UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1) 

 

(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, 2020

 

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
Common Stock, $0.01 par value per share   IDXG   The Nasdaq Stock Market LLC

 

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 June 12, 2020
Common Stock, par value $0.01 per share   4,036,595

 

 

 

 

 

 

INTERPACE BIOSICENCES, INC.

FORM 10-Q/A FOR PERIOD ENDED MARCH 31, 2020

TABLE OF CONTENTS

 

    Page No.
  EXPLANATORY NOTE  
     
  PART I - FINANCIAL INFORMATION  
     
Item 1. Unaudited Interim Condensed Consolidated Financial Statements  
     
  Condensed Consolidated Balance Sheets at March 31, 2020 (unaudited) and December 31, 2019 4
     
  Condensed Consolidated Statements of Operations for the three- month periods ended March 31, 2020 and 2019 (unaudited) 5
     
  Condensed Consolidated Statements of Stockholders’ Equity for the three- month periods ended March31, 2020 and 2019 (unaudited) 6
     
  Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2020 and 2019 (unaudited) 7
     
  Notes to Unaudited Condensed Consolidated Financial Statements 8
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 43
     
Item 4. Controls and Procedures 43
     
  PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 43
     
Item 1A. Risk Factors 44
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 44
     
Item 3. Defaults Upon Senior Securities 44
     
Item 4. Mine Safety Disclosures 44
     
Item 5. Other Information 44
     
Item 6. Exhibits 45
     
Signatures 46

 

2
 

 

EXPLANATORY NOTE

 

On March 25, 2020, the U.S. Securities and Exchange Commission (the “SEC”) issued an order Release No. 34-88465 (the “Order”) pursuant to its authority under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) granting exemptions from certain provisions of that Act and the rules thereunder related to the reporting and proxy delivery requirements for certain public companies. Interpace Biosciences, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 in reliance on the Order, permitting a delay in filing due to circumstances related to COVID-19. The Company filed, on May 15, 2020, a Current Report on Form 8-K (the “May 15th 8-K”) indicating its intention to rely on the Order. As stated in the May 15th 8-K, the Company required additional time to finalize this report due to circumstances related to COVID-19, the disease caused by the coronavirus. The effects of COVID-19 have limited the abilities of the Company’s employees to conduct normal business activities. This, in turn, delayed the Company’s ability to prepare this report.

 

This Amendment No. 1 on Form 10-Q/A (this Amendment) amends the Company’s Report on Form 10-Q for the quarter ended March 31, 2020, as amended, (the “Original Filing”) and is being filed to show the impact in such quarter of intangible asset amortization and impairment expense for its Barrett’s and Thyroid assets which began in 2014. Subsequent to the issuance of its consolidated financial statements for the year ended December 31, 2019 and the quarters ended March 31, 2020 and June 30, 2020, the Company determined that amortization should have commenced upon acquisition of those assets as opposed to the Company’s previously disclosed policy of beginning asset amortization when the product was launched and generating revenue. The impact of the additional amortization expense for each of the quarters ended March 31, 2020 and March 31, 2019 was approximately $0.1 million. The impact of the other immaterial adjustments for the quarters ended March 31, 2020 and March 31, 2019 was $0.1 million in expense and $0.2 million in a credit to expense, respectively

 

A description of these adjustments and a summary showing their effect on the restated consolidated statements of operations is provided in Note 1 to the consolidated financial statements. In addition to the errors described above, the restated financial statements also include adjustments to correct certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.

 

The Company is filing this report in order to amend certain information in Items 1, 2 and 4 of Part I to reflect the restatement of the March 31, 2020 and 2019 unaudited interim consolidated statements of operations and Notes 1,3,5 and 9 to the consolidated financial statements attached hereto solely to the extent necessary to reflect the adjustments described herein; and the principal executive officer and principal financial officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Except for the foregoing items, no other information in the Original Filing is revised by this Amendment.

 

3
 

 

PART I. FINANCIAL INFORMATION

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

   As Restated   As Restated 
   March 31,   December 31, 
   2020   2019 
    (unaudited)      
ASSETS          
Current assets:          
Cash and cash equivalents  $13,370   $2,321 
Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively   9,799    10,338 
Other current assets   4,976    3,851 
Total current assets   28,145    16,510 
Property and equipment, net   6,610    6,814 
Other intangible assets, net   14,734    15,849 
Goodwill   8,433    8,433 
Operating lease right of use assets   2,811    3,892 
Other long-term assets   42    42 
Total assets  $60,775   $51,540 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
Current liabilities:          
Accounts payable  $4,456   $4,709 
Accrued salary and bonus   1,865    2,341 
Other accrued expenses   8,639    9,476 
Current liabilities from discontinued operations   766    766 
Total current liabilities   15,726    17,292 
Contingent consideration   2,264    2,391 
Operating lease liabilities, net of current portion   1,384    2,591 
Line of credit   1,200    3,000 
Other long-term liabilities   4,563    4,573 
Total liabilities   25,137    29,847 
           
Commitments and contingencies (Note 8)          
           
Preferred stock, $.01 par value; 5,000,000 shares authorized, 270 Series A shares issued and outstanding   -    26,172 
47,000 Series B shares issued and outstanding   46,536    - 
           
Stockholders’ equity:          
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 3,932,370 shares issued, respectively; 4,043,673 and 3,920,589 shares outstanding, respectively   402    393 
Additional paid-in capital   182,580    182,514 
Accumulated deficit   (192,159)   (185,665)
Treasury stock, at cost (11,781 and 11,781 shares, respectively)   (1,721)   (1,721)
Total stockholders’ equity   (10,898)   (4,479)
Total liabilities and stockholders’ equity  $14,239   $25,368 
           
Total liabilities, preferred stock and stockholders’ equity  $60,775   $51,540 

 

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

 

4
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

   As Restated 
   Three Months Ended March 31, 
   2020   2019 
         
         
Revenue, net  $9,059   $6,010 
Cost of revenue (excluding amortization of $1,115 and $897,  respectively)   6,113    2,622 
Gross profit   2,946    3,388 
Operating expenses:          
Sales and marketing   2,481    2,411 
Research and development   809    528 
General and administrative   4,893    2,735 
Acquisition related amortization expense   1,115    897 
Total operating expenses   9,298    6,571 
           
Operating loss   (6,352)   (3,183)
Interest accretion   (109)   (129)
Other income (expense), net   47    48 
Loss from continuing operations before tax   (6,414)   (3,264)
Provision for income taxes   15    5 
Loss from continuing operations, net of tax   (6,429)   (3,269)
           
Loss from discontinued operations, net of tax   (65)   (57)
           
Net loss   (6,494)   (3,326)
           
Less adjustment for preferred stock deemed dividend   (3,033)   - 
           
Net loss attributable to common stockholders  $(9,527)  $(3,326)
           
Basic and diluted loss per share of common stock:          
From continuing operations  $(2.37)  $(0.93)
From discontinued operations   (0.01)   (0.01)
Net loss per basic and diluted share of common stock  $(2.38)  $(0.94)
Weighted average number of common shares and common share equivalents outstanding:          
Basic   4,004    3,515 
Diluted   4,004    3,515 

 

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

 

5
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

   As Restated   As Restated 
   For The Three Months Ended   For The Three Months Ended 
   March 31, 2020   March 31, 2019 
   Shares   Amount   Shares   Amount 
Common stock:                    
Balance at January 1   3,932   $393    2,877   $287 
Common stock issued   37    1    9    1 
Restricted stock issued   6    -    -    - 
Common stock issued through market sales   80    8    -    - 
Common stock issued through offerings   -    -    933    94 
Balance at March 31   4,055    402    3,819    382 
Treasury stock:                    
Balance at January 1   12    (1,721)   7    (1,680)
Treasury stock purchased   -    -    3    (32)
Balance at March 31   12    (1,721)   10    (1,712)
Additional paid-in capital:                    
Balance at January 1        182,514         175,820 
Common stock issued through offerings, net of expenses        -         5,868 
Extinguishment of Series A Shares        (828)        - 
Beneficial Conversion Feature in connection with Series B Issuance        2,205         - 
Amortization of Beneficial Conversion Feature        (2,205)        - 
Common stock issued through market sales        476         - 
Stock-based compensation expense        418         266 
Balance at March 31        182,580         181,954 
Accumulated deficit:                    
Balance at January 1        (185,665)        (158,981)
Net loss        (6,494)        (3,326)
Adoption of ASC 842        -         55 
Balance at March 31        (192,159)        (162,252)
                     
Total stockholders’ equity       $(10,898)       $18,372 

 

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

 

6
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

   As Restated 
   For The Three Months Ended March 31, 
   2020   2019 
         
Cash Flows From Operating Activities          
Net loss  $(6,494)  $(3,326)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   1,319    957 
Interest accretion   109    129 
Mark to market on warrants   (26)   (3)
Stock-based compensation   418    538 
Bad debt expense   250    - 
Other gains and expenses, net   -    18 
Other changes in operating assets and liabilities:          
Decrease (increase) in accounts receivable   289    (1,738)
(Increase) decrease in other current assets   (1,125)   11 
(Decrease) increase in accounts payable   (253)   93 
(Decrease) increase in accrued salaries and bonus   (476)   205 
(Decrease) increase in accrued liabilities   (1,149)   99 
Increase in long-term liabilities   16    57 
Net cash used in operating activities   (7,122)   (2,960)
           
Cash Flows From Investing Activity          
Purchase of property and equipment   -    (12)
Sale of property and equipment   -    13 
Net cash provided by investing activity   -    1 
           
Cash Flows From Financing Activities          
Issuance of common stock, net of expenses   434    6,015 
Payments on Line of Credit   (1,800)   - 
Issuance of Series B preferred stock, net of expenses   19,537    - 
Net cash provided by financing activities   18,171    6,015 
           
Net increase in cash and cash equivalents   11,049    3,056 
Cash and cash equivalents – beginning   2,321    6,068 
Cash and cash equivalents – ending  $13,370   $9,124 

 

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

 

7
 

 

1. OVERVIEW

 

Nature of Business

 

The Company enables personalized medicine, offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications and pharma services. The Company provides molecular diagnostics, bioinformatics and pathology services for evaluation of risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. The Company also provides pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. The Company advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs with the goals of delivering safer, more effective drugs to market more quickly, and improving patient care.

 

Impact of COVID-19 pandemic

 

We have taken what we believe are all necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We are following the Centers for Disease Control and Prevention’s (“CDC”) guidance and local restrictions. The majority of our employees who do not work in a lab are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our labs require in-person staffing and as of the date of this report, we have been able to successfully operate our labs through a combination of social distancing and protective equipment. Our employees in the lab are wearing what we believe is appropriate protective gear. There can be no assurance that key employees will not become ill or that we will able to continue to operate our labs. We have furloughed a number of employees as a result of reductions in customer demand.

 

The extent to which the COVID-19 pandemic impacts our operations is dependent on future developments, which are still highly uncertain and cannot be fully predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the spread of the coronavirus globally is adversely affecting global economies and financial markets which could materially and adversely impact our operations including, without limitation, the functioning of our laboratories, the availability of supplies including reagents, the progress and data collection of our pharma services, customer demand and travel and employee health and availability.

 

We believe that the COVID-19 pandemic will adversely impact our results of operations, cash flows and financial condition for the second quarter of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue was impacted by lower than expected clinical service volume throughout March 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. Our pharma services first quarter revenue increased throughout the first quarter and average daily accessions improved in March 2020 as compared to January and February 2020. However, as of the date of this Report, our overall business is still down approximately 30% from our run rate before the pandemic.

 

We continue to monitor the rapidly evolving situation and guidance from authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these dynamic circumstances, there may be developments outside our control requiring us to adjust our operating plan.

 

8
 

 

At this time, we do not anticipate any lab closures beyond temporary work stoppages from time to time to clean and disinfect the labs. Lab supplies including reagents have been secured to mitigate any potential supply chain issues for the foreseeable future and we are not observing any shortages due to supply chain issues. Our third party clinical services billing and collections company has taken steps to continue operations remotely.

 

We are monitoring the situation on a daily basis and have developed contingency plans to potentially mitigate the anticipated adverse financial impact of the COVID-19 pandemic. These contingency plans include significant cost saving actions to offset any volume shortfall and additional action plans to react to further potential declines. While we are continuing to make progress on a regular basis in returning to volumes prior to the pandemic there is, however, no guarantee in the future we will recover the business which has been lost or inactive.

 

Restatement

 

We have restated herein our unaudited consolidated financial statements as of March 31, 2020 for the three months ended March 31, 2020 and March 31, 2020. We have also restated impacted amounts within the accompanying footnotes to the consolidated financial statements which have been noted as such.

 

As a result of overall economic conditions related to the coronavirus pandemic, the impact of the coronavirus pandemic on the Company’s financial results, and the decrease in the price of the Company’s common stock noted during the third quarter of fiscal 2020, the Company performed an internal review of its long-lived assets. Due to an extended delay in the launch of the Company’s Barrett’s test, the Company believes there was a triggering event in Fiscal 2016. The Company applied the required procedures under ASC 360 and assessed the estimated future cash flows related to the Barrett’s intangible asset on an undiscounted basis. It was determined that the carrying value of the asset was in excess of the undiscounted cash flows as of December 31, 2016. As a result, the Company performed a formal valuation of the asset on a discounted basis in order to measure the related impairment. Additionally, the Company concluded that amortization of both the Barrett’s intangible asset and its Thyroid intangible assets should have begun at the point in which the asset was ready for use. The Company’s policy had been to amortize such assets upon launch of the test.

 

On December 7, 2020, the Company’s management conferred with the Audit Committee of the Company’s Board of Directors and concluded that (1) a non-cash impairment charge for an intangible asset of approximately $12 million should have been recorded during the Company’s 2016 fiscal year; (2) the Company should have initiated amortization of such intangible asset in fiscal 2014 and therefore each of fiscal years 2014, 2015, 2016, 2017, 2018, and 2019 and the first two quarters of fiscal 2020 require adjustment to record amortization expense; (3) the consolidated financial statements contained in the Company’s Annual Reports on Form 10-K for the years ended December 31, 2014, 2015, 2016, 2017, 2018, and 2019, as well as the consolidated financial statements contained in the Quarterly Reports on Form 10-Q for each quarterly period within those fiscal years as well as the quarterly periods ended March 31, 2020 and June 30, 2020, should no longer be relied upon. As a result the Company is restating its consolidated financial statements for the three months ended March 31, 2020 and March 31, 2019 in this Form 10-Q/A.

 

The following tables present reconciliation from our prior periods as previously reported to the restated values for the consolidated balance sheets and the consolidated statement of operations. A description of misstatements is listed below:

  a)

Amortization expense - We recorded amortization expense starting at the dates of acquisition for our Barrett’s and Thyroid intangible assets. The impact of the additional amortization charge was approximately $0.1 million in the quarters ended March 31, 2020 and March 31, 2019, respectively.

     
  b)

Asset impairment - We recorded an impairment charge on our Barrett’s intangible asset of approximately $11.6 million in the fourth quarter of 2016.

     
  c) Adjustments - Adjustments to correct certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.

 

9
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share data)

 

    March 31, 2020  
    As
Previously
Reported
    Restatement
Amount
    Restatement
Reference
    As Restated  
    (unaudited)                    
ASSETS                                
Current assets:                                
Cash and cash equivalents   $ 13,370     $ -                       $ 13,370  
Accounts receivable, net of allowance for doubtful accounts of $275     9,799       -               9,799  
Other current assets     4,976       -               4,976  
Total current assets     28,145       -               28,145  
Property and equipment, net     6,610                       6,610  
Other intangible assets, net     32,470       (17,736 )     (a) (b)     14,734  
Goodwill     8,433       -               8,433  
Operating lease right of use assets     2,811       -               2,811  
Other long-term assets     42       -               42  
Total assets   $ 78,511     $ (17,736 )           $ 60,775  
                                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                                
Current liabilities:                                
Accounts payable   $ 4,456     $ -             $ 4,456  
Accrued salary and bonus     1,865       -               1,865  
Other accrued expenses     8,639       -               8,639  
Current liabilities from discontinued operations     766       -               766  
Total current liabilities     15,726       -               15,726  
Contingent consideration     2,264       -               2,264  
Operating lease liabilities, net of current portion     1,384       -               1,384  
Line of credit     1,200       -               1,200  
Other long-term liabilities     4,563       -               4,563  
Total liabilities     25,137       -               25,137  
                                 
Commitments and contingencies (Note 8)                                
                                 
Preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 Series B shares issued and outstanding     46,536       -               46,536  
                                 
Stockholders’ equity:                                
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 4,043,673 shares issued and outstanding, respectively;     402       -               402  
Additional paid-in capital     182,580       -               182,580  
Accumulated deficit     (174,423 )     (17,736 )     (a) (b) (c)       (192,159 )
Treasury stock, at cost (11,781 shares)     (1,721 )     -               (1,721 )
Total stockholders’ equity     6,838       (17,736 )             (10,898 )
Total liabilities and stockholders’ equity   $ 31,975     $ (17,736 )           $ 14,239  
                                 
Total liabilities, preferred stock and stockholders’ equity   $ 78,511     $ (17,736 )           $ 60,775  

 

10
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

   Three Months Ended March 31, 2020   Three Months Ended March 31, 2019 
   As Previously Reported   Restatement Amount   Restatement Reference  As Restated   As Previously Reported   Restatement Amount   Restatement Reference  As Restated 
                               
Revenue, net  $9,200   $(141)  (c)  $9,059   $6,010   $-      $6,010 
Cost of revenue   6,113    -       6,113    2,622    -       2,622 
Gross profit   3,087    (141)  (c)   2,946    3,388    -       3,388 
Operating expenses:                                    
Sales and marketing   2,481    -       2,481    2,411    -       2,411 
Research and development   809    -       809    528    -       528 
General and administrative   4,887    6   (c)   4,893    2,912    (177)  (c)   2,735 
Acquisition related amortization expense   1,031    84   (a)   1,115    813    84   (a)   897 
Total operating expenses   9,208    90   (a) (c)   9,298    6,664    (93)  (a) (c)   6,571 
                                     
Operating loss   (6,121)   (231)  (a) (c)   (6,352)   (3,276)   93   (a) (c)   (3,183)
Interest accretion   (109)   -       (109)   (129)   -       (129)
Other income (expense), net   47    -       47    48    -       48 
Loss from continuing operations before tax   (6,183)   (231)  (a) (c)   (6,414)   (3,357)   93   (a) (c)   (3,264)
Provision for income taxes   15    -       15    5    -       5 
Loss from continuing operations, net of tax   (6,198)   (231)  (a) (c)   (6,429)   (3,362)   93   (a) (c)   (3,269)
                                     
Loss from discontinued operations, net of tax   (65)   -       (65)   (57)   -       (57)
                                     
Net loss   (6,263)   (231)  (a) (c)   (6,494)   (3,419)   93   (a) (c)   (3,326)
                                     
Less adjustment for preferred stock deemed dividend   (3,033)   -       (3,033)   -    -       - 
                                     
Net loss attributable to common stockholders   (9,296)   (231)      (9,527)   (3,419)   93       (3,326)
                                     
Basic and diluted loss per share of common stock:                                    
From continuing operations  $(2.31)  $(0.06)     $(2.37)  $(0.96)  $0.03      $(0.93)
From discontinued operations   (0.01)   -       (0.01)   (0.01)   -       (0.01)
Net loss per basic and diluted share of common stock  $(2.32)  $(0.06)     $(2.38)  $(0.97)  $0.03      $(0.94)
Weighted average number of common shares and common share equivalents outstanding:                                    
Basic   4,004    4,004       4,004    3,515    3,515       3,515 
Diluted   4,004    4,004       4,004    3,515    3,515       3,515 

 

11
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

   As Previously Reported           As Restated 
   For The Three Months Ended         For The Three Months Ended 
   March 31, 2020   Restatement   Restatement   March 31, 2020 
   Shares   Amount   Amount   Reference   Shares   Amount 
Common stock:                              
Balance at January 1   3,932   $393   $-              3,932   $393 
Common stock issued   37    1    -         37    1 
Restricted stock issued   6    -    -         6    - 
Common stock issued through market sales   80    8    -         80    8 
Common stock issued through offerings   -    -    -         -    - 
Balance at March 31   4,055    402    -         4,055    402 
Treasury stock:                              
Balance at January 1   12    (1,721)   -         12    (1,721)
Treasury stock purchased   -    -    -         -    - 
Balance at March 31   12    (1,721)   -         12    (1,721)
Additional paid-in capital:                              
Balance at January 1        182,514    -              182,514 
Common stock issued through offerings, net of expenses        -    -              - 
Extinguishment of Series A Shares        (828)   -              (828)
Beneficial Conversion Feature in connection with Series B Issuance        2,205    -              2,205 
Amortization of Beneficial Conversion Feature        (2,205)   -              (2,205)
Common stock issued through market sales        476    -              476 
Stock-based compensation expense        418    -              418 
Balance at March 31        182,580    -              182,580 
Accumulated deficit:                              
Balance at January 1        (168,160)   (17,505)   

(a)(b)(c)

         (185,665)
Net loss        (6,263)   (231)   

(a)(c)

         (6,494)
Adoption of ASC 842        -    -              - 
Balance at March 31        (174,423)   (17,736)             (192,159)
                               
Total stockholders’ equity       $6,838   $(17,736)            $(10,898)

 

12
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

 

   As Previously Reported           As Restated 
   For The Three Months Ended           For The Three Months Ended 
   March 31, 2019   Restatement   Restatement   March 31, 2019 
   Shares   Amount   Amount   Reference   Shares   Amount 
Common stock:                              
Balance at January 1   2,877   $287   $-               2,877   $287 
Common stock issued   9    1    -         9    1 
Restricted stock issued   -    -    -         -    - 
Common stock issued through market sales   -    -    -         -    - 
Common stock issued through offerings   933    94    -         933    94 
Balance at March 31   3,819    382    -         3,819    382 
Treasury stock:                              
Balance at January 1   7    (1,680)   -         7    (1,680)
Treasury stock purchased   3    (32)   -         3    (32)
Balance at March 31   10    (1,712)   -         10    (1,712)
Additional paid-in capital:                              
Balance at January 1        175,820    -              175,820 
Common stock issued through offerings, net of expenses        5,868    -              5,868 
Extinguishment of Series A Shares        -    -              - 
Beneficial Conversion Feature in connection with Series B Issuance        -    -              - 
Amortization of Beneficial Conversion Feature        -    -              - 
Common stock issued through market sales        -    -              - 
Stock-based compensation expense        266    -              266 
Balance at March 31        181,954    -              181,954 
Accumulated deficit:                              
Balance at January 1        (141,489)   (17,492)   (a)(b)(c)    

    (158,981)
Net loss        (3,419)   93    (a)(c)    

    (3,326)
Adoption of ASC 842        55    -              55 
Balance at March 31        (144,853)   (17,399)             (162,252)
                               
Total stockholders’ equity       $35,771   $(17,399)            $18,372 

 

13
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)

 

   For The Three Months Ended March 31, 
   2020           2020 
   As Previously
Reported
   Restatement
Amount
   Restatement
Reference
   As Restated 
                 
Cash Flows From Operating Activities                    
Net loss  $(6,263)  $(231)   (a)(c)  $(6,494)
Adjustments to reconcile net loss to net cash used in operating activities:                    
Depreciation and amortization   1,235    84    (a)    1,319 
Interest accretion   109    -         109 
Mark to market on warrants   (26)   -         (26)
Stock-based compensation   418    -         418 
Bad debt expense   250    -         250 
Other gains and expenses, net   -    -         - 
Other changes in operating assets and liabilities:                    
Decrease (increase) in accounts receivable   148    141    (c)    289 
(Increase) decrease in other current assets   (1,125)   -         (1,125)
(Decrease) increase in accounts payable   (356)   103    (c)    (253)
(Decrease) increase in accrued salaries and bonus   (476)   -         (476)
(Decrease) increase in accrued liabilities   (1,052)   (97)   (c)    (1,149)
Increase in long-term liabilities   16    -         16 
Net cash used in operating activities   (7,122)   -         (7,122)
                     
Cash Flows From Investing Activity                    
Purchase of property and equipment   -    -         - 
Sale of property and equipment   -    -         - 
Net cash provided by investing activity   -    -         - 
                     
Cash Flows From Financing Activities                    
Issuance of common stock, net of expenses   434    -         434 
Payments on Line of Credit   (1,800)   -         (1,800)
Issuance of Series B preferred stock, net of expenses   19,537    -         19,537 
Net cash provided by financing activities   18,171    -         18,171 
                     
Net increase in cash and cash equivalents   11,049    -         11,049 
Cash and cash equivalents – beginning   2,321    -         2,321 
Cash and cash equivalents – ending  $13,370   $-        $13,370 

 

14
 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)

 

   For The Three Months Ended March 31, 
   2019           2019 
   As Previously
Reported
   Restatement
Amount
   Restatement
Reference
   As Restated 
                 
Cash Flows From Operating Activities                    
Net loss  $(3,419)  $93    (a)(c)   $(3,326)
Adjustments to reconcile net loss to net cash used in operating activities:                    
Depreciation and amortization   873    84    (a)    957 
Interest accretion   129    -         129 
Mark to market on warrants   (3)   -         (3)
Stock-based compensation   538    -         538 
Bad debt expense   -    -         - 
Other gains and expenses, net   18    -         18 
Other changes in operating assets and liabilities:                    
Decrease (increase) in accounts receivable   (1,738)   -         (1,738)
(Increase) decrease in other current assets   11    -         11 
(Decrease) increase in accounts payable   93    -         93 
(Decrease) increase in accrued salaries and bonus   325    (120)   (c)    205 
(Decrease) increase in accrued liabilities   156    (57)   (c)    99 
Increase in long-term liabilities   57    -         57 
Net cash used in operating activities   (2,960)   -         (2,960)
                     
Cash Flows From Investing Activity                    
Purchase of property and equipment   (12)   -         (12)
Sale of property and equipment   13    -         13 
Net cash provided by investing activity   1    -         1 
                     
Cash Flows From Financing Activities                    
Issuance of common stock, net of expenses   6,015    -         6,015 
Net cash provided by financing activities   6,015    -         6,015 
                     
Net increase in cash and cash equivalents   3,056    -         3,056 
Cash and cash equivalents – beginning   

6,068

    -         

6,068

 
Cash and cash equivalents – ending  $

9,124

   $-        $

9,124

 

 

15
 

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited interim condensed consolidated financial statements and related notes (the “Interim Financial Statements”) should be read in conjunction with the consolidated financial statements of Interpace Biosciences, Inc. (the “Company” or “Interpace”), and its wholly-owned subsidiaries, Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation, Interpace Pharma Solutions, Inc. and Interpace Diagnostics, LLC, and related notes as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on April 22, 2020 and as amended on May 29, 2020 and the date hereof (the “Form 10-K”).

 

The condensed Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly owned subsidiaries: Group DCA, LLC, or Group DCA; InServe Support Solutions; and TVG, Inc. and its Commercial Services (“CSO”) business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. All information related to common stock, stock options, restricted stock units, warrants and earnings per share have been retroactively adjusted to give effect to the reverse stock split (1 for 10) that occurred in January 2020.

 

3. LIQUIDITY

 

As of March 31, 2020, the Company had cash and cash equivalents of $13.4 million, net accounts receivable of $9.8 million, total current assets of $28.1 million and total current liabilities of $15.7 million. For the three-months ended March 31, 2020, the Company had a net loss of $6.5 million and cash used in operating activities was $7.1 million.

 

16
 

 

We do not expect to generate positive cash flows from operations for the year ending December 31, 2020. We intend to meet our ongoing capital needs by using our available cash, proceeds under the Securities Purchase and Exchange Agreement, additional borrowings under the Line of Credit as well as by increasing our line of credit limit as a result of the additional accounts receivable acquired in July 2019 as part of our acquisition of the Biopharma business of Cancer Genetics, Inc. or CGI, now our pharma services (which requires a modification to the bank agreement and approval by Silicon Valley Bank (“SVB”), revenue growth and margin improvement, collecting accounts receivable, containing costs as well as exploring other financing options. Management believes that the Company has sufficient cash on hand and sufficient access to cash to sustain operations through at least June 30, 2021.

 

In September 2019, we entered into the Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell shares of our common stock in an aggregate offering price of up to $4.8 million through the Agent. See Note 16, Equity, for more details. As of March 31, 2020, approximately 178,000 shares of common stock were sold for net proceeds of approximately $0.7 million. As a result of the preferred shares transaction mentioned below, additional shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the preferred shares. See Note 16, Equity, for more detail.

 

In January 2020, we sold 20,000 Series B preferred shares to investors, led by 1315 Capital, for net proceeds of approximately $19.5 million. See Note 16, Equity, for more detail.

 

The Company maintains an up to a $4.0 million secured Line of Credit facility including a 3-year term loan for $850,000 with SVB. The proceeds of the term loan are expected to be used for laboratory capital expenditures and will be repaid monthly. The balance of the Line of Credit is available for working capital purposes as a revolving line of credit and has a three-year term. The borrowing limit of the revolving line of credit is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Term loan outstanding amounts incur interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the “Prime Rate”) and 5.00%. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. As of March 31, 2020, $1.2 million was outstanding and $2.2 million was remaining on the Line of Credit.

 

See Note 1, Overview, regarding the adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition for the second quarter of fiscal 2020 and possibly beyond.

 

During April 2020, the Company applied for various federal stimulus grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of May 1, 2020, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, and the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. Based on these restrictions and limitations, the Company is treating the $0.65 million HSS grant as restricted cash until we have clarity on how the funds can be utilized by the Company based on the specific requirements of the HSS.

 

During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Assets and Other Current Liabilities, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.

 

17
 

 

As of June 17, 2020 we have approximately $16.2 million of cash on hand. Also as of June 17, 2020, the Company has no further availability on its credit facility, but is in the process of completing an agreement with SVB to expand the credit facility. No assurance can be given that such an expansion agreement will be entered into.

 

Upon the filing of this Form 10Q/A, the Company’s stockholders’ equity as of March 31, 2020 was below the minimum required by Nasdaq. In the event the Company is unable to maintain its Nasdaq listing for its common stock due to a failure to meet minimum stockholder equity requirements due to the classification of its preferred stock as temporary equity and as a result of the amortization and impairment of certain intangible assets set forth herein, the Company’s ability to raise additional capital may be adversely impacted. Therefore, there is no guarantee that additional capital can be raised to fund our future operations.

 

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Accounting Estimates

 

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

 

Revenue Recognition

 

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

 

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

 

For our pharma services, 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.

 

18
 

 

Financing and Payment

 

For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical or diagnostics business 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.

 

Costs to Obtain or Fulfill a Customer Contract

 

Sales commissions are expensed when incurred because the amortization period would have been one year or less. 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.

 

19
 

 

Other Current Assets

 

Other current assets consisted of the following as of March 31, 2020 and December 31, 2019:

 

   March 31, 2020   December 31, 2019 
   (unaudited)     
Lab supply inventory   1,885    1,825 
Prepaid expenses   826    971 
Funds in escrow   888    888 
Due from CGI   1,297    92 
Other   80    75 
Total other current assets  $4,976   $3,851 

 

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 (the “Common Stock”), used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, 2020 and 2019 is as follows:

 

   Three Months Ended 
   March 31, 
   2020   2019 
    (unaudited) 
Basic weighted average number of common shares   4,004    3,515 
Potential dilutive effect of stock-based awards   -    - 
Diluted weighted average number of common shares   4,004    3,515 

 

20
 

 

The Company’s Preferred Stock, on an as converted basis of 7,833,334 shares for the three months ended March 31, 2020, and the following outstanding stock-based awards and warrants were excluded from the computation of the effect of dilutive securities on loss per share for the following periods as they would have been anti-dilutive (rounded to thousands):

 

   Three Months Ended 
   March 31, 
   2020   2019 
   (unaudited) 
Options   578    394 
Stock-settled stock appreciation rights (SARs)   -    3 
Restricted stock   6    - 
Restricted stock units (RSUs)   36    61 
Warrants   1,420    1,420 
    2,040    1,878 

 

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, 2020 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of March 31, 2020 and December 31, 2019 are as follows:

 

          As Restated     As Restated  
          As of March 31, 2020     As of December 31, 2019  
    Life     Carrying     Carrying  
    (Years)     Amount     Amount  
                   
Asuragen acquisition:                        
Thyroid     9     $ 8,519     $ 8,519  
RedPath acquisition:                        
Pancreas test     7       16,141       16,141  
Barrett’s test     9