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IDXG Interpace Biosciences

Filed: 11 May 21, 5:03pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2021

 

OR

 

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

 

For the transition period from _______________ to _______________

 

Commission File Number: 000-24249

 

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

 

Delaware 22-2919486

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

Morris Corporate Center 1, Building C
300 Interpace Parkway, Parsippany, NJ 07054
(Address of principal executive offices and zip code)
 
(855) 776-6419
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
None N//A N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] No [  ]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [X] Smaller reporting company [X]
  Emerging Growth Company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

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

 

Class  Shares Outstanding April 30, 2021 
 Common Stock, par value $0.01 per share   4,112,843 

 

 

 

   
 

 

INTERPACE BIOSICENCES, INC.

FORM 10-Q FOR PERIOD ENDED MARCH 31, 2021

TABLE OF CONTENTS

 

  Page No.
   
   
 PART I - FINANCIAL INFORMATION 
   
Item 1.Unaudited Interim Condensed Consolidated Financial Statements3
   
 Condensed Consolidated Balance Sheets at March 31, 2021 (unaudited) and December 31, 20203
   
 Condensed Consolidated Statements of Operations for the three- month periods ended March 31, 2021 and 2020 (unaudited)4
   
 Condensed Consolidated Statements of Stockholders’ Deficit for the three- month periods ended March 31, 2021 and 2020 (unaudited)5
   
 Condensed Consolidated Statements of Cash Flows for the three- month periods ended March 31, 2021 and 2020 (unaudited)6
   
 Notes to Unaudited Condensed Consolidated Financial Statements7
   
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations22
   
Item 3.Quantitative and Qualitative Disclosures About Market Risk29
   
Item 4.Controls and Procedures29
   
 PART II - OTHER INFORMATION 
   
Item 1.Legal Proceedings30
   
Item 1A.Risk Factors30
   
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds30
   
Item 3.Defaults Upon Senior Securities30
   
Item 4.Mine Safety Disclosures30
   
Item 5.Other Information30
   
Item 6.Exhibits32
   
Signatures33

 

 2 
 

 

PART I. FINANCIAL INFORMATION

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

  March 31, 2021  December 31, 2020 
  (unaudited)    
ASSETS        
Current assets:        
Cash and cash equivalents $2,839  $2,772 
Restricted cash  600   600 
Accounts receivable, net of allowance for doubtful accounts of  $135 and $275, respectively  7,851   8,028 
Other current assets  2,975   2,722 
Total current assets  14,265   14,122 
Property and equipment, net  6,900   7,349 
Other intangible assets, net  10,238   11,351 
Goodwill  8,433   8,433 
Operating lease right of use assets  3,980   4,384 
Other long-term assets  42   42 
Total assets $43,858  $45,681 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
Current liabilities:        
Accounts payable $3,008  $4,511 
Accrued salary and bonus  2,173   3,161 
Loan payable - related parties  5,092   - 
Other accrued expenses  9,422   9,795 
Current liabilities from discontinued operations  766   766 
Total current liabilities  20,461   18,233 
Contingent consideration  1,739   1,818 
Operating lease liabilities, net of current portion  3,326   3,540 
Other long-term liabilities  4,692   4,637 
Total liabilities  30,218   28,228 
         
Commitments and contingencies (Note 12)        
         
Preferred stock, $.01 par value; 5,000,000 shares authorized,  47,000 Series B issued and outstanding  46,536   46,536 
         
Stockholders’ deficit:        
Common stock, $.01 par value; 100,000,000 shares authorized;  4,132,507 and 4,075,257 shares issued, respectively;  4,112,843 and 4,055,593 shares outstanding, respectively  402   402 
Additional paid-in capital  184,798   184,404 
Accumulated deficit  (216,323)  (212,116)
Treasury stock, at cost (19,664 and 19,664 shares, respectively)  (1,773)  (1,773)
Total stockholders’ deficit  (32,896)  (29,083)
Total liabilities and stockholders’ deficit $(2,678) $(855)
         
Total liabilities, preferred stock and stockholders’ deficit $43,858  $45,681 

 

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

 

 3 
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

  Three Months Ended March 31, 
  2021  2020 
       
Revenue, net $9,833  $9,059 
Cost of revenue (excluding amortization of $1,112 and $1,115, respectively)  5,316   6,113 
Gross profit  4,517   2,946 
Operating expenses:        
Sales and marketing  2,351   2,481 
Research and development  637   809 
General and administrative  2,979   4,837 
Transition expenses  1,253   56 
Acquisition related amortization expense  1,112   1,115 
Total operating expenses  8,332   9,298 
         
Operating loss  (3,815)  (6,352)
Interest accretion expense  (135)  (109)
Other (expense) income, net  (188)  47 
Loss from continuing operations before tax  (4,138)  (6,414)
Provision for income taxes  15   15 
Loss from continuing operations  (4,153)  (6,429)
         
Loss from discontinued operations, net of tax  (54)  (65)
         
Net loss  (4,207)  (6,494)
         
Less adjustment for preferred stock deemed dividend  -   (3,033)
         
Net loss attributable to common stockholders $(4,207) $(9,527)
         
Basic and diluted loss per share of common stock:        
From continuing operations $(1.02) $(2.37)
From discontinued operations  (0.01)  (0.01)
Net loss per basic and diluted share of common stock $(1.03) $(2.38)
Weighted average number of common shares and common share equivalents outstanding:        
Basic  4,089   4,004 
Diluted  4,089   4,004 

 

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

 

 4 
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(unaudited, in thousands)

 

  For The Three Months Ended  For The Three Months Ended 
  March 31, 2021  March 31, 2020 
  Shares  Amount  Shares  Amount 
Common stock:                
Balance at January 1  4,075  $402   3,932  $393 
Common stock issued  9   -   37   1 
Restricted stock issued  12   -   6   - 
Common stock issued through market sales  -   -   80   8 
Common stock issued through ESPP  36   -   -   - 
Balance at March 31  4,132   402   4,055   402 
Treasury stock:                
Balance at January 1  20   (1,773)  12   (1,721)
Treasury stock purchased  -   -   -   - 
Balance at March 31  20   (1,773)  12   (1,721)
Additional paid-in capital:                
Balance at January 1      184,404       182,514 
Extinguishment of Series A Shares      -       (828)
Beneficial Conversion Feature in connection with Series B Issuance      -       2,205 
Amortization of Beneficial Conversion Feature      -       (2,205)
Common stock issued      108       - 
Common stock issued through market sales      -       476 
Stock-based compensation expense      286       418 
Balance at March 31      184,798       182,580 
Accumulated deficit:                
Balance at January 1      (212,116)      (185,665)
Net loss      (4,207)      (6,494)
Balance at March 31      (216,323)      (192,159)
                 
Total stockholders’ deficit     $(32,896)     $(10,898)

 

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

 

 5 
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

` For The Three Months Ended 
  2021  2020 
       
Cash Flows From Operating Activities        
Net loss $(4,207) $(6,494)
Adjustments to reconcile net loss to net cash used in operating activities:        
Depreciation and amortization  1,532   1,319 
Interest accretion expense  135   109 
Bad debt (recovery) expense  (140)  250 
Mark to market on warrants  41   (26)
Stock-based compensation  259   418 
Amortization of loan costs  52   - 
Accrued interest  92   - 
ESPP expense  27   - 
Change in fair value of contingent consideration  (57)  - 
Other gains and expenses, net  (3)  - 
Other changes in operating assets and liabilities:        
Decrease in accounts receivable  317   289 
Increase in other current assets  (253)  (1,125)
Decrease in accounts payable  (1,534)  (253)
Decrease in accrued salaries and bonus  (988)  (476)
Decrease in accrued liabilities  (293)  (1,149)
Increase in long-term liabilities  14   16 
Net cash used in operating activities  (5,006)  (7,122)
         
Cash Flows From Investing Activity        
Sale of property and equipment  39   - 
Net cash provided by investing activities  39   - 
         
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  5,000   - 
Loan expenses  (74)  - 
Payments on Line of Credit  -   (1,800)
Net cash provided by financing activities  5,034   18,171 
         
Net increase (decrease) in cash, cash equivalents and restricted cash  67   11,049 
Cash, cash equivalents and restricted cash – beginning  3,372   2,321 
Cash, cash equivalents and restricted cash – ending $3,439  $13,370 

 

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

 

 6 
 

 

1.OVERVIEW

 

Nature of Business

 

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

 

COVID-19 pandemic

 

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

 

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.

 

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. It is also possible that we could experience supply chain shortages if the pandemic worsens and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.

 

We have developed and will continue to update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.

 

Transition costs

 

To optimize the operations of laboratory operations within our pharma services, we 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.

 

2.BASIS OF PRESENTATION

 

The accompanying unaudited interim condensed consolidated financial statements and related notes (the “Interim Financial Statements”) should be read in conjunction with the consolidated financial statements of 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, 2020, as filed with the Securities & Exchange Commission (“SEC”) on April 1, 2021 and as amended on April 29, 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, 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 three-month period ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 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 March 31, 2021, the Company had cash and cash equivalents, net of restricted cash of $2.8 million, net accounts receivable of $7.9 million, total current assets, net of restricted cash of $13.7 million and total current liabilities of $20.5 million. For the three month period ended March 31, 2021, the Company had a net loss of $4.2 million and cash used in operating activities was $5.0 million. As of May 10, 2021 we had approximately $6.4 million of cash on hand, net of restricted cash.

 

In January 2020, we sold 20,000 Series B preferred shares to investors, led by 1315 Capital II, L.P. (“1315 Capital”), for net proceeds of approximately $19.2 million. See Note 16, Equity, for more detail.

 

See Note 1, Overview, regarding the potential adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition.

 

In September 2020, we repaid approximately $3.4 million to Silicon Valley Bank (“SVB”) under our former secured revolving line of credit facility (the “Revolver”), which was part of our Loan and Security Agreement with SVB dated November 13, 2018, as amended March 18, 2019 (as so amended, the “SVB Loan Agreement”). On January 5, 2021, the Company terminated the SVB Loan Agreement.

 

On January 7, 2021, the Company entered into a $3 million loan through a secured promissory note with Ampersand 2018 Limited Partnership (“Ampersand”) and a $2 million loan through a secured promissory note with 1315 Capital, its Series B shareholders. Both loans are secured by substantially all of the Company’s assets. See Note 14, Notes Payable – Related Parties.

 

During Fiscal 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 (the “CARES Act”) and received $2.1 million in advances under the Centers for Medicare & Medicaid Services (“CMS”) accelerated and advance payment program. This advance will be offset against future Medicare billings of the Company beginning in the second quarter of 2021.

 

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, 2021. We intend to meet our ongoing capital needs by using our available cash, including the loans from Ampersand and 1315 Capital, as well as revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options.

 

 8 
 

 

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 delisting from Nasdaq of our common stock which is now listed for trading on OTCQX and the Company’s inability to use Form S-3 after it filed its Form 10-K for the fiscal year ended December 31, 2020 may each have an adverse impact on our ability to raise additional capital. In addition, the Company’s announcement on April 22, 2021 that it is considering strategic, financial and operational alternatives may have an impact on our ability to raise additional capital. The future success of the Company is dependent upon its ability to obtain additional funding. There can be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. As of the date of this Report, the Company currently anticipates that current cash and cash equivalents will be sufficient to meet its anticipated cash requirements through the end of the second quarter of 2021. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

4.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Estimates

 

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

 

Revenue Recognition

 

Our clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’s performance obligation is fulfilled upon the completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based on the estimated transaction price or NRV, which is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. To the extent the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.

 

For our clinical services, we regularly review the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates and adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we will adjust the estimates of contractual allowances, which 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.

 

 9 
 

 

Deferred Revenue

 

For our pharma services, project level fee revenue is recognized as deferred revenue and recorded at fair value. It represents payments received in advance of services rendered and is recognized ratably over the life of the contract.

 

Financing and Payment

 

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

 

Costs to Obtain or 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.

 

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.

 

 10 
 

 

Other Current Assets

 

Other current assets consisted of the following as of March 31, 2021 and December 31, 2020:

 

  March 31, 2021  December 31, 2020 
  (unaudited)    
Lab supply inventory $2,227  $2,052 
Prepaid expenses  560   625 
Other  188   45 
Total other current assets $2,975  $2,722 

 

Long-Lived Assets, including Finite-Lived Intangible Assets

 

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

 

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

 

Basic and Diluted Net Loss per Share

 

A reconciliation of the number of shares of common stock, par value $0.01 per share, used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, 2021 and 2020 is as follows:

 

  Three Months Ended 
  March 31, 
  2021  2020 
  (unaudited) 
Basic weighted average number of common shares  4,089   4,004 
Potential dilutive effect of stock-based awards  -   - 
Diluted weighted average number of common shares  4,089   4,004 

 

 11 
 

 

The Company’s Series B Preferred Stock, on an as converted basis of 7,833,334 shares for the three- months ended March 31, 2021, and the following outstanding stock-based awards and warrants, were excluded from the computation of the effect of dilutive securities on loss per share for the following periods as they would have been anti-dilutive (rounded to thousands):

 

  Three Months Ended 
  March 31, 
  2021  2020 
  (unaudited) 
Options  1,061   578 
Restricted stock and restricted stock units (RSUs)  395   42 
Warrants  1,405   1,420 
   2,861   2,040 

 

5.GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill is attributable to the acquisition of our pharma services in July 2019. The carrying value of the intangible assets acquired was $15.6 million, with goodwill of approximately $8.3 million and identifiable intangible assets of approximately $7.3 million. The goodwill balance at March 31, 2021 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of March 31, 2021 and December 31, 2020 are as follows:

 

    As of March 31, 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   $(29,013) $(27,900)
           
Net Carrying Value   $10,238  $11,351 

 

Amortization expense was approximately $1.1 million for both the three-month periods ended March 31, 2021 and 2020, respectively. Estimated amortization expense for the next five years is as follows:

 

2021  2022  2023  2024  2025 
              
$4,078  $2,155  $2,099  $873  $873 

 

The following table displays a roll forward of the carrying amount of goodwill from December 31, 2020 to March 31, 2021:

 

  Carrying 
  Amount 
Balance as of December 31, 2020 $8,433 
Adjustments  - 
Balance as of March 31, 2021 $8,433 

 

 12 
 

 

6.FAIR VALUE MEASUREMENTS

 

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

 

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

 

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

 

  As of March 31, 2021  Fair Value Measurements 
  Carrying  Fair  As of March 31, 2021 
  Amount  Value  Level 1  Level 2  Level 3 
       (unaudited)       
Liabilities:               
Contingent consideration:                    
Asuragen (1) $2,175  $2,175  $-  $      -  $2,175 
Other long-term liabilities:                    
Warrant liability (2)  62   62            -   -   62 
  $2,237  $2,237  $-  $-  $2,237 

 

 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

 

In connection with the acquisition of certain assets from Asuragen, Inc., the Company recorded contingent consideration related to contingent payments and other revenue-based payments. The Company determined the fair value of the contingent consideration based on a probability-weighted income approach derived from revenue estimates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.

 

A roll forward of the carrying value of the Contingent Consideration Liability and the 2017 Underwriters’ Warrants to March 31, 2021 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.

 

           Cancellation  Adjustment    
           of Obligation/  to Fair Value/    
  December 31, 2020  Payments  Accretion  Conversions Exercises  Mark to Market  March 31, 2021 
  (unaudited) 
Asuragen $2,216  $(119) $135  $           -  $         (57) $2,175 
                         
Underwriters Warrants  21   -   -   -   41   62 
  $2,237  $(119) $135  $-  $(16) $2,237 

 

 14 
 

 

7.LEASES

 

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

 

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

 

  Classification on the Balance Sheet March 31, 2021 
    (unaudited) 
Assets      
Financing lease assets Property and equipment, net $690 
Operating lease assets Operating lease right of use assets     3,980 
Total lease assets   $4,670 
       
Liabilities      
Current      
Financing lease liabilities Other accrued expenses $150 
Operating lease liabilities Other accrued expenses  894 
Total current lease liabilities   $1,044 
Noncurrent      
Financing lease liabilities Other long-term liabilities  112 
Operating lease liabilities Operating lease liabilities, net of current portion  3,326 
Total long-term lease liabilities    3,438 
Total lease liabilities   $4,482 

 

The weighted average remaining lease term for the Company’s operating leases was 7.2 years as of March 31, 2021 and the weighted average discount rate for those leases was 6.0%. The Company’s operating lease expenses are recorded within “Cost of revenue” and “General and administrative expenses.”

 

The table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2021:

 

  Operating Leases  Financing Leases 
2021  822   133 
2022  1,028   78 
2023  629   65 
2024  390   - 
2025-2030  2,327   - 
Total minimum lease payments  5,196   276 
Less: amount of lease payments representing effects of discounting  976   14 
Present value of future minimum lease payments  4,220   262 
Less: current obligations under leases  894   150 
Long-term lease obligations $3,326  $112 

 

As of March 31, 2021, contractual obligations with terms exceeding one year and estimated minimum future rental payments required by non-cancelable operating leases with initial or remaining lease terms exceeding one year were as follows:

 

     Less than  1 to 3  3 to 5  After 
  Total  1 Year  Years  Years  5 Years 
Operating lease obligations $5,196  $822  $1,657  $793  $1,924 
Total $5,196  $822  $1,657  $793  $1,924 

 

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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. 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.

 

9.ACCRUED EXPENSES AND LONG-TERM LIABILITIES

 

Other accrued expenses consisted of the following as of March 31, 2021 and December 31, 2020:

 

  March 31, 2021  December 31, 2020 
  (unaudited)    
Accrued royalties $2,984  $2,710 
Contingent consideration  437   398 
Upfront Medicare payment  2,066   2,066 
Operating lease liability  894   1,027 
Financing lease liability  150   177 
Deferred revenue  52   54 
Accrued sales and marketing - diagnostics  75   51 
Accrued lab costs - diagnostics  160   161 
Accrued professional fees  538   854 
Taxes payable  331   334 
Unclaimed property  565   565 
All others  1,170   1,398 
Total other accrued expenses $9,422  $9,795 

 

 16 
 

 

Long-term liabilities consisted of the following as of March 31, 2021 and December 31, 2020:

 

  March 31, 2021  December 31, 2020 
  (unaudited)    
Warrant liability $62  $21 
Uncertain tax positions  4,396   4,342 
Deferred revenue  123   136 
Other  111   138 
Total other long-term liabilities $4,692  $4,637 

 

10.STOCK-BASED COMPENSATION

 

Historically, stock options have been granted with an exercise price equal to the market value of the common stock on the date of grant, with expiration 10 years from the date they are granted, and generally vest over a one to three-year period for employees and members of the Board. Upon exercise, new shares will be issued by the Company. The restricted shares and restricted stock units (“RSUs”) granted to Board members and employees generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.

 

The following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted during the three-month periods ended March 31, 2021 and 2020.

 

  March 31, 2021  March 31, 2020 
  (unaudited) 
Risk-free interest rate  0.78%  1.51%
Expected life  6.0 years   6.0 years 
Expected volatility  134.79%  128.87%
Dividend yield  -   - 

 

During March 2021, the Company granted 312,500 stock options with an exercise price of $6.00 and 152,500 RSUs. The market value of the Company’s common stock was $5.00 at the grant date of these awards. The Company recognized approximately $0.3 million and $0.4 million of stock-based compensation expense during the three-month periods ended March 31, 2021 and 2020, respectively.

 

11.INCOME TAXES

 

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows use of the discrete method when it provides a better estimate of income tax expense. Due to the Company’s valuation allowance position, it is the Company’s position that the discrete method provides a more accurate estimate of income tax expense and therefore income tax expense for the current quarter has been presented using the discrete method. As the year progresses, the Company refines its estimate based on the facts and circumstances by each tax jurisdiction. The following table summarizes income tax expense on loss from continuing operations and the effective tax rate for three-month periods ended March 31, 2021 and 2020:

 

  Three Months Ended 
  March 31, 
  2021  2020 
  (unaudited) 
       
Provision for income tax $15  $15 
Effective income tax rate  (0.4%)  (0.2%)

 

Income tax expense for both the three-month periods ended March 31, 2021 and 2020 was primarily due to minimum state and local taxes.

 

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12.SEGMENT INFORMATION

 

We operate under one 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 March 31, 2021 and December 31, 2020:

 

  March 31, 2021  December 31, 2020 
  (unaudited)    
       
Accrued liabilities  766   766 
Current liabilities from discontinued operations  766   766 
Total liabilities $766  $766 

 

The table below presents the significant components of CSO, Group DCA’s, Pharmakon’s and TVG’s results included within loss from discontinued operations, net of tax in the condensed consolidated statements of operations for the three-months ended March 31, 2021 and 2020.

 

  Three Months Ended 
  March 31, 
  2021  2020 
  (unaudited) 
Income from discontinued operations, before tax $-  $- 
Income tax expense  54   65 
Loss from discontinued operations, net of tax $(54) $(65)

 

14.

NOTES PAYABLE – RELATED PARTIES

 

Secured Promissory Notes

 

On January 7, 2021, the Company entered into promissory notes with Ampersand, in the amount of $3 million, and 1315 Capital, in the amount of $2 million, respectively (together, the “Notes”) and a related security agreement (the “Security Agreement”).

 

Ampersand holds 28,000 shares of the Company’s Series B Convertible Preferred Stock, which are convertible from time to time into an aggregate of 4,666,666 shares of our Common Stock, and 1315 Capital holds 19,000 shares of the Company Series B Convertible Preferred Stock, which are convertible from time to time into an aggregate of 3,166,668 shares of our Common Stock. On an as-converted basis, such shares would represent approximately 39.3% and 26.7% of our fully-diluted shares of Common Stock, respectively. In addition, pursuant to the terms of the Series B Convertible Preferred Stock certificate of designation and an amended and restated investor rights agreement among the Company and Ampersand and 1315 Capital, they each have the right to (1) approve certain of our actions, including our borrowing of money and (2) designate two directors to our Board of Directors; provided, that certain of such rights held by 1315 Capital have been delegated pursuant to the related Support Agreement (See Note 16). As a result, the Company considers the Notes and Security Agreement to be a related party transaction.

 

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The rate of interest on the Notes is equal to eight percent (8.0%) per annum and their maturity date is the earlier of (a) June 30, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Notes. No interest payments are due on the Notes until their maturity date. All payments on the Notes are pari passu.

 

In connection with the Security Agreement, the Notes are secured by a first priority lien and security interest on substantially all of the assets of the Company. Additionally, if a change of control of the Company occurs (as defined in the Notes) the Company is required to make a prepayment of the Notes in an amount equal to the unpaid principal amount, all accrued and unpaid interest, and all other amounts payable under the Notes out of the net cash proceeds received by the Company from the consummation of the transactions related to such change of control. The Company may prepay the Notes in whole or in part at any time or from time to time without penalty or premium by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. No prepaid amount may be re-borrowed.

 

The Notes contain certain negative covenants which prevent the Company from issuing any debt securities pursuant to which the Company issues shares, warrants or any other convertible security in the same transaction or a series of related transactions, except that Company may incur or enter into any capitalized and operating leases in the ordinary course of business consistent with past practice, or borrowed money or funded debt in an amount not to exceed $4.5 million (the “Debt Threshold”) that is subordinated to the Notes on terms acceptable to Ampersand and 1315 Capital; provided, that if the aggregate consolidated revenue recognized by the Company as reported on Form 10-K as filed with the SEC for any fiscal year ending after January 10, 2020 exceeds $45 million, the Debt Threshold for the following fiscal year shall increase to an amount equal to: (x) ten percent (10%); multiplied by (y) the consolidated revenue as reported by the Company on Form 10-K as filed with the SEC for the previous fiscal year.

 

15.SUPPLEMENTAL CASH FLOW INFORMATION

 

Supplemental Disclosures of Non Cash Activities

(in thousands)

 

  Three Months Ended 
  March 31, 
  2021  2020 
  (unaudited) 
Investing        
Preferred Stock Deemed Dividend $-  $3,033 
Financing        
Accrued financing costs $123  $314 

 

16.EQUITY

 

Preferred Stock 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 (collectively, the “Investors”) pursuant to which the Company agreed to sell to the Investors an aggregate of $20.0 million in Series B Preferred Stock of the Company, at an issuance price per share of $1,000. Pursuant to the Securities Purchase and Exchange Agreement, 1315 Capital agreed to purchase 19,000 shares of Series B Preferred Stock at an aggregate purchase price of $19.0 million and Ampersand agreed to purchase 1,000 shares of Series B Preferred Stock at an aggregate purchase price of $1.0 million.

 

 19 
 

 

In addition, the Company agreed to exchange $27.0 million of the Company’s existing Series A convertible preferred stock, par value $0.01 per share, held by Ampersand (the “Series A Preferred Stock”), represented by 270 shares of Series A Preferred Stock with a stated value of $100,000 per share, which represents all of the Company’s issued and outstanding Series A Preferred Stock, for 27,000 newly issued shares of Series B Preferred Stock (such shares of Series B Preferred Stock, the “Exchange Shares” and such transaction, the “Exchange”). Following the Exchange, no shares of Series A Preferred Stock remained designated, authorized, issued or outstanding. The Series B Preferred Stock has a conversion price of $6.00 as compared to a conversion price of $8.00 on the Series A Preferred Stock, but did not include certain rights applicable to the Series A Preferred Stock, including a six-percent (6%) dividend and a conversion price adjustment for any failure by the Company to achieve a revenue target of $34.0 million in 2020 related to its 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.

 

A convertible financial instrument includes a beneficial conversion feature if its conversion price is lower than the Company’s stock price at the commitment date. The Company determined that the sale of the Series B Preferred resulted in a beneficial conversion feature with an intrinsic value of $2.2 million, which the Company recorded as a reduction to additional paid-in capital upon the sale of the Series B Preferred stock. The Company calculated the intrinsic value of the beneficial conversion feature as the difference between the estimated fair value of the Common Stock on January 15, 2020 of $6.79 per share and the effective conversion price per share of $6.00 multiplied by the number of shares of common stock issuable upon conversion. The Company fully amortized the beneficial conversion feature during the three months ended March 31, 2020 in accordance with GAAP. The beneficial conversion feature resulted in an increase in the loss attributable to common shareholders for the three months ended March 31, 2020 in the Condensed Consolidated Statement of Operations, as it 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. The support agreement between the Company and Ampersand was terminated by mutual agreement on July 9, 2020; however, the support agreement entered into with 1315 Capital remains in effect.

 

 20 
 

 

17.WARRANTS

 

Warrants outstanding and warrant activity for the three-months ended March 31, 2021 are as follows:

 

Description Classification  Exercise Price  Expiration Date Warrants Issued  

Balance

December 31,

2020

  Warrants Cancelled/ Expired  

Balance

March 31,

2021

 
                     
Private Placement Warrants, issued January 25, 2017  Equity  $46.90  June 2022  85,500   85,500       85,500 
RedPath Warrants, issued March 22, 2017  Equity  $46.90  September 2022  10,000   10,000       10,000 
Underwriters Warrants, issued June 21, 2017  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   870,214       870,214 
Warrants issued October 12, 2017  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 
                           
             1,975,934   1,404,648   -   1,404,648 

 

The weighted average exercise price of the warrants is $15.97 and the weighted average remaining contractual life is approximately 1.2 years.

 

18.

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recently Adopted Accounting Guidance

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendment was effective for annual periods beginning after December 15, 2020.

 

The Company adopted this pronouncement on January 1, 2021 and the impact was not material to the Company’s Consolidated Financial Statements.

 

19.SUBSEQUENT EVENTS

 

Disposition of New Haven Laboratory

 

On April 15, 2021 the Company closed the agreement to sell its New Haven, CT CLIA certified, CAP accredited laboratory to DiamiR Biosciences, Corp. (“DiamiR”). The agreement had been previously announced on March 17, 2021. Under the agreement, DiamiR will provide overflow lab testing in support of the Company’s molecular thyroid testing products which the Company conducts at its main laboratory in Pittsburgh, PA. DiamiR will also support specific Interpace assay development and validation services on behalf of the Company for the next three quarters. The Company will receive 42,820 shares of DiamiR’s common stock in consideration as well as the services mentioned above.

 

Amendments to Promissory Notes

 

On May 10, 2021, (i) the Company and Ampersand amended the Ampersand Note to increase its principal amount to $4.5 million, (ii) the Company and 1315 Capital amended the 1315 Capital Note to increase its principal amount to $3.0 million and (iii) the Company and Ampersand amended the Security Agreement to include the new total principal amount of the Notes of $7.5 million. The maturity date and interest rate of the Notes remain June 30, 2021 and 8%, respectively and except with respect to their respective principal amounts, the terms of the Notes and the Security Agreement are otherwise unchanged.

 

 21 
 

 

INTERPACE BIOSCIENCES, INC

 

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

 

FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange 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) pandemic;
   
 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, which in the absence of additional short term financing may cause us to cease or scale back operations;
   
 our ability to timely repay our private equity investors the $7.5 million in outstanding secured promissory notes due June 30, 2021, the failure of which could result in the right to foreclose on our assets;
   
 our expectations of future revenues, expenditures, capital or other funding requirements;
   
 we 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 our ability to meet our financial and other targets;

 

 our revenue recognition is based, in part, on our estimates for future collections and such estimates may prove to be incorrect;
   
 our ability to finance our business on acceptable terms in the future, which may limit the ability to grow our business, develop and commercialize products and services, develop and commercialize new molecular clinical service solutions and technologies and expand our pharma services offerings;
   
 our obligations to make royalty and milestone payments to our licensors;

 

 22 
 

 

 our dependence on third parties for the supply of some of the materials used in our clinical and pharma services tests;
   
 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 (“LDTs”), pricing of our tests and services and patient access limitations;
   
 our reliance on our sales and marketing activities for future business growth and our ability to continue to expand our sales and marketing activities;
   
 our ability to implement our business and restructuring strategy; and
   
 the potential impact of existing and future contingent liabilities on our financial condition.

 

Please see Part I – Item 1A – “Risk Factors” in our Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on April 1, 2021, as well as other documents we file with the SEC from time-to-time, for other important factors that could cause our actual results to differ materially from our current expectations as expressed in the forward-looking statements discussed in this Form 10-Q. Because of these and other risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. In addition, these statements speak only as of the date of the report in which they are set forth and, except as may be required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

 

OVERVIEW

 

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

 

COVID-19 pandemic

 

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

 

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.

 

 23 
 

 

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. It is also possible that we could experience supply chain shortages if the pandemic worsens and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.

 

We have developed and will continue to update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.

 

Transition costs

 

To optimize the operations of laboratory operations within our pharma services, we 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.

 

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 2021

 

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 2021. Examples of our progress include:

 

In January 2021, we announced an agreement with Blue Cross Blue Shield of Florida under which ThyGeNEXT® and ThyraMIR® tests are now covered in-network services for their 5 million members.
  
In February 2021, we announced an agreement with Blue Cross Blue Shield of Illinois that makes ThyGeNEXT® and ThyraMIR® tests covered in-network services for their more than 8 million members in Illinois.
  

In April 2021, we announced that Novitas, our Medicare Administrative Contractor, has agreed to recognize the new Proprietary Laboratory Analysis (PLA) code that specifically identifies ThyGeNEXT® as a distinct test from any other test or service. The new PLA code for ThyGeNEXT® is 0245U and the reimbursement for this code remains $2,919, representing a significant price increase over the prior reimbursement level of $560.

 

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In May 2021, we announced that eviCore Healthcare (“eviCore”), a wholly owned subsidiary of Cigna, has updated their laboratory management guidelines to include positive coverage for ThyGeNEXT® and ThyraMIR®. This update, which impacts approximately 27 health plans nationwide covering 100 million lives, is effective on July 1, 2021. This means that after the effective date, claims for ThyGeNEXT and ThyraMIR which meet eviCore’s criteria for coverage will be considered medically necessary and processed as a covered service.

 

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.

 

CONDENSED CONSOLIDATED RESULTS OF OPERATIONS

 

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

 

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Condensed Consolidated Results of Continuing Operations for the Quarter Ended March 31, 2021 Compared to the Quarter Ended March 31, 2020 (unaudited, in thousands)

 

  Three Months Ended March 31, 
  2021  2021  2020  2020 
             
Revenue, net $9,833   100.0% $9,059   100.0%
Cost of revenue  5,316   54.1%  6,113   67.5%
Gross profit  4,517   45.9%  2,946   32.5%
Operating expenses:                
Sales and marketing  2,351   23.9%  2,481   27.4%
Research and development  637   6.5%  809   8.9%
General and administrative  2,979   30.3%  4,837   53.4%
Transition expenses  1,253   12.7%  56   0.6%
Acquisition related amortization expense  1,112   11.3%  1,115   12.3%
Total operating expenses  8,332   84.7%  9,298   102.6%
                 
Operating loss  (3,815)  -38.8%  (6,352)  -70.1%
Interest accretion expense  (135)  -1.4%  (109)  -1.2%
Other (expense)income, net  (188)  -1.9%  47   0.5%
Loss from continuing operations before tax  (4,138)  -42.1%  (6,414)  -70.8%
Provision for income taxes  15   0.2%  15   0.2%
Loss from continuing operations  (4,153)  -42.2%  (6,429)  -71.0%
                 
Loss from discontinued operations, net of tax  (54)  -0.5%  (65)  -0.7%
                 
Net loss $(4,207)  -42.8% $(6,494)  -71.7%

 

Revenue, net

 

Consolidated revenue, net for the three months ended March 31, 2021 increased by $0.8 million, or 9%, to $9.8 million, compared to $9.1 million for the three months ended March 31, 2020. The increase in net revenue was largely driven by increased reimbursement rates.

 

Cost of revenue

 

Consolidated cost of revenue for the three months ended March 31, 2021 was $5.3 million, as compared to $6.1 million for the three months ended March 31, 2020. This decrease is primarily attributed to the closing of the lab in Rutherford, New Jersey. As a percentage of revenue, cost of revenue was approximately 54% for the three months ended March 31, 2021 and 68% for the three months ended March 31, 2020.

 

Gross profit

 

Consolidated gross profit was approximately $4.5 million for the three months ended March 31, 2021 and $2.9 million for the three months ended March 31, 2020. The gross profit percentage was approximately 46% for the three months ended March 31, 3021 and 33% for the three months ended March 31, 2020. The increase can be attributed to increased reimbursement rates as well as the change in the gross profit mix.

 

Sales and marketing expense

 

Sales and marketing expense was approximately $2.4 million for the three months ended March 31, 2021 and $2.5 million for the three months ended March 31, 2020. As a percentage of revenue, sales and marketing expense decreased to 24% from 27% in the comparable prior year period due to the higher revenue for the three months ended March 31, 2021.

 

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Research and development

 

Research and development expense was $0.6 million for the three months ended March 31, 2021 and $0.8 million for the three months ended March 31, 2020 due to lower professional services costs in the quarter. As a percentage of revenue, research and development expense decreased to 7% from 9% in the comparable prior year period.

 

General and administrative

 

General and administrative expense was approximately $3.0 million for the three months ended March 31, 2021 and $4.8 million for the three months ended March 31, 2020. The decrease can be primarily attributed to the closing of the Rutherford, NJ office and the employee and consulting costs associated with it.

 

Transition expense

 

Transition expense was approximately $1.3 million for the three months ended March 31, 2021 and $0.1 million for the three months ended March 31, 2020. These expenses are related to the Rutherford, NJ lab closing and subsequent move to North Carolina as well as other cost-saving initiatives.

 

Acquisition amortization expense

 

During the three months ended March 31, 2021 and March 31, 2020, we recorded amortization expense of approximately $1.1 million, respectively in both periods, which is related to intangible assets associated with prior acquisitions.

 

Operating loss

 

Operating loss from continuing operations was $3.8 million for the three months ended March 31, 2021 as compared to $6.4 million for the three months ended March 31, 2020. The lower operating loss was primarily attributable to the increase in gross profit discussed above.

 

Provision for income taxes

 

Income tax expense was approximately $15,000 for the three months ended March 31, 2021 and $15,000 for the three months ended March 31, 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 three months ended March 31, 2021 and a loss from discontinued operations of approximately $0.1 million for the three months ended March 31, 2020.

 

Non-GAAP Financial Measures

 

In addition to the United States generally accepted accounting principles, or GAAP, results provided throughout this document, we have provided certain non-GAAP financial measures to help evaluate the results of our performance. We believe that these non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to both management and investors in analyzing our ongoing business and operating performance. We believe that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view our financial results in the way that management views financial results.

 

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In this 10-Q, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the 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)

 

  Quarters Ended 
  March 31, 
  2021  2020 
Loss from continuing operations (GAAP Basis) $(4,153) $(6,429)
Bad debt (recovery) expense  (140)  250 
Transition expenses  1,253   56 
Depreciation and amortization  1,532   1,319 
Stock-based compensation  286   418 
Taxes  15   15 
Financing interest and related costs  144   - 
Interest accretion expense  135   109 
Mark to market on warrant liability  41   (26)
Change in fair value of contingent consideration  (57)  - 
Non-GAAP Adjusted EBITDA $(944) $(4,288)

 

LIQUIDITY AND CAPITAL RESOURCES

 

For the three months ended March 31, 2021, we had an operating loss of $3.8 million. As of March 31, 2021, we had cash and cash equivalents of $2.8 million, net of restricted cash, total current assets of $13.7 million, net of restricted cash and current liabilities of $20.5 million. As of May 10, 2021, we had approximately $6.4 million of cash on hand, net of restricted cash.

 

During the three months ended March 31, 2021, net cash used in operating activities was $5.0 million. The main component of cash used in operating activities was our net loss of $4.2 million. During the three months ended March 31, 2020, net cash used in operating activities was $7.1 million. The main component of cash used in operating activities was our net loss of $6.5 million.

 

For the three months ended March 31, 2021, cash provided from financing activities was $5.0 million, of which $4.9 million were the net proceeds from the Company’s secured promissory notes with Ampersand and 1315. See Note 14, Notes Payable - Related Parties of the notes to the financial statements. For the three months ended March 31, 2020, there was cash provided from financing activities of $18.2 million, $19.5 million which resulted from the issuance of Preferred Stock in January 2020, and $0.4 million from sales of common stock, and which was partially offset by $1.8 million in a net repayment of funds under our revolving line of credit with SVB.

 

In September 2020, we repaid approximately $3.4 million to SVB under our former secured revolving line of credit facility (the “Revolver”), which was part of our Loan and Security Agreement with SVB dated November 13, 2018, as amended March 18, 2019 (as so amended, the “SVB Loan Agreement”). On January 5, 2021, the Company terminated the SVB Loan Agreement.

 

On January 7, 2021, the Company entered into secured promissory notes in the amount of $3 million and $2 million with Ampersand and 1315 Capital, respectively. See Note 14, Notes Payable – Related Parties of the notes to the financial statements.

 

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In January 2020, we sold 20,000 preferred shares to investors, led by 1315 Capital, for net proceeds of approximately $19.2 million; see Note 16, Equity of the notes to the financial statements for more detail.

 

See Note 1, Overview, of 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, 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 (the “CARES Act”) and received $2.1 million in advances under the Centers for Medicare & Medicaid Services (“CMS”) accelerated and advance payment program. This advance will be offset against future Medicare billings of the Company beginning in the second quarter of 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. There can be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company’s cash and cash equivalents balance is decreasing and we will not generate positive cash flows from operations for the year ending December 31, 2021. We intend to meet our ongoing capital needs by using our available cash, including the Ampersand and 1315 Capital loans, as well as revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options.

 

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

 

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

 

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Based on the evaluation of the Company’s disclosure controls and procedures, as that term is defined in Rule 13a-15(e) under the Exchange Act the Chief Executive Officer of the Company and the Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures were not effective as of March 31, 2021.

 

Reference should be made to our Form 10-K filed with the SEC on April 1, 2021 for additional information regarding discussion of the effectiveness of the Company’s controls and procedures.

 

Changes in Internal 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.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Not applicable as we are a smaller reporting company.

 

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

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

Item 1.01. Entry into a Material Definitive Agreement

 

On January 7, 2021, the Company entered into promissory notes with Ampersand 2018 Limited Partnership (“Ampersand”), in the amount of $3 million (the “Ampersand Note”), and 1315 Capital II, L.P. (“1315 Capital”), in the amount of $2 million (the “1315 Capital Note”), respectively (together, the “Notes”), and a related security agreement (the “Security Agreement”).

 

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On May 10, 2021, (i) the Company and Ampersand amended the Ampersand Note to increase its principal amount to $4.5 million, (ii) the Company and 1315 Capital amended the 1315 Capital Note to increase its principal amount to $3.0 million and (iii) the Company and Ampersand amended the Security Agreement to include the new total principal amount of the Notes of $7.5 million. The maturity date and interest rate of the Notes remain June 30, 2021 and 8%, respectively and except with respect to their respective principal amounts, the terms of the Notes and the Security Agreement are otherwise unchanged.

 

Ampersand holds 28,000 shares of the Company’s Series B Convertible Preferred Stock (“Series B”), which are convertible from time to time into an aggregate of 4,666,666 shares of the Company’s Common Stock, and 1315 Capital holds 19,000 shares of the Company’s Series B, which are convertible from time to time into an aggregate of 3,166,668 shares of the Company’s Common Stock. On an as-converted basis, such shares would represent approximately 39.1% and 26.5% of our fully-diluted shares of Common Stock, respectively. As a result, the Company considers the May 10, 2021 amendments to the Notes and Security Agreement to be related party transactions.

 

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information set forth in Item 1.01 above is incorporated by reference into this Item 2.03.

 

Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

On May 10, 2021 Company entered into an at-will employment agreement with Thomas Freeburg (the “Freeburg Employment Agreement”), as of February 1, 2021 (the “Effective Date”). Mr. Freeburg will serve as Chief Financial Officer of the Company. As previously reported on the Company’s current report on Form 8-K filed February 4, 2021, the Company agreed to pay to Mr. Freeburg a base salary of $225,000 annually during the initial term, increasing to $250,000 on August 1, 2021, to be paid in accordance with the Company’s payroll practices. Mr. Freeburg is also eligible to receive additional annual incentive compensation with an annual target of up to 40% of the base salary, paid out in cash, less applicable taxes and deductions and/or stock as determined by the Chief Executive Officer of the Company (“CEO”) and the Company’s Compensation and Management Development Committee (the “Compensation Committee”).

 

On March 10, 2021, the Company awarded to Mr. Freeburg under the Company’s 2019 Equity Incentive Plan, as amended, (the “Plan”) (i) an option to purchase 50,000 shares of the Company’s common stock, par value $0.01 per share (“Common Stock”) with an exercise price equal to $6.00 per share (such option, the “Initial Time-Vesting Option”), and (ii) restricted stock units with respect to 50,000 shares of Common Stock (such grant, the “Initial Time-Vesting RSUs”). The Initial Time-Vesting Option and the Initial Time-Vesting RSUs shall be subject to the terms of the Plan and an applicable award agreement by and between Mr. Freeburg and the Company, and shall vest in equal installments on each of the first three anniversaries of the date of grant, subject to Mr. Freeburg’s continued employment with the Company through the applicable vesting date; provided that, notwithstanding the terms of the Plan and the applicable award agreement, the Initial Time-Vesting Options, the Initial Time-Vesting RSUs and any other then-outstanding awards of Mr. Freeburg under the Plan shall vest and become exercisable in full immediately prior to the occurrence of a Change in Control, as defined in the Plan, subject to Mr. Freeburg’s continuous employment through such Change in Control following the grant of the Initial RSUs. Mr. Freeburg will be eligible to receive equity awards under the Plan as determined by the CEO and Board. Mr. Freeburg will also be entitled to receive certain other benefits such as housing and participation in retirement and welfare plans.

 

In the event that Mr. Freeburg’s employment is terminated by the Company without Cause or by Mr. Freeburg for Good Reason (in each case, as defined in the Freeburg Employment Agreement), then subject to, among other things, Mr. Freeburg’s execution and non-revocation of a release agreement in favor of the Company, Mr. Freeburg would be entitled to( i) severance equal to six (6) months’ base salary (as in effect as of the termination date), payable semi-monthly on the Company’s regularly scheduled payroll dates, (ii) if Mr. Freeburg properly and timely elects to continue health and dental coverage under the Company’s plans in accordance with the continuation requirements of COBRA, payment for the cost of the premiums for such coverages for Mr. Freeburg for a six (6) month period beginning on the termination date, or if earlier, through the date on which Mr. Freeburg becomes eligible for other group health coverage in connection with new employment and (iii) all outstanding equity awards that were scheduled to vest during the 24-month period following the termination date, but for the termination, would become fully vested and exercisable.

 

In addition to the Freeburg Employment Agreement described herein, the Company and Mr. Freeburg will enter into the Company’s standard form of indemnification and confidentiality agreements.

 

During employment with the Company through the twelve month period following termination of employment, Mr. Freeburg agrees not to set up or engage in any business enterprise that would be in competition with the Company in its oncology-based laboratory services and/or pharma services businesses. Mr. Freeburg is also subject to limitations on solicitation of Company personnel and on disclosure of confidential information (as defined in the Freeburg Employment Agreement), and Mr. Freeburg agreed to assign to the Company any work product developed or made while so employed.

 

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Item 6. Exhibits

 

Exhibit No. Description
   
2.1 Asset Purchase Agreement by and among the Company and Diamir Biosciences Corp. dated March 16, 2021, filed herewith. Upon the request of the SEC, the Company agrees to furnish copies of the following exhibits and schedules: Attachment A – Statement of Post-Closing Obligations of Seller; Attachment B – Bill of Sale; APA Schedule 1.3; APA schedule 1.5.
   
3.1 Conformed version of Certificate of Incorporation of Interpace Biosciences, Inc incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with SEC on April 22, 2020 as amended from time to time.
   
3.2 Amended and Restated Bylaws of Interpace Biosciences, Inc., incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K, filed with the SEC on November 14, 2019.
   
10.1* Severance agreement and General Release, dated January 31, 2021, by and between the Company and Fred Knechtel, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on February 4, 2021.
   
10.2* 

Employment agreement entered into May 10, 2021, effective February 1, 2021, between Thomas Freeburg and the Company, filed herewith.

   
10.3 

Promissory Note entered into between the Company and Ampersand 2018 Limited Partnership, dated January 7, 2021, filed herewith.

   
10.4 

Promissory Note entered into between the Company and 1315 Capital II, L.P, dated January 7, 2021, filed herewith.

   
10.5 Security Agreement entered into between the Company and Ampersand 2018 Limited Partnership, dated January 7, 2021, filed herewith.
   
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
   
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
   
32.1+ Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
   
32.2+ Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
   
101 The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021 formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.

 

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

 

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SIGNATURES

 

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

 

Date: May 11, 2021Interpace Biosciences, Inc.
 (Registrant)
  
 /s/ Thomas W. Burnell
 Thomas W. Burnell
 President and Chief Executive Officer
 (Principal Executive Officer)
  
Date: May 11, 2021/s/ Thomas Freeburg
 Thomas Freeburg
 Chief Financial Officer
 (Principal Financial Officer)

 

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