ) | 7 | - | 7 | ||||||||||||||||||||
Net loss attributable to common stockholders | $ | (14,792 | ) | $ | (315 | ) | (a) (c) | $ | (15,107 | ) | $ | (8,639 | ) | $ | 9 | (a) (c) | $ | (8,630 | ) | |||||||||
Basic and diluted loss per share of common stock: | ||||||||||||||||||||||||||||
From continuing operations | $ | (3.65 | ) | $ | (0.08 | ) | $ | (3.73 | ) | $ | (2.36 | ) | $ | - | $ | (2.36 | ) | |||||||||||
From discontinued operations | (0.03 | ) | - | (0.03 | ) | - | - | - | ||||||||||||||||||||
Net loss per basic and diluted share of common stock | $ | (3.68 | ) | $ | (0.08 | ) | $ | (3.76 | ) | $ | (2.36 | ) | $ | - | $ | (2.36 | ) | |||||||||||
Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||||||||||||||
Basic | 4,018 | 4,018 | 4,018 | 3,665 | 3,665 | 3,665 | ||||||||||||||||||||||
Diluted | 4,018 | 4,018 | 4,018 | 3,665 | 3,665 | 3,665 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
As Previously Reported | As Restated | |||||||||||||||||||||||
For The Six Months Ended | Restatement | Restatement | For The Six Months Ended | |||||||||||||||||||||
June 30, 2020 | Amount | Reference | June 30, 2020 | |||||||||||||||||||||
Shares | Amount | 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 | |||||||||||||||||||
Common stock issued | - | - | - | - | ||||||||||||||||||||
Balance at June 30 | 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 | ) | |||||||||||||||||
Treasury stock purchased | 7 | (49 | ) | - | 7 | (49 | ) | |||||||||||||||||
Balance at June 30 | 19 | (1,770 | ) | - | 19 | (1,770 | ) | |||||||||||||||||
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 | |||||||||||||||||||||
Common Stock issued | - | - | - | |||||||||||||||||||||
Stock-based compensation expense | 400 | - | 400 | |||||||||||||||||||||
Balance at June 30 | 182,980 | - | 182,980 | |||||||||||||||||||||
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 | ) | ||||||||||||||||||
Net loss | (5,496 | ) | (84 | ) | (a) | (5,580 | ) | |||||||||||||||||
Balance at June 30 | (179,919 | ) | (17,820 | ) | (197,739 | ) | ||||||||||||||||||
Total stockholders’ equity | $ | 1,693 | $ | (17,820 | ) | $ | (16,127 | ) |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
As Previously Reported | As Restated | |||||||||||||||||||||||
For The Six Months Ended | Restatement | Restatement | For The Six Months Ended | |||||||||||||||||||||
June 30, 2019 | Amount | Reference | June 30, 2019 | |||||||||||||||||||||
Shares | Amount | Shares | Amount | |||||||||||||||||||||
Common stock: | ||||||||||||||||||||||||
Balance at January 1 | 2,877 | $ | 287 | $ | - | 2,877 | $ | 287 | ||||||||||||||||
Common stock issued | 9 | 1 | - | 9 | 1 | |||||||||||||||||||
Common stock issued through offerings | 933 | 94 | - | 933 | 94 | |||||||||||||||||||
Balance at March 31 | 3,819 | 382 | - | 3,819 | 382 | |||||||||||||||||||
Common stock issued | 10 | 1 | 10 | 1 | ||||||||||||||||||||
Balance at June 30 | 3,829 | 383 | - | 3,829 | 383 | |||||||||||||||||||
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 | ) | |||||||||||||||||
Treasury stock purchased | - | - | - | - | - | |||||||||||||||||||
Balance at June 30 | 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 | |||||||||||||||||||||
Stock-based compensation expense | 266 | - | 266 | |||||||||||||||||||||
Balance at March 31 | 181,954 | - | 181,954 | |||||||||||||||||||||
Common Stock issued | 72 | - | 72 | |||||||||||||||||||||
Stock-based compensation expense | 205 | - | 205 | |||||||||||||||||||||
Balance at June 30 | 182,231 | - | 182,231 | |||||||||||||||||||||
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 | ) | ||||||||||||||||||
Net loss | (5,220 | ) | (84 | ) | (a) | (5,304 | ) | |||||||||||||||||
Balance at June 30 | (150,073 | ) | (17,483 | ) | (167,556 | ) | ||||||||||||||||||
Total stockholders’ equity | $ | 30,829 | $ | (17,483 | ) | $ | 13,346 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
For The Six Months Ended June 30, | ||||||||||||||
2020 | 2020 | |||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||
Cash Flows From Operating Activities | ||||||||||||||
Net loss | $ | (11,759 | ) | $ | (315 | ) | (a) (c) | $ | (12,074 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
Depreciation and amortization | 2,540 | 168 | (a) | 2,708 | ||||||||||
Interest accretion | 276 | - | 276 | |||||||||||
Mark to market on warrants | (49 | ) | - | (49 | ) | |||||||||
Stock-based compensation | 818 | - | 818 | |||||||||||
Bad debt expense | 250 | - | 250 | |||||||||||
Other gains and expenses, net | - | - | - | |||||||||||
Other changes in operating assets and liabilities: | ||||||||||||||
Decrease (increase) in accounts receivable | 2,708 | 141 | (c) | 2,849 | ||||||||||
(Increase) decrease in other current assets | (788 | ) | - | (788 | ) | |||||||||
(Decrease) increase in accounts payable | (1,464 | ) | 103 | (c) | (1,361 | ) | ||||||||
(Decrease) increase in accrued salaries and bonus | (94 | ) | - | (94 | ) | |||||||||
(Decrease) increase in accrued liabilities | 856 | (97 | ) | (c) | 759 | |||||||||
Increase in long-term liabilities | 33 | - | 33 | |||||||||||
Net cash used in operating activities | (6,673 | ) | - | (6,673 | ) | |||||||||
Cash Flows From Investing Activity | ||||||||||||||
Purchase of property and equipment | (913 | ) | - | (913 | ) | |||||||||
Sale of property and equipment | - | - | - | |||||||||||
Net cash provided by investing activity | (913 | ) | - | (913 | ) | |||||||||
Cash Flows From Financing Activities | ||||||||||||||
Issuance of common stock, net of expenses | 434 | - | 434 | |||||||||||
Borrowings on Line of Credit, net | 400 | - | 400 | |||||||||||
Issuance of Series B preferred stock, net of expenses | 19,537 | - | 19,537 | |||||||||||
Net cash provided by financing activities | 20,371 | - | 20,371 | |||||||||||
Net increase in cash and cash equivalents | 12,785 | - | 12,785 | |||||||||||
Cash and cash equivalents – beginning | 2,321 | - | 2,321 | |||||||||||
Cash and cash equivalents – ending | $ | 15,106 | $ | - | $ | 15,106 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
For The Six Months Ended June 30, | ||||||||||||||
2019 | 2019 | |||||||||||||
As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||
Cash Flows From Operating Activities | ||||||||||||||
Net loss | $ | (8,639 | ) | $ | 9 | (a) (c) | $ | (8,630 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
Depreciation and amortization | 1,749 | 168 | (a) | 1,917 | ||||||||||
Interest accretion | 220 | - | 220 | |||||||||||
Mark to market on warrants | (45 | ) | - | (45 | ) | |||||||||
Stock-based compensation | 990 | - | 990 | |||||||||||
Bad debt expense | 499 | - | 499 | |||||||||||
Other gains and expenses, net | 18 | - | 18 | |||||||||||
Other changes in operating assets and liabilities: | ||||||||||||||
Decrease (increase) in accounts receivable | (3,982 | ) | - | (3,982 | ) | |||||||||
(Increase) decrease in other current assets | (252 | ) | - | (252 | ) | |||||||||
(Decrease) increase in accounts payable | 530 | - | 530 | |||||||||||
(Decrease) increase in accrued salaries and bonus | (141 | ) | (120 | ) | (c) | (261 | ) | |||||||
(Decrease) increase in accrued liabilities | 1,154 | (57 | ) | (c) | 1,097 | |||||||||
Increase in long-term liabilities | 114 | - | 114 | |||||||||||
Net cash used in operating activities | (7,785 | ) | - | (7,785 | ) | |||||||||
Cash Flows From Investing Activity | ||||||||||||||
Purchase of property and equipment | (48 | ) | - | (48 | ) | |||||||||
Sale of property and equipment | 13 | - | 13 | |||||||||||
Net cash provided by investing activity | (35 | ) | - | (35 | ) | |||||||||
Cash Flows From Financing Activities | ||||||||||||||
Issuance of common stock, net of expenses | 5,962 | - | 5,962 | |||||||||||
Borrowings on Line of Credit, net | - | - | - | |||||||||||
Issuance of Series B preferred stock, net of expenses | - | - | - | |||||||||||
Net cash provided by financing activities | 5,962 | - | 5,962 | |||||||||||
Net decrease in cash and cash equivalents | (1,858 | ) | - | (1,858 | ) | |||||||||
Cash and cash equivalents – beginning | 6,068 | - | 6,068 | |||||||||||
Cash and cash equivalents – ending | $ | 4,210 | $ | - | 4,210 |
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 the Company and its wholly-owned subsidiaries (Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation, Interpace Pharma Solutions, Inc. and Interpace Diagnostics, 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.
7 |
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 business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the six-month period ended June 30, 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. GOING CONCERN
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 June 30, 2020,2021, the Company had cash and cash equivalents, net of $15.1 restricted cash of $3.8 million, net accounts receivable of $7.2 $7.3 million, total current assets, net of $26.1 restricted cash of $14.4million and total current liabilities of $16.1 $22.8million. For the six-monthssix month period ended June 30, 2020,2021, the Company had a net loss of $12.1 $7.7million and cash used in operating activities was $6.7 $6.8 million. As of September 30, 2020August 5, 2021 we had approximately $5.2$3.8 million of cash on hand, due principally to additional losses incurred through September 2020, slower collections due to the pandemic, as well as repaymentnet of approximately $3.4 million to SVB under our line of credit, which we are currently unable to borrow under.restricted cash.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular informationThe Company has and may continue to delay, scale-back, or eliminate certain of its activities and other aspects of its operations until such time as the Company is successful in thousands, except per share amounts)
The Company’s cash and cash equivalents balance is decreasing and 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 (as defined and further discussed in Note 16, Equity); borrowings under the Revolving Line of Credit (as defined below) with Silicon Valley Bank (“SVB”), once reinstated, as well as by increasing our line of credit limit as a result of thesecuring additional accounts receivable acquired in July 2019 as a result of our acquisition of the Biopharma business of Cancer Genetics, Inc. (“CGI”), and presently known as our pharma services business (which requires a modification to the bank agreement and approval by both SVB and the preferred shareholders), as well as revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options.funding. The Company is currently unableexploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources.
The delisting from Nasdaq of our common stock which is now quoted for trading on OTCQX and the Company’s resulting inability to borrow underuse Form S-3 for offerings by it may each have an adverse impact on our ability to raise additional capital. The quotation of our common stock on OTCQX may provide significantly less liquidity than when our stock was listed on Nasdaq and we may experience greater difficulty in raising capital through the public or private sale of equity securities. 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 line of credit and there isability to obtain additional funding. There can be no assurance, however, that the Company will be successful in meetingobtaining 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 its capitalanticipated operating cash requirements priorthrough the end of the third quarter of 2021. However, the Company’s secured promissory notes totaling $7.5 million are due August 31, 2021 and the Company does not currently have the cash balance necessary to becoming cash flow positive.repay the notes. The Company intends to address this deficiency by seeking an additional extension of the maturity date which may not be forthcoming and/or utilizing the debt or equity markets to raise sufficient funds to repay the notes. These liquidity factors among others, have raisedraise substantial doubtsdoubt about ourthe Company’s ability to continue as a going concern.
In September 2019, we entered into the Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell shares of our common stock in an aggregate offering price of up to $3.7 million through the Agent (the “ATM arrangement”). As of June 30, 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 relative to the ATM arrangement and related share sales. In addition, if our common stock is delisted by Nasdaq Capital Markets (“Nasdaq”) due to our failure to meet the minimum stockholders’ equity requirement, we may no longer be able to eligible to sell under the Agreement as well. See Note 19, Subsequent Events.
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 million. See Note 16, Equity, for more detail.
The Company maintains a secured revolving line of credit facility (the “Revolving Line of Credit”), with a limit of up to $4.0 million, available for working capital purposes, with 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. Outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. As of June 30, 2020, $3.4 million was outstanding and there was no remaining Revolving Line of Credit available.
As of July 31, 2020, the Company was in violation of a financial covenant under its Loan and Security Agreement, dated November 13, 2018, as amended March 18, 2019 (as so amended, the “SVB Loan Agreement”). Additionally, due to the untimely filing of our second quarter form 10-Q (this Report) with the SEC subsequent to the filing deadline, the Company is in violation of the SVB Loan Agreement and during September 2020, the Company paid down the outstanding Revolving Line of Credit balance of $3.4 million in full. Additionally during September 2020, the Company transferred $0.35 million into a restricted cash money market account with SVB to serve as collateral for the Company’s letters of credit supporting two of its facilities. Prior to September 2020, the collateral for the letters of credit was accounted for as a reduction in the availability under the Revolving Line of Credit.
While the Company has received a waiver of default from SVB and is in compliance with the terms of the SVB Loan Agreement as of the date of this Report, we currently do not have the ability to drawn down on the Revolving 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 for the third quarter of fiscal 2020 and possibly beyond.
During April 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, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, which is recorded in other accrued expenses on the Company’s condensed consolidated balance sheet, 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, beginning with Medicare billings in April 2021 and the HSS grant is subject to certain conditions regarding its use. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. The Company applied the HHS grant in its entirety towards qualified second quarter expenses related to laboratory equipment and supplies purchased to prevent, prepare for, and respond to coronavirus, including development of coronavirus and serology tests, as well as revenue lost during the second quarter as a result of the pandemic. The portion attributed to lost revenue, $0.45 million, was recorded in Other income and $0.2 million was recorded as an offset to cost of revenue expenses.
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 Secured Creditor Asset Purchase Agreement dated July 15, 2019, by and among the Company, CGI, Interpace Diagnostics Group, Inc. and Partners for Growth IV, L.P. (“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 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.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
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,net realizable value (“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.
9 |
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 affects net revenue in the period such variances become known.
For our pharma services, project 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. 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.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
Financing and Payment
For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical 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 in the period in which they have been 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-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.
10 |
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.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
Other Current Assets
Other current assets consisted of the following as of June 30, 20202021 and December 31, 2019:2020:
SCHEDULE OF OTHER CURRENT ASSETS
June 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Lab supply inventory | 2,331 | 1,825 | $ | 2,261 | $ | 2,052 | ||||||||||
Prepaid expenses | 728 | 971 | 783 | 625 | ||||||||||||
Funds in escrow | - | 888 | ||||||||||||||
Due from CGI | 525 | 92 | ||||||||||||||
Other | 167 | 75 | 226 | 45 | ||||||||||||
Total other current assets | $ | 3,751 | $ | 3,851 | $ | 3,270 | $ | 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-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.
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- and six-month periods ended June 30, 20202021 and 20192020 is as follows:
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Basic weighted average number of common shares | 4,033 | 3,813 | 4,018 | 3,665 | 4,102 | 4,033 | 4,095 | 4,018 | ||||||||||||||||||||||||
Potential dilutive effect of stock-based awards | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Diluted weighted average number of common shares | 4,033 | 3,813 | 4,018 | 3,665 | 4,102 | 4,033 | 4,095 | 4,018 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
The Company’s Series B Preferred Stock, on an as converted basis of 7,833,334 shares for the three- and six-months ended June 30, 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Options | 747 | 638 | 747 | 638 | ||||||||||||
Restricted stock and restricted stock units (RSUs) | 373 | 42 | 373 | 42 | ||||||||||||
Warrants | 1,405 | 1,420 | 1,405 | 1,420 | ||||||||||||
2,525 | 2,100 | 2,525 | 2,100 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Options | 638 | 394 | 638 | 394 | ||||||||||||
Stock-settled stock appreciation rights (SARs) | - | 2 | - | 2 | ||||||||||||
Restricted stock | 6 | - | 6 | - | ||||||||||||
Restricted stock units (RSUs) | 36 | 54 | 36 | 54 | ||||||||||||
Warrants | 1,420 | 1,420 | 1,420 | 1,420 | ||||||||||||
2,100 | 1,870 | 2,100 | 1,870 |
Reclassifications
The Company reclassified certain prior period balances to conform to the current year presentation.
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 $15.6 million, with goodwill of approximately $8.3 $8.3 million and identifiable intangible assets of approximately $7.3$7.3 million. In 2019, there was an adjustment to goodwill of $0.1 million. The goodwill balance at June 30, 20202021 was $8.4 $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of June 30, 20202021 and December 31, 20192020 are as follows:
SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS CARRYING VALUE
As of June 30, 2021 | As of December 31, 2020 | |||||||||||
Life | Carrying | Carrying | ||||||||||
(Years) | Amount | Amount | ||||||||||
(unaudited) | ||||||||||||
Asuragen acquisition: | ||||||||||||
Thyroid | 9 | $ | 8,519 | $ | 8,519 | |||||||
RedPath acquisition: | ||||||||||||
Pancreas test | 7 | 16,141 | 16,141 | |||||||||
Barrett’s test | 9 | 6,682 | 6,682 | |||||||||
BioPharma acquisition: | ||||||||||||
Trademarks | 10 | 1,600 | 1,600 | |||||||||
Customer relationships | 8 | 5,700 | 5,700 | |||||||||
CLIA Lab | 2.3 | $ | 609 | $ | 609 | |||||||
Total | $ | 39,251 | $ | 39,251 | ||||||||
Accumulated Amortization | $ | (30,125 | ) | $ | (27,900 | ) | ||||||
Net Carrying Value | $ | 9,126 | $ | 11,351 |
As Restated | ||||||||||||
As of June 30, 2020 | As of December 31, 2019 | |||||||||||
Life | Carrying | Carrying | ||||||||||
(Years) | Amount | Amount | ||||||||||
Asuragen acquisition: | ||||||||||||
Thyroid | 9 | $ | 8,519 | $ | 8,519 | |||||||
RedPath acquisition: | ||||||||||||
Pancreas test | 7 | 16,141 | 16,141 | |||||||||
Barrett’s test | 9 | 6,719 | 6,719 | |||||||||
BioPharma acquisition: | ||||||||||||
Trademarks | 10 | 1,600 | 1,600 | |||||||||
Customer relationships | 8 | 5,700 | 5,700 | |||||||||
CLIA Lab | 2.3 | $ | 609 | $ | 609 | |||||||
Total | $ | 39,288 | $ | 39,288 | ||||||||
Accumulated Amortization | $ | (25,669 | ) | $ | (23,439 | ) | ||||||
Net Carrying Value | $ | 13,619 | $ | 15,849 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
Amortization expense was approximately $1.1$1.1 million and $0.9 million for both the three-month periods ended June 30, 20202021 and 2019,2020, respectively and approximately $2.2$2.2 million and $1.8 million for both the six-month periods ended June 30, 20202021 and 2019,2020, respectively. Estimated amortization expense for the next five years is as follows:
SCHEDULE OF FUTURE ESTIMATED AMORTIZATION EXPENSE
As Restated | ||||||||||||||||||||||||||||||||||||
2020 | 2021 | 2022 | 2023 | 2024 | ||||||||||||||||||||||||||||||||
2021 | 2021 | 2022 | 2023 | 2024 | 2025 | |||||||||||||||||||||||||||||||
$ | 4,871 | $ | 4,078 | $ | 2,156 | $ | 1,745 | $ | 873 | 4,078 | $ | 2,155 | $ | 2,099 | $ | 873 | $ | 873 |
12 |
The following table displays a roll forward of the carrying amount of goodwill from December 31, 20192020 to June 30, 2020:2021:
SCHEDULE OF GOODWILL CARRYING VALUE
Carrying | ||||
Amount | ||||
Balance as of December 31, 2019 | $ | 8,433 | ||
Adjustments | - | |||
Balance as of June 30, 2020 | $ | 8,433 |
Carrying | ||||
Amount | ||||
Balance as of December 31, 2020 | $ | 8,433 | ||
Adjustments | - | |||
Balance as of June 30, 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. |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
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:
SCHEDULE OF FINANCIAL INSTRUMENT MEASURED ON RECURRING BASIS
As of June 30, 2021 | Fair Value Measurements | |||||||||||||||||||||||||||||||||||||||
As of June 30, 2020 | Fair Value Measurements | Carrying | Fair | As of June 30, 2021 | ||||||||||||||||||||||||||||||||||||
Carrying | Fair | As of June 30, 2020 | Amount | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | (unaudited) | |||||||||||||||||||||||||||||||||||
Liabilities: | (unaudited) | |||||||||||||||||||||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||||||||||||||||||||||
Asuragen (1) | $ | 2,861 | $ | 2,861 | $ | - | $ | - | $ | 2,861 | $ | 2,175 | $ | 2,175 | $ | - | $ | - | $ | 2,175 | ||||||||||||||||||||
Other long-term liabilities: | ||||||||||||||||||||||||||||||||||||||||
Warrant liability (2) | 33 | 33 | - | - | 33 | 230 | 230 | - | - | 230 | ||||||||||||||||||||||||||||||
$ | 2,894 | $ | 2,894 | $ | - | $ | - | $ | 2,894 | $ | 2,405 | $ | 2,405 | $ | - | $ | - | $ | 2,405 |
As of December 31, 2019 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of December 31, 2019 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen (1) | $ | 2,893 | $ | 2,893 | $ | - | $ | - | $ | 2,893 | ||||||||||
Other long-term liabilities: | ||||||||||||||||||||
Warrant liability (2) | 82 | 82 | - | - | 82 | |||||||||||||||
$ | 2,975 | $ | 2,975 | $ | - | $ | - | $ | 2,975 |
13 |
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
(1) | See Note 9, Accrued Expenses and Long-Term Liabilities | |
(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 June 30, 20202021 is as follows:
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.
SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION
Cancellation | Adjustment to Fair | |||||||||||||||||||||||
of Obligation/ | Value/ | |||||||||||||||||||||||
December 31, 2020 | Payments | Accretion | Conversions Exercises | Mark to Market | June 30, 2021 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Asuragen | $ | 2,216 | $ | (254 | ) | $ | 270 | $ | - | $ | (57 | ) | $ | 2,175 | ||||||||||
Underwriters Warrants | 21 | - | - | - | 209 | 230 | ||||||||||||||||||
$ | 2,237 | $ | (254 | ) | $ | 270 | $ | - | $ | 152 | $ | 2,405 |
Cancellation | Adjustment | |||||||||||||||||||||||
of Obligation/ | to Fair Value/ | |||||||||||||||||||||||
December 31, 2019 | Payments | Accretion | Conversions Exercises | Mark to Market | June 30, 2020 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Asuragen | $ | 2,893 | $ | (308 | ) | $ | 276 | $ | - | $ | - | $ | 2,861 | |||||||||||
Underwriters Warrants | 82 | - | - | - | (49 | ) | 33 | |||||||||||||||||
$ | 2,975 | $ | (308 | ) | $ | 276 | $ | - | $ | (49 | ) | $ | 2,894 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
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:
SCHEDULE OF FINANCING AND OPERATING LEASES
Classification on the Balance Sheet | June 30, 2020 | Classification on the Balance Sheet | June 30, 2021 | December 31, 2020 | ||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Financing lease assets | Property and equipment, net | $ | 528 | Property and equipment, net | $ | 670 | $ | 597 | ||||||||
Operating lease assets | Operating lease right of use assets | 5,172 | Operating lease right of use assets | 3,768 | 4,384 | |||||||||||
Total lease assets | $ | 5,700 | $ | 4,438 | $ | 4,981 | ||||||||||
Liabilities | ||||||||||||||||
Current | ||||||||||||||||
Financing lease liabilities | Other accrued expenses | $ | 150 | Other accrued expenses | $ | 117 | $ | 177 | ||||||||
Operating lease liabilities | Other accrued expenses | 1,171 | Other accrued expenses | 898 | 1,027 | |||||||||||
Total current lease liabilities | $ | 1,321 | $ | 1,015 | $ | 1,204 | ||||||||||
Noncurrent | ||||||||||||||||
Financing lease liabilities | Other long-term liabilities | 57 | Other long-term liabilities | 92 | 138 | |||||||||||
Operating lease liabilities | Operating lease liabilities, net of current portion | 3,940 | Operating lease liabilities, net of current portion | 3,109 | 3,540 | |||||||||||
Total long-term lease liabilities | 3,997 | 3,201 | 3,678 | |||||||||||||
Total lease liabilities | $ | 5,318 | $ | 4,216 | $ | 4,882 |
The weighted average remaining lease term for the Company’s operating leases was 7.1 years as of June 30, 2021 and 7.1 years as of December 31, 2020 and the weighted average discount rate for those leases was 6.0% as of June 30, 2021 and December 31, 2020, respectively. The Company’s operating lease expenses are recorded within “Cost of revenue” and “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.
In June 2020, the Company entered into an amendment of its North Carolina lease extending it for an additional ten years, commencing on June 1, 2020 and continuing until May 31, 2030. 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%. Pursuant to the amendment, the Company has two options to extend the term for a period of five years each. 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.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
The table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of June 30, 2020:2021:
SCHEDULE OF MATURITIES OF OPERATING AND FINANCING LEASE LIABILITIES
Operating Leases | Financing Leases | Operating Leases | Financing Leases | |||||||||||||
2020 | 991 | 98 | ||||||||||||||
2021 | 1,235 | 120 | ||||||||||||||
2021 (remaining through December 31) | $ | 548 | $ | 82 | ||||||||||||
2022 | 1,028 | 13 | 1,028 | 78 | ||||||||||||
2023 | 629 | - | 629 | 65 | ||||||||||||
2024-2030 | 2,717 | |||||||||||||||
2024 | 390 | - | ||||||||||||||
2025 | 402 | - | ||||||||||||||
2026 | 414 | - | ||||||||||||||
Thereafter | 1,510 | - | ||||||||||||||
Total minimum lease payments | 6,600 | 231 | 4,921 | 225 | ||||||||||||
Less: amount of lease payments representing effects of discounting | 1,489 | 24 | 914 | 16 | ||||||||||||
Present value of future minimum lease payments | 5,111 | 207 | 4,007 | 209 | ||||||||||||
Less: current obligations under leases | 1,171 | 150 | 898 | 117 | ||||||||||||
Long-term lease obligations | $ | 3,940 | $ | 57 | $ | 3,109 | $ | 92 |
As of June 30, 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:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELABLE LEASES
Less than | 1 to 3 | 3 to 5 | After | Less than | 1 to 3 | 3 to 5 | After | |||||||||||||||||||||||||||||||||
Total | 1 Year | Years | Years | 5 Years | Total | 1 Year | Years | Years | 5 Years | |||||||||||||||||||||||||||||||
Operating lease obligations | $ | 6,600 | $ | 991 | $ | 2,263 | $ | 1,020 | $ | 2,326 | $ | 4,921 | $ | 548 | $ | 1,657 | $ | 792 | $ | 1,924 | ||||||||||||||||||||
Total | $ | 6,600 | $ | 991 | $ | 2,263 | $ | 1,020 | $ | 2,326 | $ | 4,921 | $ | 548 | $ | 1,657 | $ | 792 | $ | 1,924 |
15 |
8. | COMMITMENTS AND CONTINGENCIES |
Litigation
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. There is no pending litigation involving the Company at this time.
Due to the nature of the businesses in which the Company is engaged, it is subject to certain risks. Such risks include, among others, risk of liability for personal injury or death to persons using products or services that the Company promotes or commercializes. There can be no assurance that substantial claims or liabilities will not arise in the future due to the nature of the Company’s business activities and recent increases in litigation related to healthcare products.activities. There is also the risk of employment related litigation and other litigation in 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.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
9. | ACCRUED EXPENSES AND LONG-TERM LIABILITIES |
Other accrued expenses consisted of the following as of June 30, 20202021 and December 31, 2019:2020:
SCHEDULE OF OTHER ACCRUED EXPENSES
June 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Accrued royalties | $ | 2,237 | $ | 1,934 | $ | 3,320 | $ | 2,710 | ||||||||
Upfront Medicare payment | 1,174 | 2,066 | ||||||||||||||
Operating lease liability | 898 | 1,027 | ||||||||||||||
All others | 897 | 1,182 | ||||||||||||||
Accrued professional fees | 719 | 854 | ||||||||||||||
Unclaimed property | 565 | 565 | ||||||||||||||
Contingent consideration | 654 | 502 | 459 | 398 | ||||||||||||
Medicare payment advance | 2,066 | - | ||||||||||||||
Operating lease liability | 1,171 | 1,321 | ||||||||||||||
Accrued capital expenditures | 295 | - | ||||||||||||||
Accrued pharma services invoices | 293 | 108 | ||||||||||||||
Taxes payable | 289 | 334 | ||||||||||||||
Accrued lab costs - diagnostics | 172 | 161 | ||||||||||||||
Financing lease liability | 150 | 184 | 117 | 177 | ||||||||||||
ESPP payable | 88 | 108 | ||||||||||||||
Accrued sales and marketing - diagnostics | 78 | 51 | ||||||||||||||
Deferred revenue | 209 | 457 | 43 | 54 | ||||||||||||
Payable to CGI | - | 888 | ||||||||||||||
Accrued sales and marketing - diagnostics | 103 | 197 | ||||||||||||||
Accrued lab costs - diagnostics | 125 | 163 | ||||||||||||||
Accrued professional fees | 1,196 | 1,399 | ||||||||||||||
Taxes payable | 311 | 403 | ||||||||||||||
Unclaimed property | 565 | 565 | ||||||||||||||
All others | 950 | 1,463 | ||||||||||||||
Total other accrued expenses | $ | 9,737 | $ | 9,476 | $ | 9,407 | $ | 9,795 |
16 |
Long-term liabilities consisted of the following as of June 30, 20202021 and December 31, 2019:2020:
SCHEDULE OF LONG TERM LIABILITIES
June 30, 2020 | December 31, 2019 | June 30, 2021 | December 31, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Uncertain tax positions | $ | 4,454 | $ | 4,342 | ||||||||||||
Warrant liability | $ | 33 | $ | 82 | 230 | 21 | ||||||||||
Uncertain tax positions | 4,210 | 4,081 | ||||||||||||||
Other | 92 | 138 | ||||||||||||||
Deferred revenue | 239 | 269 | 25 | 136 | ||||||||||||
Other | 75 | 141 | ||||||||||||||
Total other long-term liabilities | $ | 4,557 | $ | 4,573 | $ | 4,801 | $ | 4,637 |
10. | STOCK-BASED COMPENSATION |
Historically, In the second quarter of 2020, the Company issued performance-based options, which requires the Company to assess the likelihood of achieving certain performance milestones on a quarterly basis; approximately $0.3 million in stock compensation expense is expected to be incurred over the amortization period for these options. Upon exercise, new shares will be issued by the Company. The restricted shares and restricted stock units (“RSUs”) granted to Board members and employees generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.
SCHEDULE OF FAIR VALUE ASSUMPTIONS OF STOCK OPTIONS
June 30, 2020 | June 30, 2019 | June 30, 2021 | June 30, 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Risk-free interest rate | 1.20 | % | 2.51 | % | 0.78 | % | 1.20 | % | ||||||||
Expected life | 5.9 years | 6.0 years | years | years | ||||||||||||
Expected volatility | 124.16 | % | 127.81 | % | 134.79 | % | 124.16 | % | ||||||||
Dividend yield | - | - | - | - |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
During March 2021, the Company granted stock options with an exercise price of $and RSUs. The market value of the Company’s common stock was $at the grant date of these awards. The Company recognized approximately $0.4 $million and $0.5 $million of stock-based compensation expense during the three-month periods ended June 30, 20202021 and 2019,2020, respectively and approximately $0.8 $million and $1.0 $million forof stock-based compensation expense during the six-month periods ended June 30, 2021 and 2020, and 2019, respectively. The following table has a breakout of stock-based compensation expense by line item.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Cost of revenue | $ | 52 | $ | 55 | $ | 102 | $ | 127 | ||||||||
Sales and marketing | 78 | 37 | 125 | 97 | ||||||||||||
Research and development | 24 | 30 | 59 | 69 | ||||||||||||
General and administrative | 397 | 278 | 551 | 525 | ||||||||||||
Total stock compensation expense | $ | 551 | $ | 400 | $ | 837 | $ | 818 |
17 |
11. | INCOME TAXES |
Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows use of the discrete method when it provides a better estimate of income tax expense. Due to the Company’s valuation allowance position, it is the Company’s position that the discrete method provides a more accurate estimate of income tax expense and therefore income tax expense for the current quarter has been presented using the discrete method. As the year progresses, the Company refines its estimate based on the facts and circumstances by each tax jurisdiction. The following table summarizes income tax expense on loss from continuing operations and the effective tax rate for the three- and six-month periods ended June 30, 20202021 and 2019:2020:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATION
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2020 | 2019 | 2020 | 2019 | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||||||
Provision for income tax | $ | 13 | $ | 5 | $ | 28 | $ | 10 | $ | 16 | $ | 13 | $ | 31 | $ | 28 | ||||||||||||||||
Effective income tax rate | 0.2 | % | 0.1 | % | 0.2 | % | 0.1 | % | (0.5 | )% | (0.2 | )% | (0.4 | )% | (0.2 | )% |
Income tax expense for both the three- and six-month periods ended June 30, 20202021 and 20192020 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 one1 segment which is the business of developing and selling clinical and pharma services.
13. | DISCONTINUED OPERATIONS |
The components of liabilities classified as discontinued operations consist of the following as of June 30, 20202021 and December 31, 2019:2020:
SCHEDULE OF DISCONTINUED OPERATIONS
June 30, 2020 | December 31, 2019 | June 30, 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- and six-months ended June 30, 2021 and 2020.
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Income from discontinued operations, before tax | $ | - | $ | - | $ | - | $ | - | ||||||||
Income tax expense | 58 | 66 | 112 | 130 | ||||||||||||
Loss from discontinued operations, net of tax | $ | (58 | ) | $ | (66 | ) | $ | (112 | ) | $ | (130 | ) |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
14. |
Secured Promissory Notes
On November 13, 2018,January 7, 2021, the Company Interpace Diagnostics Corporation, and Interpace Diagnostics, LLC entered into promissory notes with Ampersand, in the SVB Loan Agreement, which provides for up to $4.0amount of $3 million, and 1315 Capital, in the amount of debt financing consisting of a term loan of up to $850,000$2 million, respectively (together, the “Notes”) and a Revolving Line of Credit based on its outstanding accounts receivable of up to $3.75 million. The ability to use the term loan portion of the SVB Loan Agreement expired in 2019.related security agreement (the “Security Agreement”).
Borrowings under the Revolving Line of Credit are typically the lower of: (i) $3.75 million or (ii) 80%Ampersand holds eligible accounts receivable (as adjustedSeries B Convertible Preferred Stock, which are convertible from time to time into an aggregate of shares of our Common Stock, and 1315 Capital holds shares of the Company Series B Convertible Preferred Stock, which are convertible from time to time into an aggregate of shares of our 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. 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 SVB)1315 Capital have been delegated pursuant to the related Support Agreement (See Note 16). Revolving LineAs a result, the Company considers the Notes and Security Agreement to be a related party transaction. shares of the Company’s
The rate of Credit outstanding amounts incur interest at a rateon the Notes is equal to eight percent (8.0%) per annum equaland 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.
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 of the Notes remained the earlier of June 30, 2021and the date on which all amounts become due upon the occurrence of any event of default and the interest rate remained 8%, and except with respect to their respective principal amounts, the terms of the Notes and the Security Agreement were otherwise unchanged. Through June 30, 2021, approximately $0.1 million in financing fees have been paid.
On June 24, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the Wall Street Journal Prime Rate plus 0.5%.earlier of (a) August 31, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On June 25, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner. Except with respect to their respective maturity dates, the terms of the Notes are otherwise unchanged. The Security Agreement remains in full force and effect, and was not amended in connection with the amendments to the Notes.
In the case of both amendments, the Company reviewed the changes in accordance with ASC 470 and determined they should be treated as modifications. As of June 30, 2021 the Company has incurred approximately $18,000 in additional deferred financing expenses associated with the amendments.
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 also required to pay an unused Revolving Linemake a prepayment of Credit facility fee monthly in arrearsthe Notes in an amount equal to 0.35% per annumthe unpaid principal amount, all accrued and unpaid interest, and all other amounts payable under the Notes out of the average unused but available portionnet cash proceeds received by the Company from the consummation of the Revolving Linetransactions related to such change of Credit.control. The Revolving LineCompany 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 Credit has a maturity date three years from the effective date, or November 13, 2021. As of June 30, 2020, the outstanding balance on the revolving Line of Credit was $3.4 million.prepayment. No prepaid amount may be re-borrowed.
19 |
As of July 31, 2020,The Notes contain certain negative covenants which prevent the Company wasfrom issuing any debt securities pursuant to which the Company issues shares, warrants or any other convertible security in violationthe same transaction or a series of a quick ratio financial covenant underrelated transactions, except that Company may incur or enter into any capitalized and operating leases in the SVB Loan Agreement. Additionally, dueordinary 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 untimely filing of this ReportNotes 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 subsequentfor 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 filing deadline,consolidated revenue as reported by the Company was in violation of the SVB Loan Agreement. While the Company has received a waiver of default from SVB and is in complianceon Form 10-K as filed with the terms of the SVB Loan Agreement as of the date of this Report, we currently do not have the ability to drawn down on the Revolving Line of Credit.
The Company however expects to reinstate the Revolving Line of Credit in the near term, and is in negotiations with SVB to expand the borrowing base from $4.0 million to $8.0 million. The expansion of the Revolving Line of Credit, however, also requires approval of the holders of the Company’s Series B convertible preferred stock and the Company cannot provide assurance that such expansion or approval will be successful.
During September 2020, the Company paid down the outstanding Revolving Line of Credit balance in full. Additionally during September 2020, the Company transferred $0.35 million into a restricted cash money market account with SVB to serve as collateralSEC for the Company’s letters of credit supporting two of its facilities. Prior to September 2020, the collateral for the letters of credit was accounted for as a reduction in availability under the Revolving Line of Credit.previous fiscal year.
15. | SUPPLEMENTAL CASH FLOW INFORMATION |
The following table represents cash flows used in the Company’s discontinued operations for the six months ended June 30, 2020 and 2019:
Six Months Ended | ||||||||
June 30, | ||||||||
2020 | 2019 | |||||||
(unaudited) | ||||||||
Net cash used in operating activities of discontinued operations | $ | - | $ | (30 | ) |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
Supplemental Disclosures of Non Cash Activities
(in thousands)
SCHEDULE OF SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Six Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2020 | 2019 | 2021 | 2020 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Operating | ||||||||||||||||
Adoption of ASC 842 - right of use asset | $ | - | $ | 2,190 | ||||||||||||
Adoption of ASC 842 - operating lease liability | $ | - | $ | (2,312 | ) | |||||||||||
Prepaid stock grants issued to vendors | $ | - | $ | 73 | ||||||||||||
Taxes accrued for repurchase of restricted shares | $ | 49 | $ | - | $ | - | $ | 49 | ||||||||
Investing | ||||||||||||||||
Accrued Financing costs | $ | 314 | $ | - | ||||||||||||
Preferred Stock Deemed Dividend | $ | 3,033 | $ | - | $ | - | $ | 3,033 | ||||||||
Investment in DiamiR | 248 | - | ||||||||||||||
Accrued capital expenditures | 295 | - | ||||||||||||||
Financing | ||||||||||||||||
Accrued financing costs | $ | 238 | $ | 314 |
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 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$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.$1,000. Pursuant to the Securities Purchase and Exchange Agreement, 1315 Capital agreed to purchase shares of Series B Preferred Stock at an aggregate purchase price of $19.0$19.0 million and Ampersand agreed to purchase shares of Series B Preferred Stock at an aggregate purchase price of $1.0$1.0 million.
In addition, the Company agreed to exchange $27.0$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 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 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$6.00 as compared to a conversion price of $8.00$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%(6%) dividend and a conversion price adjustment for any failure by the Company to achieve a revenue target of $34.0$34.0 million in 2020 related to its clinical 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.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
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$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$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 represented a deemed dividend to the preferred shareholders.
In April 2020, the Company entered into support agreements with each 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 its 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 Agreement. See Note 19, Subsequent Events for a discussion ofThe support agreement between the termination ofCompany and Ampersand was terminated by mutual agreement on July 9, 2020; however, the support agreement with Ampersand.
ATM program
On September 20, 2019, the Company entered into an Equity Distribution Agreement 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 Equity Distribution Agreement, the Agent may sell the Shares at market prices by any method that is deemed to be an “at the market offering” as defined1315 Capital remains in Rule 415 under the Securities Act of 1933, as amended.effect.
Subject to the terms and conditions of the Equity Distribution 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 Equity Distribution Agreement or terminate the Equity Distribution 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 Equity Distribution 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 June 30, 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 10, 2020 Securities Purchase and Exchange Agreement, additional Shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the Series B Preferred Stock in accordance with the Amended and Restated Investor Rights Agreement entered into on that date. In addition, if our common stock is delisted by Nasdaq due to our failure to meet minimum stockholders’ equity requirements, we may no longer be eligible to sell under the Agreement as well. See Note 19, Subsequent Events.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
17. | WARRANTS |
Warrants outstanding and warrant activity for the three- and six-months ended June 30, 20202021 are as follows:
SCHEDULE OF WARRANTS OUTSTANDING AND WARRANTS ACTIVITY
Description | Classification | Exercise Price | Expiration Date | Warrants Issued | Warrants Exercised | Warrants Cancelled/ Expired | Balance December 31, 2019 | Balance June 30, 2020 | Classification | Exercise Price | Expiration Date | Warrants Issued | Balance December 31, 2020 | Warrants Cancelled/ Expired | Balance June 30, 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 years.
18. | RECENT ACCOUNTING PRONOUNCEMENTS |
Standards not yet effectiveRecently 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 iswas effective for annual periods beginning after December 15, 2020. We do
The Company adopted this pronouncement on January 1, 2021 and the impact was not expect thatmaterial to the requirementsCompany’s Consolidated Financial Statements.
In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2017-042016-13 and its amendments will havebe effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on ourresults of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company does not expect this will have any impact on its unaudited consolidated financial statements.
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
19. | SUBSEQUENT EVENTS |
Audit Committee InvestigationSale of net operating losses (NOLs)
In July 2020,2021, the Company received letters from employees, oneapproximately $0.7 million in cash through the sale of whom has left the Company’s employ, concerning certain employment and billing and compliance matters. In response, the Company informedapproximately $8.7 million of its Audit Committee and Regulatory Compliance CommitteeNOLs as well as its independent registered public accounting firm. The Audit Committee commenced an investigation of these matters with the assistance of independent counsel and advisors thereto. The Audit Committee concluded that the allegations were not substantiated and that there was no evidence of any illegal acts.
Untimely SEC Filing and Nasdaq Notification
On August 14, 2020 the Company filed Form 12b-25 with the SEC, which stated that the Company was unable to file timely its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 due to the investigation being conducted by the Company’s Audit Committee discussed in the preceding paragraph. The Audit Committee was unable to conclude their investigation by the SEC filing deadline. On August 18, 2020, the Company was notified by Nasdaq that it is in non-compliance with Listing Rule 5250(c)(1), which requires the timely filing of periodic financial statements. The Company was provided 60 days to submit its plan to show compliance with the filing requirement. Upon the filing of this Form 10-Q with the SEC, the Company believes it will have remedied the Nasdaq non-compliance issue due to the untimely filing.
Nasdaq Minimum Stockholders’ Equity Requirement
As of June 30, 2020, the Company was not in compliance with the Nasdaq Listing Rule 5550(b)(1), which requires the minimum stockholders’ equity required for continued listing to be in excess of $2.5 million. While the Company notified Nasdaq in advance that it would not be in compliance upon filing of this Report, the Company anticipates that it will receive a letter from Nasdaq notifying itpart of the failure to meet this listing requirement shortly after the filingstate of this Report. The Company is currently working on developing a plan to remedy this Nasdaq continued listing requirement.New Jersey’s technology business tax certificate transfer (NOL) program.
Revolving Line of Credit
As of July 31, 2020, the Company was in violation of a financial covenant under the SVB Loan Agreement. Additionally, due to the untimely filing of this Report with the SEC subsequent to the filing deadline, the Company was in violation of the SVB Loan Agreement. While the Company has received a waiver of default from SVB and is in compliance with the terms of the SVB Loan Agreement as of the date of this Report, we currently do not have the ability to drawn down on the Revolving Line of Credit.
As of June 30, 2020, the outstanding balance on the SVB Revolving Line of Credit was $3.4 million. During September 2020, the Company paid down the outstanding Revolving Line of Credit balance in full. Additionally during September 2020, the Company transferred $0.35 million into a restricted cash money market account with SVB to serve as collateral for the Company’s letters of credit supporting two of its facilities. Prior to September 2020, the collateral for the letters of credit was accounted for as a reduction in the availability under the Revolving Line of Credit.
Ampersand Support Agreement TerminationStrategic Review
In April 2020,2021, we announced that we initiated a full review of a broad range of alternatives to enhance shareholder value. As part of this process, we are considering strategic, financial and operational alternatives involving the Company entered intoCompany. Guggenheim Securities, LLC is serving as a support agreement with Ampersand pursuant to which Ampersand agreed to vote the shares of the Company owned by itstrategic advisor in favor of certain fundamental actions, as determined by the Company’s Board of Directors, primarily with respect to our potential application for a U.S. Small Business Administration Paycheck Protection Program of 2020 loan (“PPP Loan”). As the Company subsequently determined that it would not apply for a PPP Loan, the support agreement between the Company and Ampersand was terminated by mutual agreement on July 9, 2020. The support agreement entered into with 1315 Capital remains in effect.this process.
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 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 history of operating losses, declining cash position and other liquidity factors, | |
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● | the | |
● | our ability to timely repay our private equity investors the $7.5 million in outstanding secured promissory notes due August 31, 2021, the failure of which | |
● | our expectations of future revenues, expenditures, capital or | |
● | we generally depend on sales and reimbursements from our clinical services for more than 50% of our revenue; the ability to continue to generate sufficient revenue from these and other products and/or solutions that we develop in the future is important for | |
INTERPACE BIOSCIENCES, INC
● | ||
our revenue recognition is based, in part, on our estimates for future collections and such estimates may prove to be incorrect; |
● | ||
● | ||
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INTERPACE BIOSCIENCES, INC
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 clinical and pharma services tests; | ||
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the potential adverse impact of current and future laws, licensing requirements and governmental regulations upon our business operations, including but not limited to the evolving U.S. regulatory environment related to laboratory developed tests |
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our reliance on our sales and marketing activities for future business growth and our ability to continue to expand our sales and marketing activities; | ||
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INTERPACE BIOSCIENCES, INC
our ability to | ||
● | ||
the potential impact of existing and future contingent liabilities on our financial | ||
INTERPACE BIOSCIENCES, INC
INTERPACE BIOSCIENCES, INC
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 provide complex molecular analysis for the early diagnosis and treatment of certain cancers and supporting the development of targeted therapeutics. Though our clinical and pharma services, we offerare 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. Ourapplications through our clinical and pharma services. Through our clinical services, we enable physicians to personalize the clinical management of each individual patient by providing genomic information that allows them to better diagnose, certain cancersmonitor and individualize patient treatments.inform cancer treatment. Our proprietaryclinical services provide clinically useful molecular diagnostic tests, bioinformatics and pathology services leveragefor evaluating risk of cancer by leveraging the latest technology in personalized medicine technologies in order to improvefor improved patient diagnosis and management.
Through our pharma services, we offer an extensive suite ofdevelop, commercialize and provide molecular- and biomarker-based tests and services thatand provide unique,companies with customized solutions for patient stratification and treatment selection. Our testsselection through an extensive suite of molecular and biomarker-based testing services, include DNA- and RNA- extraction and customized assay development and trial design consultation. Our pharma services offerings also includeprovide pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotechnology industries. Through collaborationbiotech industries and advance personalized medicine by partnering with pharmaceutical, academic and technology leaders we are investing in innovations that will advance personalized medicine by better integratingto effectively integrate pharmacogenomics into the drug development process and clinical trial programs. Our goal is to help deliverprograms with the goals of delivering safer, more effective drugs to market more quickly, while alsoand improving patient care.
During fiscal 2019, in connection with the acquisition of our Pharma Services business unit, Ampersand Capital Partners, oneCOVID-19 pandemic
The outbreak of the leading private equity firms in the diagnostic/biopharma sector, agreedCOVID-19 pandemic continues to invest $27 million in Interpace in exchange for two tranches of newly issued convertible preferred stock. This was followed in 2020 by agreements with investors, led by 1315 Capital, another sophisticated private equity investor, to invest an additional $20 million in the company. 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 toimpact a broad customer base.
Impact of COVID-19 pandemic
In an effort to safeguard our employees from the Coronavirus (COVID-19) pandemic, we are adhering to the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. The majority of our employees who do not work in a lab setting are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our laboratories require in-person staffing and, assignificant portion of the date of this report,regions in which we have been able to continue to operate our laboratories, minimizing infection risk to staff through a combination of social distancing and what we believe to be appropriate protective equipment. There can be no assurance that key employees will not become ill or that we will able to continue to operate our laboratories. While we furloughed a number of employees during the second quarter of 2020 as a result of reductions in customer demand, the majority of these employees have returned to active employment status.
INTERPACE BIOSCIENCES, INC
operate. The continuing impact that the COVID-19 pandemic will have on our operations, including duration, severity and scope, remains highly uncertain and cannot be totallyfully predicted at this time. The spread of the coronavirus has had and will continue to have an adverse effect upon global economies and financial markets and will continue to hold the potential to materially and adversely impact our operations including the health and availability of employees that operate of our laboratories, the availability of supplies including reagents, the progress and data collection of our pharma services, and customer demand. Accordingly,While we believe it is likelywe have generally recovered from the adverse impact that the COVID-19 pandemic willhad on our business during 2020, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition forin the remainder of fiscal 2020 and possibly beyond. future.
Our fiscal 2020 first and second quarter revenues wereAs our business operations continue to be impacted by lower than expected clinical service volume from March through June 2020, whichthe pandemic, we believe resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. We were able to reduce overall costs to match the lower volumes experienced by our laboratories. We will continue to monitor the actualsituation and potential impact of the pandemicguidance that is being provided by relevant federal, state and local public health authorities. We may take additional actions based upon our operations. While we are attempting to improve operations, the future remains uncertain andtheir recommendations. However, it is possible that we may not be ablehave to returnmake further adjustments to our volumesoperating plans in reaction to pre-pandemic levels.developments that are beyond our control.
To optimize the operations of laboratory operations within our pharma services, we are transitioning activities from the Rutherford, NJ facility to our Morrisville, NC facility. We are investing several million dollars to facilitate this relocation, including but not limited to the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes over the next several months. We believe that this investment will result in a reduction in future operating costs; however, it is not certain whether we will successfully implement the relocation or whether the transition will produce the predicted financial benefits.
All of our laboratories are currently in operation and, in our view, are appropriately staffed for current volumes. While we do not anticipate any laboratorylab closures at this time beyond periodic, temporary work stoppages to clean and disinfect the labs, this could change in the future based upon conditions caused by the pandemic. Further, while we have acquired additional inventories of laboratory supplies, including reagents, itIt is also possible that we could experience supply chain shortages if the pandemic continues for a prolonged period and/orworsens and if one or more suppliers is unable to continue to provide us with inventory.supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies or delays from our third-party clinical services billing and collections company. supplies.
We continue to monitor the actual and potential impact of the pandemic upon our operationshave developed and will continue to do so.update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.
We have developed serology antibody ELISA testing for COVID-19 at our CLIA lab in Pittsburgh, PA and have launched a new product line of antibody testing for the COVID-19 virus. Validation is complete; we have acquired acceptable kits and reference samples and are now offering this test to employees and our customers. Our serological, or antibody test measures 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 component of the immune system’s response is the development 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 offered under the policy should, among other things, include language within test reports cautioning 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.
INTERPACE BIOSCIENCES, INCTransition costs
To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford, NJ facility to our Morrisville, NC facility. We invested several million dollars to facilitate this relocation, including but not limited 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. We have also undergone several other cost-cutting initiatives, primarily reductions in headcount, and those costs are categorized as transition expenses as well.
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 the 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 the Company’s failure to timely execute its plan to regain compliance under the Rule.
Nasdaq commenced with delisting the Company’s common stock from the Nasdaq Capital Market and, suspended trading in the Company’s common stock effective at the open of business on February 25, 2021.
On February 24, 2021, the Company was approved to have its common stock quoted on the OTCQX® Best Market tier of the OTC Markets Group Inc. (the “OTCQX”), an electronic quotation service operated by OTC Markets Group Inc. The trading of the Company’s common stock commenced on OTCQX at the open of business on February 25, 2021 under the trading symbol IDXG.
Additional Reimbursement Coverage and Price Increase During 20202021
Reimbursement progress is key for us. We have been successful to date in expanding both the scope and amount of product reimbursement for our clinical services in 2020.2021. Examples of our progress include:
● | In |
● | In |
● | In |
● | In May 2021, we |
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In July 2020, we announced that our peer reviewed manuscript, describing results from a seminal clinical validation study of the combination of ThyGeNEXT® and ThyraMIR®, was accepted for publication in the highly respected journal Diagnostic Cytopathology and also accepted as a podium presentation for the American Society of Cytopathology (ASC) Annual Meeting. On August 7, 2020 this publication was made available on-line.
Revenue Recognition
Clinical services derive its revenues from the performance of its proprietary assays or tests. Our performance obligation is fulfilled upon completion, review and release of test results to the customer, 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 upon the estimated transaction price or net realizable value (“NRV”), which is determined based on historical collection rates by each payer category for each proprietary test offered. To the extent that the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, we estimate the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.
The ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates are regularly reviewed and we adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we adjust the estimates of contractual allowances, which affects net revenue in the period such variances become known.
With respect to our pharma services, customer performance obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results 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-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.
INTERPACE BIOSCIENCES, INC
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.
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Condensed Consolidated Results of Continuing Operations for the Quarter Ended June 30, 20202021 Compared to the Quarter Ended June 30, 20192020 (unaudited, in thousands)
As Restated | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, | Three Months Ended June 30, | |||||||||||||||||||||||||||||||
2020 | 2020 | 2019 | 2019 | 2021 | 2021 | 2020 | 2020 | |||||||||||||||||||||||||
Revenue, net | $ | 5,446 | 100.0 | % | $ | 6,270 | 100.0 | % | $ | 11,155 | 100.0 | % | $ | 5,446 | 100.0 | % | ||||||||||||||||
Cost of revenue | 3,850 | 70.7 | % | 3,031 | 48.3 | % | 5,800 | 52.0 | % | 3,850 | 70.7 | % | ||||||||||||||||||||
Gross profit | 1,596 | 29.3 | % | 3,239 | 51.7 | % | 5,355 | 48.0 | % | 1,596 | 29.3 | % | ||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Sales and marketing | 1,596 | 29.3 | % | 2,959 | 47.2 | % | 2,776 | 24.9 | % | 1,596 | 29.3 | % | ||||||||||||||||||||
Research and development | 550 | 10.1 | % | 647 | 10.3 | % | 424 | 3.8 | % | 550 | 10.1 | % | ||||||||||||||||||||
General and administrative | 4,107 | 75.4 | % | 2,788 | 44.5 | % | 3,326 | 29.8 | % | 3,983 | 73.1 | % | ||||||||||||||||||||
Acquisition related expense | - | 0.0 | % | 1,295 | 20.7 | % | ||||||||||||||||||||||||||
Acquisition amortization expense | 1,115 | 20.5 | % | 897 | 14.3 | % | ||||||||||||||||||||||||||
Transition expenses | 858 | 7.7 | % | 124 | 2.3 | % | ||||||||||||||||||||||||||
Gain on DiamiR transaction | (235 | ) | -2.1 | % | - | 0.0 | % | |||||||||||||||||||||||||
Acquisition related amortization expense | 1,112 | 10.0 | % | 1,115 | 20.5 | % | ||||||||||||||||||||||||||
Total operating expenses | 7,368 | 135.3 | % | 8,586 | 136.9 | % | 8,261 | 74.1 | % | 7,368 | 135.3 | % | ||||||||||||||||||||
Operating loss | (5,772 | ) | -106.0 | % | (5,347 | ) | -85.3 | % | (2,906 | ) | -26.1 | % | (5,772 | ) | -106.0 | % | ||||||||||||||||
Interest accretion | (167 | ) | -3.1 | % | (91 | ) | -1.5 | % | ||||||||||||||||||||||||
Other income (expense), net | 438 | 8.0 | % | 74 | 1.2 | % | ||||||||||||||||||||||||||
Interest accretion expense | (135 | ) | -1.2 | % | (167 | ) | -3.1 | % | ||||||||||||||||||||||||
Other (expense) income, net | (331 | ) | -3.0 | % | 438 | 8.0 | % | |||||||||||||||||||||||||
Loss from continuing operations before tax | (5,501 | ) | -101.0 | % | (5,364 | ) | -85.6 | % | (3,372 | ) | -30.2 | % | (5,501 | ) | -101.0 | % | ||||||||||||||||
Provision for income taxes | 13 | 0.2 | % | 5 | 0.1 | % | 16 | 0.1 | % | 13 | 0.2 | % | ||||||||||||||||||||
Loss from continuing operations | (5,514 | ) | -101.2 | % | (5,369 | ) | -85.6 | % | (3,388 | ) | -30.4 | % | (5,514 | ) | -101.2 | % | ||||||||||||||||
Loss from discontinued operations, net of tax | (66 | ) | -1.2 | % | 65 | 1.0 | % | (58 | ) | -0.5 | % | (66 | ) | -1.2 | % | |||||||||||||||||
Net loss | $ | (5,580 | ) | -102.5 | % | $ | (5,304 | ) | -84.6 | % | $ | (3,446 | ) | -30.9 | % | $ | (5,580 | ) | -102.5 | % |
Revenue, net
Consolidated revenue, net for the three months ended June 30, 2020 decreased2021 increased by $0.8$5.7 million, or 13%105%, to $5.4$11.2 million, compared to $6.3$5.4 million for the three months ended June 30, 2019.2020. The increase in net revenue was driven by increased reimbursement rates and increased clinical services volume as the three months ended June 30, 2020 was impacted by the pandemic. This increase was partially offset by a decrease was attributable to lower than expected clinical servicein volume in the second quarter, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic.within pharma services.
Cost of revenue
Consolidated cost of revenue for the three months ended June 30, 20202021 was $3.9$5.8 million, as compared to $3.0$3.9 million for the three months ended June 30, 2019.2020. This increase is primarily attributed to the increased volume associated with the clinical services business. As a percentage of revenue, cost of revenue increased towas approximately 52% for the three months ended June 30, 2021 and 71% for the three months ended June 30, 2020 as compared to 48% in the comparable same period in 2019. This increase as a percentage of revenue can be primarily attributed to the lower margins associated with our pharma services and the reduction in revenue from clinical services. We were able to apply a portion of the HHS grant received in the second quarter (approximately $0.2 million) towards qualified second quarter expenses within cost of revenue. These expenses related to lab equipment and supplies purchased to prevent, prepare for, and respond to coronavirus, including development of coronavirus and serology tests.2020.
INTERPACE BIOSCIENCES, INC
Gross profit
Consolidated gross profit was approximately $5.4 million for the three months ended June 30, 2021 and $1.6 million for the three months ended June 30, 20202020. The gross profit percentage was approximately 48% for the three months ended June 30, 3021 and $3.229% for the three months ended June 30, 2020. The increase can be attributed to increased reimbursement rates as well as the change in the gross profit mix.
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Sales and marketing expense
Sales and marketing expense was approximately $2.8 million for the three months ended June 30, 2019. The gross profit percentage decreased from 52% in the second quarter of 2019 to 29% for the second quarter of 2020. This decrease can be attributed to the lower margins associated with our pharma services as mentioned above,2021 and the reduction in net revenue from our clinical services.
Sales and marketing expense
Sales and marketing expense was $1.6 million for the three months ended June 30, 2020, or 29% as2020. As a percentage of net revenue. Forrevenue, sales and marketing expense decreased to 25% from 29% in the comparable prior year period due to the higher revenue for the three months ended June 30, 2019, sales and marketing expense was $3.0 million, or 47% as a percentage of net revenue. The decrease in sales and marketing expense primarily reflects the slowdown of sales activity for clinical services due to the pandemic.2021.
Research and development
Research and development expense was $0.4 million for the three months ended June 30, 2021 and $0.6 million for the three months ended June 30, 2020 and $0.6 million fordue to lower professional services costs in the three months ended June 30, 2019.quarter. As a percentage of revenue, research and development expense remained at approximatelydecreased to 4% from 10% for both periods.in the comparable prior year period.
General and administrative
General and administrative expense for the three months ended June 30, 2020 was $4.1 million as compared to $2.8approximately $3.3 million for the three months ended June 30, 2019.2021 and $4.0 million for the three months ended June 30, 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 $0.9 million for the acquired pharma services business.three months ended June 30, 2021 and $0.1 million for the three months ended June 30, 2020. These expenses are related to the Rutherford, NJ lab closing and subsequent move to North Carolina, as well as other cost-saving initiatives, primarily reductions in headcount.
Acquisition relatedamortization expense
During the three months ended June 30, 2019 we incurred approximately $1.3 million in expenses related to the acquisition of our pharma services in 2019. We did not incur any acquisition related expenses during the three months ended June 30, 2020.
Acquisition amortization expense
During the three months ended June 30, 20202021 and June 30, 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 $2.9 million for the three months ended June 30, 2021 as compared to $5.8 million for the three months ended June 30, 2020 as compared2020. The lower operating loss was primarily attributable to $5.3 millionthe increase in gross profit discussed above.
Provision for income taxes
Income tax expense was approximately $16,000 for the three months ended June 30, 2019. The operating loss for the three months ended June 30, 2019 also included $1.3 million in acquisition related expenses.
Provision for income taxes
Income tax expense was approximately2021 and $13,000 for the three months ended June 30, 2020 and $5,000 for the three months ended June 30, 2019.2020. Income tax expense for both periods was primarily driven by minimum state and local taxes.
INTERPACE BIOSCIENCES, INC
Loss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately $0.06$0.1 million for the three months ended June 30, 20202021 and incomea loss from discontinued operations of approximately $0.06$0.1 million for the three months ended June 30, 2019.2020. In both periods, the loss represents income tax expense associated with our discontinued operations.
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Condensed Consolidated Results of Continuing Operations for the Six-MonthsSix Months Ended June 30, 2021 Compared to the Six Months Ended June 30, 2020 Compared to the Six-Months Ended June 30, 2019 (unaudited, in thousands)
Six Months Ended June 30, | ||||||||||||||||
2021 | 2021 | 2020 | 2020 | |||||||||||||
Revenue, net | $ | 20,989 | 100.0 | % | $ | 14,504 | 100.0 | % | ||||||||
Cost of revenue | 11,116 | 53.0 | % | 9,963 | 68.7 | % | ||||||||||
Gross profit | 9,873 | 47.0 | % | 4,541 | 31.3 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 5,128 | 24.4 | % | 4,077 | 28.1 | % | ||||||||||
Research and development | 1,060 | 5.1 | % | 1,360 | 9.4 | % | ||||||||||
General and administrative | 6,305 | 30.0 | % | 8,819 | 60.8 | % | ||||||||||
Transition expenses | 2,111 | 10.1 | % | 180 | 1.2 | % | ||||||||||
Gain on DiamiR transaction | (235 | ) | -1.1 | % | - | 0.0 | % | |||||||||
Acquisition related amortization expense | 2,224 | 10.6 | % | 2,230 | 15.4 | % | ||||||||||
Total operating expenses | 16,593 | 79.1 | % | 16,666 | 114.9 | % | ||||||||||
Operating loss | (6,720 | ) | -32.0 | % | (12,125 | ) | -83.6 | % | ||||||||
Interest accretion expense | (270 | ) | -1.3 | % | (276 | ) | -1.9 | % | ||||||||
Other (expense) income, net | (520 | ) | -2.5 | % | 485 | 3.3 | % | |||||||||
Loss from continuing operations before tax | (7,510 | ) | -35.8 | % | (11,916 | ) | -82.2 | % | ||||||||
Provision for income taxes | 31 | 0.1 | % | 28 | 0.2 | % | ||||||||||
Loss from continuing operations | (7,541 | ) | -35.9 | % | (11,944 | ) | -82.3 | % | ||||||||
Loss from discontinued operations, net of tax | (112 | ) | -0.5 | % | (130 | ) | -0.9 | % | ||||||||
Net loss | $ | (7,653 | ) | -36.5 | % | $ | (12,074 | ) | -83.2 | % |
As Restated | ||||||||||||||||
Six Months Ended June 30, | ||||||||||||||||
2020 | 2020 | 2019 | 2019 | |||||||||||||
Revenue, net | $ | 14,504 | 100.0 | % | $ | 12,280 | 100.0 | % | ||||||||
Cost of revenue | 9,963 | 68.7 | % | 5,654 | 46.0 | % | ||||||||||
Gross profit | 4,541 | 31.3 | % | 6,626 | 54.0 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 4,077 | 28.1 | % | 5,369 | 43.7 | % | ||||||||||
Research and development | 1,360 | 9.4 | % | 1,175 | 9.6 | % | ||||||||||
General and administrative | 8,999 | 62.0 | % | 5,122 | 41.7 | % | ||||||||||
Acquisition related expense | - | 0.0 | % | 1,696 | 13.8 | % | ||||||||||
Acquisition amortization expense | 2,230 | 15.4 | % | 1,794 | 14.6 | % | ||||||||||
Total operating expenses | 16,666 | 114.9 | % | 15,156 | 123.4 | % | ||||||||||
Operating loss | (12,125 | ) | -83.6 | % | (8,530 | ) | -69.5 | % | ||||||||
Interest accretion | (276 | ) | -1.9 | % | (220 | ) | -1.8 | % | ||||||||
Other income (expense), net | 485 | 3.3 | % | 123 | 1.0 | % | ||||||||||
Loss from continuing operations before tax | (11,916 | ) | -82.2 | % | (8,627 | ) | -70.3 | % | ||||||||
Provision for income taxes | 28 | 0.2 | % | 10 | 0.1 | % | ||||||||||
Loss from continuing operations | (11,944 | ) | -82.3 | % | (8,637 | ) | -70.3 | % | ||||||||
Loss from discontinued operations, net of tax | (130 | ) | -0.9 | % | 7 | 0.1 | % | |||||||||
Net loss | $ | (12,074 | ) | -83.2 | % | $ | (8,630 | ) | -70.3 | % |
Revenue, net
Consolidated revenue, net for the six months ended June 30, 20202021 increased by $2.2$6.5 million, or 18%45%, to $14.5$21.0 million, compared to $12.3$14.5 million for the six months ended June 30, 2019.2020. The increase in net revenue was driven by increased reimbursement rates and increased clinical services volume as the six months ended June 30, 2020 was impacted by the pandemic. This increase was principally attributable to our acquisition of ourpartially offset by a decrease in volume within pharma services in 2019. Our six months revenue has been impacted by lower than expected clinical service volume from March through June 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic.services.
Cost of revenue
Consolidated cost of revenue for the six months ended June 30, 20202021 was $10.0$11.1 million, as compared to $5.6$10.0 million for the six months ended June 30, 2019.2020. This increase is primarily attributed to the increased volume associated with the clinical services business. As a percentage of revenue, cost of revenue increased to 68%was approximately 53% for the six months ended June 30, 2020 as compared to 46% in2021 and 69% for the comparable same period in 2019. This increase as a percentage of revenue can be primarily attributed to the lower margins associated with our pharma services and the decrease in revenue within clinical services.six months ended June 30, 2020.
INTERPACE BIOSCIENCES, INC
Gross profit
Consolidated gross profit was approximately $9.9 million for the six months ended June 30, 2021 and $4.5 million for the six months ended June 30, 20202020. The gross profit percentage was approximately 47% for the six months ended June 30, 3021 and $6.631% for the six months ended June 30, 2020. The increase can be attributed to increased reimbursement rates as well as the change in the gross profit mix.
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Sales and marketing expense
Sales and marketing expense was approximately $5.1 million for the six months ended June 30, 2019. The gross profit percentage decreased from 54% in the first six months of 2019 to 31% for the first six months of 2020. This decrease can be attributed to the lower margins associated with our pharma services, as mentioned above,2021 and the reduction in net revenue from clinical services.
Sales and marketing expense
Sales and marketing expense was $4.1 million for the six months ended June 30, 2020, or 28% as2020. As a percentage of net revenue. Forrevenue, sales and marketing expense decreased to 24% from 28% in the comparable prior year period due to the higher revenue for the six months ended June 30, 2019, sales and marketing expense was $5.4 million, or 44% as a percentage of net revenue. The decrease in sales and marketing expense primarily reflects the slowdown of sales activity for clinical services due to the pandemic.2021.
Research and development
Research and development expense was $1.1 million for the six months ended June 30, 2021 and $1.4 million for the six months ended June 30, 2020 due to lower professional services and $1.2 million for the six months ended June 30, 2019. The increase was primarily attributable to costs associated with the acquired pharma services.employee costs. As a percentage of revenue, research and development expense was approximatelydecreased to 5% from 9% in the same in both periods.comparable prior year period.
General and administrative
General and administrative expense for the six months ended June 30, 2020 was $9.0 million as compared to $5.3approximately $6.3 million for the six months ended June 30, 2019.2021 and $8.8 million for the six months ended June 30, 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 $2.1 million for the acquired pharma services.six months ended June 30, 2021 and $0.2 million for the six months ended June 30, 2020. These expenses are related to the Rutherford, NJ lab closing and subsequent move to North Carolina, as well as other cost-saving initiatives, primarily reductions in headcount.
Acquisition relatedamortization expense
During the six months ended June 30, 2019 we incurred approximately $1.7 million in expenses related to the acquisition of our pharma services in 2019. We did not incur any acquisition related expenses during the three months ended June 30, 2020.
Acquisition amortization expense
During the six months ended June 30, 20202021 and June 30, 2019,2020, we recorded amortization expense of approximately $2.2 million, and $1.8 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 $6.7 million for the six months ended June 30, 2021 as compared to $12.1 million for the six months ended June 30, 2020 as compared2020. The lower operating loss was primarily attributable to $8.5 millionthe increase in gross profit discussed above.
Provision for income taxes
Income tax expense was approximately $31,000 for the six months ended June 30, 2019. The increase can be attributed to the operating loss associated with our pharma services as well as the reduced revenue2021 and gross profit in our clinical services.
Provision for income taxes
Income tax expense was approximately $28,000 for the six months ended June 30, 2020 and $10,000 for the six months ended June 30, 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 the six months ended June 30, 20202021 and we had incomea loss from discontinued operations of approximately $0.01$0.1 million for the six months ended June 30, 2019.2020. In both periods, the loss represents income tax expense associated with our discontinued operations.
Non-GAAP Financial Measures
In addition to the United States generally accepted accounting principles, or GAAP, results provided throughout this document, we have provided certain non-GAAP financial measures to help evaluate the results of our performance. We believe that these non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to both management and investors in analyzing our ongoing business and operating performance. We believe that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view our financial results in the way that management views financial results.
INTERPACE BIOSCIENCES, INCIn this 10-Q, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the ongoing business. Adjusted EBITDA is defined as income or loss from continuing operations, plus depreciation and amortization, acquisition related expenses, transition expenses, noncash stock based compensation, interest and taxes, and other non-cash expenses including asset impairment costs, bad debt expense, loss on extinguishment of debt, goodwill impairment and change in fair value of contingent consideration, and warrant liability. The table below includes a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.
Reconciliation of Adjusted EBITDA (Unaudited)
($ in thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Loss from continuing operations (GAAP Basis) | $ | (3,388 | ) | $ | (5,514 | ) | $ | (7,541 | ) | $ | (11,944 | ) | ||||
Bad debt (recovery) expense | - | - | (140 | ) | 250 | |||||||||||
Receipt of HHS stimulus grant | - | (650 | ) | - | (650 | ) | ||||||||||
Transition expenses | 858 | 124 | 2,111 | 180 | ||||||||||||
Depreciation and amortization | 1,411 | 1,321 | 2,943 | 2,640 | ||||||||||||
Stock-based compensation | 551 | 400 | 837 | 818 | ||||||||||||
Taxes | 16 | 13 | 31 | 28 | ||||||||||||
Financing interest and related costs | 163 | - | 308 | - | ||||||||||||
Interest accretion expense | 135 | 167 | 270 | 276 | ||||||||||||
Gain on DiamiR transaction | (235 | ) | - | (235 | ) | - | ||||||||||
Mark to market on warrant liability | 168 | (23 | ) | 209 | (49 | ) | ||||||||||
Change in fair value of contingent consideration | - | - | (57 | ) | - | |||||||||||
Adjusted EBITDA | $ | (321 | ) | $ | (4,162 | ) | $ | (1,264 | ) | $ | (8,451 | ) |
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2020,2021, we had an operating loss of $12.1$6.7 million. As of June 30, 2020,2021, we had cash and cash equivalents of $15.1$3.8 million, net of restricted cash, total current assets of $26.1$14.4 million, net of restricted cash and current liabilities of $16.1$22.8 million. As of September 30, 2020August 5, 2021, we had approximately $5.2$3.8 million of cash on hand, due principally to additional losses incurred through September 2020, slower collections due tonet of restricted cash.
During the pandemic, as well as repaymentsix months ended June 30, 2021, net cash used in operating activities was $6.8 million. The main component of approximately $3.4 million to SVB undercash used in operating activities was our linenet loss of credit, which we are currently unable to borrow under.
$7.7 million. During the six months ended June 30, 2020, net cash used in operating activities was $6.7 million. The main component of cash used in operating activities was our net loss of $12.1 million which was partially offset by a decrease in accounts receivable of $2.7 million.
During the six months ended June 30, 2019,2021, net cash used in operatinginvesting activities was $7.8 million, all but $0.03 million of which was used in continuing operations. The main component of cash used in operating activities during$9,000. During the six months ended June 30, 20192020, net cash used in investing activities was $0.9 million. This was primarily related to capital expenditures associated with the expansion of our North Carolina lab.
For the six months ended June 30, 2021, cash provided from financing activities was $7.5 million, of which $7.4 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 $8.6 million.
the notes to the financial statements. For the six months ended June 30, 2020, there was cash provided from financing activities of $20.4 million, $19.5 million which resulted from the issuance of Preferred Stock in January 2020, $0.4 million from sales of common stock, and $0.4 million of borrowed funds under our Revolving Line of Credit with SVB. For the six months ended June 30, 2019, there was cash provided from financing activities of $6.0 million which resulted from the issuance of common stock in our underwritten public offering completed in January 2019.
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 we(as so amended, the “SVB Loan Agreement”). On January 5, 2021, the Company terminated the SVB Loan Agreement.
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On January 7, 2021, the Company entered into secured promissory notes in the Equity Distribution Agreementamount 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. On May 10, 2021, the reverse stock split)Company amended the Ampersand Note to increase the principal amount to $4.5 million and amended the 1315 Capital Note to increase the principal amount to $3.0 million. The maturity dates of common stockthe Notes were sold for net proceedsthe earlier of approximately $0.4 million. In(a) June 30, 2021 and (b) the date on which all amounts become due upon the occurrence of any event our common stock is delisted by Nasdaqof default as defined in the Notes. On June 24, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) August 31, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On June 25, 2021, the Company and 1315 Capital amended the 1315 Capital Note to our failure to meet minimum stockholders’ equity requirements, we may no longer be eligible to sell under the Agreement as well. See Note 19, Subsequent Events. change its maturity date in a similar manner.
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 notes to the financial statements for more detail.
AsSee Note 1, Overview, of June 30,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 (HHS).program. The CMS advance willbegan to be offset against future Medicare billings of the Company in the second quarter of 2021 with approximately $0.9 million being applied against it through June 30, 2021.
The Company has and may continue to delay, scale-back, or eliminate certain of its activities and other aspects of its operations until such time as the Company is successful 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 Company is dependent upon its ability to obtain additional funding. However, the quotation of our common stock on OTCQX may provide significantly less liquidity than when our stock was listed on Nasdaq and we appliedmay experience greater difficulty in raising capital through the HHS grant in its entirety towards qualified second quarter expenses. These expenses relatedpublic or private sale of equity securities. In addition, our inability to lab equipment and supplies purchased to prevent, prepareuse Form S-3 for and respond to coronavirus, including development of coronavirus and serology tests, as well as expenses that would have been coveredofferings by revenue lost to coronavirus during the second quarter.
During April and early May 2020, the Company made payments totaling $888,000may negatively impact our ability to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement.
As of July 31, 2020,raise additional capital. There can be no assurance therefore that the Company waswill be successful in violation of a financial covenant under the SVB Loan Agreement. Additionally, dueobtaining such funding in sufficient amounts, on terms acceptable to the untimely filing of this Report with the SEC subsequent to the filing deadline, the Company, was in violation of the SVB Loan Agreement and during September 2020, the Company paid down the outstanding Revolving Line of Credit balance of $3.4 million in full. Additionally during September 2020, the Company transferred $0.35 million into a restricted cash money market account with SVB to serve as collateral foror at all. These factors raise substantial doubt about the Company’s letters of credit supporting two of its facilities. Priorability to September 2020, the collateral for the letters of credit was accounted forcontinue as a reduction in the availability under the Revolving Line of Credit.
While the Company has received a waiver of default from SVB and is in compliance with the terms of the SVB Loan Agreement as of the date of this Report, we currently do not have the ability to drawn down on the Revolving Line of Credit. The Company expects to reinstate the Revolving Line of Credit in the near term, and is in negotiations with SVB to expand the borrowing base from $4.0 million to $8.0 million. This expansion of the Revolving Line of Credit requires approval of the Company’s preferred shareholders and the Company cannot provide assurance that such expansion will be successful.going concern.
We dowill not expect to generate positive cash flows from operations for the year ending December 31, 20202021. The Company’s secured promissory notes totaling $7.5 million are due August 31, 2021 and there is no guarantee thatthe Company does not currently have the cash balance necessary to repay the notes. The Company intends to address this deficiency by seeking an additional capital canextension of the maturity date which may not be raisedforthcoming and/or utilizing the debt or equity markets to fund our future operations. At this time, we planraise sufficient funds to repay the notes. We intend to meet our ongoing capital needs by using our available cash, proceeds underincluding the Securities PurchaseAmpersand and Exchange Agreement, our Revolving Line of Credit once reinstated and additional borrowings that may become available if an agreement can be reached with SVB to amend the SVB Loan Agreement and increase the existing credit limit1315 Capital loans, as a result of the additional accounts receivable acquired in July 2019well as part of our acquisition of pharma services (which requires a modification to the bank agreement and approval by both SVB and the Company’s preferred shareholders, which cannot be assured), revenue growth and margin improvement,improvement; collection of accounts receivable, andreceivable; containment of costs, as well as exploringcosts; and the potential use of other financing options. As formerly noted, the agreement of SVB to reinstate the facility and to amend the SVB Loan Agreement cannot be assured. The Company’s 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 expenses and related costs, and leasehold improvements. However, in the event the Company’s common stock is delisted from Nasdaq due to its failure to meet minimum stockholders’ equity requirements, the Company’s ability to raise additional capital may be materially adversely impacted. Moreover, the decrease in the Company’s stockholders’ equity resulting from the impairment and amortization expense reflected in this Form 10-Q/A will make it more difficult for the Company to comply with Nasdaq minimum stockholders’ equity requirements. There is no assurance we will be successful in meeting our capital requirements prior to becoming cash flow positive. These liquidity factors, among others, have raised substantial doubts about our ability to continue as a going concern
Inflation
INTERPACE BIOSCIENCES, INC
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 ensure 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 Controls and Procedures
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.
31 |
Subsequent to thisBased on the evaluation and in light of the restatement of the Company’s condensed financial statements for the quarters ended June 30, 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 June 30, 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 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 June 30, 2020 as a result of this material weakness.2021.
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.
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 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.
INTERPACE BIOSCIENCES, INC
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.
None.
INTERPACE BIOSCIENCES, INC
+ | 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 |