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 June 30, 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 October 9, 2020 | |
| Common Stock, par value $0.01 per share | 4,041,595 |
INTERPACE BIOSICENCES, INC.
FORM 10-Q FOR PERIOD ENDED JUNE 30, 2020
TABLE OF CONTENTS
| 2 |
On August 14, 2020, the Company filed a Form 12b-25 notifying the SEC of its inability to file its Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 on a timely basis. In July 2020, the Company had received letters from employees, one of whom has left the Company’s employ, concerning certain employment and billing and compliance matters. In response, the Company informed its Audit Committee and Regulatory Compliance Committee as well as its independent registered public accounting firm. The Audit Committee commenced an investigation of these matters with the assistance of independent counsel and advisors thereto. The investigation was unable to be completed by the filing deadline for this Report which delayed the filing. The Audit Committee concluded that the allegations were not substantiated and that there was no evidence of any illegal acts.
This Amendment No. 1 on Form 10-Q/A amends the Company’s Report on Form 10-Q for the quarter ended June 30, 2020, as amended, (the “Original Filing”) and is being filed to show the impact in such quarter of intangible asset amortization and impairment expense for its Barrett’s and Thyroid assets which began in 2014. Subsequent to the issuance of its consolidated financial statements for the year ended December 31, 2019 and the quarters ended March 31, 2020 and June 30, 2020, the Company determined that amortization should have commenced upon acquisition of those assets as opposed to the Company’s previously disclosed policy of beginning asset amortization when the product was launched and generating revenue. The impact of the additional amortization expense for the three and six-month periods ended June 30, 2020 and June 30, 2019 was approximately $0.1 million and $0.2 million, respectively. The impact of the other immaterial adjustments for the six months ended June 30, 2020 and June 30, 2019 was $0.1 million in expense and $0.2 million as a credit to expense, respectively.
A description of these adjustments and a summary showing their effect on the restated consolidated statements of operations is provided in Note 1 to the consolidated financial statements. In addition to the errors described above, the restated financial statements also include adjustments to correct certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.
The Company is filing this report in order to amend certain information in Items 1, 2 and 4 of Part I to reflect the restatement of the June 30, 2020 and 2019 unaudited interim consolidated statements of operations and Notes 1,3,5 and 9 to the consolidated financial statements attached hereto solely to the extent necessary to reflect the adjustments described herein; and the principal executive officer and principal financial officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. Except for the foregoing items, no other information in the Original Filing is revised by this Amendment.
| 3 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| As Restated | As Restated | |||||||
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 15,106 | $ | 2,321 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively | 7,239 | 10,338 | ||||||
| Other current assets | 3,751 | 3,851 | ||||||
| Total current assets | 26,096 | 16,510 | ||||||
| Property and equipment, net | 7,249 | 6,814 | ||||||
| Other intangible assets, net | 13,619 | 15,849 | ||||||
| Goodwill | 8,433 | 8,433 | ||||||
| Operating lease right of use assets | 5,172 | 3,892 | ||||||
| Other long-term assets | 42 | 42 | ||||||
| Total assets | $ | 60,611 | $ | 51,540 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 3,348 | $ | 4,709 | ||||
| Accrued salary and bonus | 2,247 | 2,341 | ||||||
| Other accrued expenses | 9,737 | 9,476 | ||||||
| Current liabilities from discontinued operations | 766 | 766 | ||||||
| Total current liabilities | 16,098 | 17,292 | ||||||
| Contingent consideration | 2,207 | 2,391 | ||||||
| Operating lease liabilities, net of current portion | 3,940 | 2,591 | ||||||
| Line of credit | 3,400 | 3,000 | ||||||
| Other long-term liabilities | 4,557 | 4,573 | ||||||
| Total liabilities | 30,202 | 29,847 | ||||||
| Commitments and contingencies (Note 8) | ||||||||
| Preferred stock, $.01 par value; 5,000,000 shares authorized, | ||||||||
| 270 Series A shares issued and outstanding | - | 26,172 | ||||||
| 47,000 Series B shares issued and outstanding | 46,536 | - | ||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 3,932,370 shares issued, respectively; 4,036,595 and 3,920,589 shares outstanding, respectively | 402 | 393 | ||||||
| Additional paid-in capital | 182,980 | 182,514 | ||||||
| Accumulated deficit | (197,739 | ) | (185,665 | ) | ||||
| Treasury stock, at cost (18,859 and 11,781 shares, respectively) | (1,770 | ) | (1,721 | ) | ||||
| Total stockholders’ equity | (16,127 | ) | (4,479 | ) | ||||
| Total liabilities and stockholders’ equity | $ | 14,075 | $ | 25,368 | ||||
| Total liabilities, preferred stock and stockholders’ equity | $ | 60,611 | $ | 51,540 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
| As Restated | ||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenue, net | $ | 5,446 | $ | 6,270 | $ | 14,504 | $ | 12,280 | ||||||||
| Cost of revenue (excluding amortization of $1,115 and $897, for the three months and $2,230 and $1,794 for the six months, respectively) | 3,850 | 3,031 | 9,963 | 5,654 | ||||||||||||
| Gross profit | 1,596 | 3,239 | 4,541 | 6,626 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 1,596 | 2,959 | 4,077 | 5,369 | ||||||||||||
| Research and development | 550 | 647 | 1,360 | 1,175 | ||||||||||||
| General and administrative | 4,107 | 2,788 | 8,999 | 5,122 | ||||||||||||
| Acquisition related expense | - | 1,295 | - | 1,696 | ||||||||||||
| Acquisition amortization expense | 1,115 | 897 | 2,230 | 1,794 | ||||||||||||
| Total operating expenses | 7,368 | 8,586 | 16,666 | 15,156 | ||||||||||||
| Operating loss | (5,772 | ) | (5,347 | ) | (12,125 | ) | (8,530 | ) | ||||||||
| Interest accretion | (167 | ) | (91 | ) | (276 | ) | (220 | ) | ||||||||
| Other income (expense), net | 438 | 74 | 485 | 123 | ||||||||||||
| Loss from continuing operations before tax | (5,501 | ) | (5,364 | ) | (11,916 | ) | (8,627 | ) | ||||||||
| Provision for income taxes | 13 | 5 | 28 | 10 | ||||||||||||
| Loss from continuing operations, net of tax | (5,514 | ) | (5,369 | ) | (11,944 | ) | (8,637 | ) | ||||||||
| (Loss) income from discontinued operations, net of tax | (66 | ) | 65 | (130 | ) | 7 | ||||||||||
| Net loss | (5,580 | ) | (5,304 | ) | (12,074 | ) | (8,630 | ) | ||||||||
| Less adjustment for preferred stock deemed dividend | - | - | (3,033 | ) | - | |||||||||||
| Net loss attributable to common stockholders | $ | (5,580 | ) | $ | (5,304 | ) | $ | (15,107 | ) | $ | (8,630 | ) | ||||
| Basic and diluted loss per share of common stock: | ||||||||||||||||
| From continuing operations | $ | (1.37 | ) | $ | (1.41 | ) | $ | (3.73 | ) | $ | (2.36 | ) | ||||
| From discontinued operations | (0.01 | ) | 0.02 | (0.03 | ) | - | ||||||||||
| Net loss per basic and diluted share of common stock | $ | (1.38 | ) | $ | (1.39 | ) | $ | (3.76 | ) | $ | (2.36 | ) | ||||
| Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||
| Basic | 4,033 | 3,813 | 4,018 | 3,665 | ||||||||||||
| Diluted | 4,033 | 3,813 | 4,018 | 3,665 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
| As Restated | As Restated | |||||||||||||||
| For The Six Months Ended | For The Six Months Ended | |||||||||||||||
| June 30, 2020 | June 30, 2019 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Common stock: | ||||||||||||||||
| Balance at January 1 | 3,932 | $ | 393 | 2,877 | $ | 287 | ||||||||||
| Common stock issued | 37 | 1 | 9 | 1 | ||||||||||||
| Restricted stock issued | 6 | - | - | - | ||||||||||||
| Common stock issued through market sales | 80 | 8 | - | - | ||||||||||||
| Common stock issued through offerings | - | - | 933 | 94 | ||||||||||||
| Balance at March 31 | 4,055 | 402 | 3,819 | 382 | ||||||||||||
| Common stock issued | - | - | 10 | 1 | ||||||||||||
| Balance at June 30 | 4,055 | 402 | 3,829 | 383 | ||||||||||||
| Treasury stock: | ||||||||||||||||
| Balance at January 1 | 12 | (1,721 | ) | 7 | (1,680 | ) | ||||||||||
| Treasury stock purchased | - | - | 3 | (32 | ) | |||||||||||
| Balance at March 31 | 12 | (1,721 | ) | 10 | (1,712 | ) | ||||||||||
| Treasury stock purchased | 7 | (49 | ) | - | - | |||||||||||
| Balance at June 30 | 19 | (1,770 | ) | 10 | (1,712 | ) | ||||||||||
| Additional paid-in capital: | ||||||||||||||||
| Balance at January 1 | 182,514 | 175,820 | ||||||||||||||
| Common stock issued through offerings, net of expenses | - | 5,868 | ||||||||||||||
| Extinguishment of Series A Shares | (828 | ) | - | |||||||||||||
| Beneficial Conversion Feature in connection with Series B Issuance | 2,205 | - | ||||||||||||||
| Amortization of Beneficial Conversion Feature | (2,205 | ) | - | |||||||||||||
| Common stock issued through market sales | 476 | - | ||||||||||||||
| Stock-based compensation expense | 418 | 266 | ||||||||||||||
| Balance at March 31 | 182,580 | 181,954 | ||||||||||||||
| Common Stock issued | - | 72 | ||||||||||||||
| Stock-based compensation expense | 400 | 205 | ||||||||||||||
| Balance at June 30 | 182,980 | 182,231 | ||||||||||||||
| Accumulated deficit: | ||||||||||||||||
| Balance at January 1 | (185,665 | ) | (158,981 | ) | ||||||||||||
| Net loss | (6,494 | ) | (3,326 | ) | ||||||||||||
| Adoption of ASC 842 | - | 55 | ||||||||||||||
| Balance at March 31 | (192,159 | ) | (162,252 | ) | ||||||||||||
| Net loss | (5,580 | ) | (5,304 | ) | ||||||||||||
| Balance at June 30 | (197,739 | ) | (167,556 | ) | ||||||||||||
| Total stockholders’ equity | $ | (16,127 | ) | $ | 13,346 | |||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| As Restated | ||||||||
| For The Six Months Ended June 30, | ||||||||
| 2020 | 2019 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | (12,074 | ) | $ | (8,630 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 2,708 | 1,917 | ||||||
| Interest accretion | 276 | 220 | ||||||
| Mark to market on warrants | (49 | ) | (45 | ) | ||||
| Stock-based compensation | 818 | 990 | ||||||
| Bad debt expense | 250 | 499 | ||||||
| Other gains and expenses, net | - | 18 | ||||||
| Other changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in accounts receivable | 2,849 | (3,982 | ) | |||||
| Increase in other current assets | (788 | ) | (252 | ) | ||||
| (Decrease) increase in accounts payable | (1,361 | ) | 530 | |||||
| Decrease in accrued salaries and bonus | (94 | ) | (261 | ) | ||||
| Increase in accrued liabilities | 759 | 1,097 | ||||||
| Increase in long-term liabilities | 33 | 114 | ||||||
| Net cash used in operating activities | (6,673 | ) | (7,785 | ) | ||||
| Cash Flows From Investing Activity | ||||||||
| Purchase of property and equipment | (913 | ) | (48 | ) | ||||
| Sale of property and equipment | - | 13 | ||||||
| Net cash used in investing activity | (913 | ) | (35 | ) | ||||
| Cash Flows From Financing Activities | ||||||||
| Issuance of common stock, net of expenses | 434 | 5,962 | ||||||
| Borrowings on Line of Credit | 400 | - | ||||||
| Issuance of Series B preferred stock, net of expenses | 19,537 | - | ||||||
| Net cash provided by financing activities | 20,371 | 5,962 | ||||||
| Net increase (decrease) in cash and cash equivalents | 12,785 | (1,858 | ) | |||||
| Cash and cash equivalents – beginning | 2,321 | 6,068 | ||||||
| Cash and cash equivalents – ending | $ | 15,106 | $ | 4,210 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 7 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
| 1. | OVERVIEW |
Nature of Business
Interpace Biosciences, Inc. (“Interpace” or the “Company”) enables personalized medicine, offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications and pharma services. The Company provides molecular diagnostics, bioinformatics and pathology services for evaluation of risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. The Company also provides pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. The Company advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs.
Impact of COVID-19 pandemic
We have taken what we believe are necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We continue to follow the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. The majority of our employees who do not work in a lab setting are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our labs require in-person staffing and we have been able to continue to operate our labs, minimizing infection risk to lab staff through a combination of social distancing and appropriate protective equipment. There can be no assurance, however, that key employees will not become ill or that we will able to continue to operate our labs. While a number of employees were furloughed most have returned to work.
The continuing impact that the COVID-19 pandemic will have on our operations, including duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time. Accordingly, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.
Through the second quarter of 2020 our revenues were impacted by lower than expected clinical service volume from March through June 2020, which we believe resulted from the pandemic related temporary reduction in non-essential testing procedures. While our pharma services revenue increased throughout the first quarter of 2020, during the second quarter our pharma services business also softened. Currently, our clinical services business has recovered to levels prior to the pandemic and our pharma services business is also recovering, but more slowly.
As our business operations continue to be impacted by the pandemic, we continue to monitor the situation and the guidance that is being provided by relevant federal, state and local public health authorities. We may take additional actions based upon their recommendations. However, it is possible that we may have to make further adjustments to our operating plans in reaction to developments that are beyond our control.
| 8 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
While we do not anticipate any lab closures at this time beyond periodic, temporary work stoppages to clean and disinfect the labs, this could change in the future based upon conditions caused by the pandemic. Further, while we have acquired additional inventories of lab supplies, including reagents, it is possible that we could experience supply chain shortages if the pandemic continues for a prolonged period and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.
We will continue to monitor the actual and potential impact of the pandemic upon our operations. We have developed and will continue to update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.
Restatement
We have restated herein our unaudited consolidated financial statements as of June 30, 2020 and for the three and six-months ended June 30, 2020 and June 30, 2019. 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 and six-months ended June 30, 2020 and June 30, 2019 in this Form 10-Q/A. The following tables’ present reconciliation from our prior periods as previously reported to the restated values for the consolidated balance sheets and the consolidated statement of operations. A description of misstatements is listed below:
| 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 for the three months ended June 30, 2020 and June 30, 2019, respectively and approximately $0.2 million for the six months ended June 30, 2020 and June 30, 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)
| June 30, 2020 | ||||||||||||||
| As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||
| (unaudited) | ||||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 15,106 | $ | - | $ | 15,106 | ||||||||
| Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively | 7,239 | - | 7,239 | |||||||||||
| Other current assets | 3,751 | - | 3,751 | |||||||||||
| Total current assets | 26,096 | - | 26,096 | |||||||||||
| Property and equipment, net | 7,249 | 7,249 | ||||||||||||
| Other intangible assets, net | 31,439 | (17,820 | ) | (a) (c) | 13,619 | |||||||||
| Goodwill | 8,433 | - | 8,433 | |||||||||||
| Operating lease right of use assets | 5,172 | - | 5,172 | |||||||||||
| Other long-term assets | 42 | - | 42 | |||||||||||
| Total assets | $ | 78,431 | $ | (17,820 | ) | $ | 60,611 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 3,348 | $ | - | $ | 3,348 | ||||||||
| Accrued salary and bonus | 2,247 | - | 2,247 | |||||||||||
| Other accrued expenses | 9,737 | - | 9,737 | |||||||||||
| Current liabilities from discontinued operations | 766 | - | 766 | |||||||||||
| Total current liabilities | 19,498 | - | 16,098 | |||||||||||
| Contingent consideration | 2,207 | - | 2,207 | |||||||||||
| Operating lease liabilities, net of current portion | 3,940 | - | 3,940 | |||||||||||
| Line of credit | 3,400 | - | 3,400 | |||||||||||
| Other long-term liabilities | 4,557 | - | 4,557 | |||||||||||
| Total liabilities | 30,202 | - | 30,202 | |||||||||||
| Commitments and contingencies (Note 8) | ||||||||||||||
| Preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 Series B shares issued and outstanding | 46,536 | - | 46,536 | |||||||||||
| Stockholders’ equity: | ||||||||||||||
| Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 4,036,595 shares issued and outstanding, respectively; | 402 | - | 402 | |||||||||||
| Additional paid-in capital | 182,980 | - | 182,980 | |||||||||||
| Accumulated deficit | (179,919 | ) | (17,820 | ) | (a) (c) | (197,739 | ) | |||||||
| Treasury stock, at cost (11,781 shares) | (1,770 | ) | - | (1,770 | ) | |||||||||
| Total stockholders’ equity | 1,693 | (17,820 | ) | (16,127 | ) | |||||||||
| Total liabilities and stockholders’ equity | $ | 31,895 | $ | (17,820 | ) | $ | 14,075 | |||||||
| Total liabilities, preferred stock and stockholders’ equity | $ | 78,431 | $ | (17,820 | ) | $ | 60,611 | |||||||
| 10 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
| Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | |||||||||||||||||||||||||||
| As Previously Reported | Restatement Amount | Restatement Reference | As Restated | As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||||||||||
| Revenue, net | $ | 5,446 | $ | - | $ | 5,446 | $ | 6,270 | $ | - | $ | 6,270 | ||||||||||||||||
| Cost of revenue (excluding amortization of $1,115 and $897 for the three months , respectively) | 3,850 | - | 3,850 | 3,031 | - | 3,031 | ||||||||||||||||||||||
| Gross profit | 1,596 | - | 1,596 | 3,239 | - | 3,239 | ||||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Sales and marketing | 1,596 | - | 1,596 | 2,959 | - | 2,959 | ||||||||||||||||||||||
| Research and development | 550 | - | 550 | 647 | - | 647 | ||||||||||||||||||||||
| General and administrative | 4,107 | - | 4,107 | 2,788 | - | 2,788 | ||||||||||||||||||||||
| Acquisition related expense | - | - | - | 1,295 | - | 1,295 | ||||||||||||||||||||||
| Acquisition related amortization expense | 1,031 | 84 | (a) | 1,115 | 813 | 84 | (a) | 897 | ||||||||||||||||||||
| Total operating expenses | 7,284 | 84 | (a) | 7,368 | 8,502 | 84 | (a) | 8,586 | ||||||||||||||||||||
| Operating loss | (5,688 | ) | (84 | ) | (a) | (5,772 | ) | (5,263 | ) | (84 | ) | (a) | (5,347 | ) | ||||||||||||||
| Interest accretion | (167 | ) | - | (167 | ) | (91 | ) | - | (91 | ) | ||||||||||||||||||
| Other income (expense), net | 438 | - | 438 | 74 | - | 74 | ||||||||||||||||||||||
| Loss from continuing operations before tax | (5,417 | ) | (84 | ) | (a) | (5,501 | ) | (5,280 | ) | (84 | ) | (a) | (5,364 | ) | ||||||||||||||
| Provision for income taxes | 13 | - | 13 | 5 | - | 5 | ||||||||||||||||||||||
| Loss from continuing operations, net of tax | (5,430 | ) | (84 | ) | (a) | (5,514 | ) | (5,285 | ) | (84 | ) | (a) | (5,369 | ) | ||||||||||||||
| Less adjustment for preferred stock deemed dividend | - | - | - | - | - | - | ||||||||||||||||||||||
| Loss from continuing operations attributable to common stockholders | (5,430 | ) | (84 | ) | (a) | (5,514 | ) | (5,285 | ) | (84 | ) | (a) | (5,369 | ) | ||||||||||||||
| (Loss) income from discontinued operations, net of tax | (66 | ) | - | (66 | ) | 65 | - | 65 | ||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (5,496 | ) | $ | (84 | ) | (a) | $ | (5,580 | ) | $ | (5,220 | ) | $ | (84 | ) | (a) | $ | (5,304 | ) | ||||||||
| Basic and diluted loss per share of common stock: | ||||||||||||||||||||||||||||
| From continuing operations | $ | (1.35 | ) | $ | (0.02 | ) | $ | (1.37 | ) | $ | (1.39 | ) | $ | (0.02 | ) | $ | (1.41 | ) | ||||||||||
| From discontinued operations | (0.01 | ) | - | (0.01 | ) | 0.02 | - | 0.02 | ||||||||||||||||||||
| Net loss per basic and diluted share of common stock | $ | (1.36 | ) | $ | (0.02 | ) | $ | (1.38 | ) | $ | (1.37 | ) | $ | (0.02 | ) | $ | (1.39 | ) | ||||||||||
| Weighted average number of common shares and | ||||||||||||||||||||||||||||
| common share equivalents outstanding: | ||||||||||||||||||||||||||||
| Basic | 4,033 | 4,033 | 4,033 | 3,813 | 3,813 | 3,813 | ||||||||||||||||||||||
| Diluted | 4,033 | 4,033 | 4,033 | 3,813 | 3,813 | 3,813 | ||||||||||||||||||||||
| 11 |
| Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | |||||||||||||||||||||||||||
| As Previously Reported | Restatement Amount | Restatement Reference | As Restated | As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||||||||||||
| Revenue, net | $ | 14,645 | $ | (141 | ) | (c) | $ | 14,504 | $ | 12,280 | $ | - | $ | 12,280 | ||||||||||||||
| Cost of revenue (excluding amortization of $2,230 and $1,794 for the six months, respectively) | 9,963 | - | 9,963 | 5,654 | - | 5,654 | ||||||||||||||||||||||
| Gross profit | 4,682 | (141 | ) | (c) | 4,541 | 6,626 | - | 6,626 | ||||||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||||||
| Sales and marketing | 4,077 | - | 4,077 | 5,369 | - | 5,369 | ||||||||||||||||||||||
| Research and development | 1,360 | - | 1,360 | 1,175 | - | 1,175 | ||||||||||||||||||||||
| General and administrative | 8,993 | 6 | (c) | 8,999 | 5,299 | (177 | ) | (c) | 5,122 | |||||||||||||||||||
| Acquisition related expense | - | - | - | 1,696 | - | 1,696 | ||||||||||||||||||||||
| Acquisition related amortization expense | 2,062 | 168 | (a) | 2,230 | 1,626 | 168 | (a) | 1,794 | ||||||||||||||||||||
| Total operating expenses | 16,492 | 174 | (a) (c) | 16,666 | 15,165 | (9 | ) | (a) (c) | 15,156 | |||||||||||||||||||
| Operating loss | (11,810 | ) | (315 | ) | (a) (c) | (12,125 | ) | (8,539 | ) | 9 | (a) (c) | (8,530 | ) | |||||||||||||||
| Interest accretion | (276 | ) | - | (276 | ) | (220 | ) | - | (220 | ) | ||||||||||||||||||
| Other income (expense), net | 485 | - | 485 | 123 | - | 123 | ||||||||||||||||||||||
| Loss from continuing operations before tax | (11,601 | ) | (315 | ) | (a) (c) | (11,916 | ) | (8,636 | ) | 9 | (a) (c) | (8,627 | ) | |||||||||||||||
| Provision for income taxes | 28 | - | 28 | 10 | - | 10 | ||||||||||||||||||||||
| Loss from continuing operations, net of tax | (11,629 | ) | (315 | ) | (a) (c) | (11,944 | ) | (8,646 | ) | 9 | (a) (c) | (8,637 | ) | |||||||||||||||
| Less adjustment for preferred stock deemed dividend | (3,033 | ) | - | (3,033 | ) | - | - | - | ||||||||||||||||||||
| Loss from continuing operations attributable to common stockholders | (14,662 | ) | (315 | ) | (a) (c) | (14,977 | ) | (8,646 | ) | 9 | (a) (c) | (8,637 | ) | |||||||||||||||
| (Loss) income from discontinued operations, net of tax | (130 | ) | - | (130 | ) | 7 | - | 7 | ||||||||||||||||||||
| Net loss attributable to common stockholders | $ | (14,792 | ) | $ | (315 | ) | (a) (c) | $ | (15,107 | ) | $ | (8,639 | ) | $ | 9 | (a) (c) | $ | (8,630 | ) | |||||||||
| Basic and diluted loss per share of common stock: | ||||||||||||||||||||||||||||
| From continuing operations | $ | (3.65 | ) | $ | (0.08 | ) | $ | (3.73 | ) | $ | (2.36 | ) | $ | - | $ | (2.36 | ) | |||||||||||
| From discontinued operations | (0.03 | ) | - | (0.03 | ) | - | - | - | ||||||||||||||||||||
| Net loss per basic and diluted share of common stock | $ | (3.68 | ) | $ | (0.08 | ) | $ | (3.76 | ) | $ | (2.36 | ) | $ | - | $ | (2.36 | ) | |||||||||||
| Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||||||||||||||
| Basic | 4,018 | 4,018 | 4,018 | 3,665 | 3,665 | 3,665 | ||||||||||||||||||||||
| Diluted | 4,018 | 4,018 | 4,018 | 3,665 | 3,665 | 3,665 | ||||||||||||||||||||||
| 12 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
| As Previously Reported | As Restated | |||||||||||||||||||||||
| For The Six Months Ended | Restatement | Restatement | For The Six Months Ended | |||||||||||||||||||||
| June 30, 2020 | Amount | Reference | June 30, 2020 | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||
| Common stock: | ||||||||||||||||||||||||
| Balance at January 1 | 3,932 | $ | 393 | $ | - | 3,932 | $ | 393 | ||||||||||||||||
| Common stock issued | 37 | 1 | - | 37 | 1 | |||||||||||||||||||
| Restricted stock issued | 6 | - | - | 6 | - | |||||||||||||||||||
| Common stock issued through market sales | 80 | 8 | - | 80 | 8 | |||||||||||||||||||
| Common stock issued through offerings | - | - | - | - | - | |||||||||||||||||||
| Balance at March 31 | 4,055 | 402 | - | 4,055 | 402 | |||||||||||||||||||
| Common stock issued | - | - | - | - | ||||||||||||||||||||
| Balance at June 30 | 4,055 | 402 | - | 4,055 | 402 | |||||||||||||||||||
| Treasury stock: | - | |||||||||||||||||||||||
| Balance at January 1 | 12 | (1,721 | ) | - | 12 | (1,721 | ) | |||||||||||||||||
| Treasury stock purchased | - | - | - | - | ||||||||||||||||||||
| Balance at March 31 | 12 | (1,721 | ) | - | 12 | (1,721 | ) | |||||||||||||||||
| Treasury stock purchased | 7 | (49 | ) | - | 7 | (49 | ) | |||||||||||||||||
| Balance at June 30 | 19 | (1,770 | ) | - | 19 | (1,770 | ) | |||||||||||||||||
| Additional paid-in capital: | - | |||||||||||||||||||||||
| Balance at January 1 | 182,514 | - | 182,514 | |||||||||||||||||||||
| Common stock issued through offerings, net of expenses | - | - | - | |||||||||||||||||||||
| Extinguishment of Series A Shares | (828 | ) | - | (828 | ) | |||||||||||||||||||
| Beneficial Conversion Feature in connection with Series B Issuance | 2,205 | - | 2,205 | |||||||||||||||||||||
| Amortization of Beneficial Conversion Feature | (2,205 | ) | (2,205 | ) | ||||||||||||||||||||
| Common stock issued through market sales | 476 | - | 476 | |||||||||||||||||||||
| Stock-based compensation expense | 418 | - | 418 | |||||||||||||||||||||
| Balance at March 31 | 182,580 | - | 182,580 | |||||||||||||||||||||
| Common Stock issued | - | - | - | |||||||||||||||||||||
| Stock-based compensation expense | 400 | - | 400 | |||||||||||||||||||||
| Balance at June 30 | 182,980 | - | 182,980 | |||||||||||||||||||||
| Accumulated deficit: | ||||||||||||||||||||||||
| Balance at January 1 | (168,160 | ) | (17,505 | ) | (a) (b) (c) | (185,665 | ) | |||||||||||||||||
| Net loss | (6,263 | ) | (231 | ) | (a) (c) | (6,494 | ) | |||||||||||||||||
| Adoption of ASC 842 | - | - | ||||||||||||||||||||||
| Balance at March 31 | (174,423 | ) | (17,736 | ) | (192,159 | ) | ||||||||||||||||||
| Net loss | (5,496 | ) | (84 | ) | (a) | (5,580 | ) | |||||||||||||||||
| Balance at June 30 | (179,919 | ) | (17,820 | ) | (197,739 | ) | ||||||||||||||||||
| Total stockholders’ equity | $ | 1,693 | $ | (17,820 | ) | $ | (16,127 | ) | ||||||||||||||||
| 13 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
| As Previously Reported | As Restated | |||||||||||||||||||||||
| For The Six Months Ended | Restatement | Restatement | For The Six Months Ended | |||||||||||||||||||||
| June 30, 2019 | Amount | Reference | June 30, 2019 | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||||||||||
| Common stock: | ||||||||||||||||||||||||
| Balance at January 1 | 2,877 | $ | 287 | $ | - | 2,877 | $ | 287 | ||||||||||||||||
| Common stock issued | 9 | 1 | - | 9 | 1 | |||||||||||||||||||
| Common stock issued through offerings | 933 | 94 | - | 933 | 94 | |||||||||||||||||||
| Balance at March 31 | 3,819 | 382 | - | 3,819 | 382 | |||||||||||||||||||
| Common stock issued | 10 | 1 | 10 | 1 | ||||||||||||||||||||
| Balance at June 30 | 3,829 | 383 | - | 3,829 | 383 | |||||||||||||||||||
| Treasury stock: | - | |||||||||||||||||||||||
| Balance at January 1 | 7 | (1,680 | ) | - | 7 | (1,680 | ) | |||||||||||||||||
| Treasury stock purchased | 3 | (32 | ) | 3 | (32 | ) | ||||||||||||||||||
| Balance at March 31 | 10 | (1,712 | ) | - | 10 | (1,712 | ) | |||||||||||||||||
| Treasury stock purchased | - | - | - | - | - | |||||||||||||||||||
| Balance at June 30 | 10 | (1,712 | ) | - | 10 | (1,712 | ) | |||||||||||||||||
| Additional paid-in capital: | - | |||||||||||||||||||||||
| Balance at January 1 | 175,820 | - | 175,820 | |||||||||||||||||||||
| Common stock issued through offerings, net of expenses | 5,868 | - | 5,868 | |||||||||||||||||||||
| Stock-based compensation expense | 266 | - | 266 | |||||||||||||||||||||
| Balance at March 31 | 181,954 | - | 181,954 | |||||||||||||||||||||
| Common Stock issued | 72 | - | 72 | |||||||||||||||||||||
| Stock-based compensation expense | 205 | - | 205 | |||||||||||||||||||||
| Balance at June 30 | 182,231 | - | 182,231 | |||||||||||||||||||||
| Accumulated deficit: | ||||||||||||||||||||||||
| Balance at January 1 | (141,489 | ) | (17,492 | ) | (a) (b) (c) | (158,981 | ) | |||||||||||||||||
| Net loss | (3,419 | ) | 93 | (a) (c) | (3,326 | ) | ||||||||||||||||||
| Adoption of ASC 842 | 55 | - | 55 | |||||||||||||||||||||
| Balance at March 31 | (144,853 | ) | (17,399 | ) | (162,252 | ) | ||||||||||||||||||
| Net loss | (5,220 | ) | (84 | ) | (a) | (5,304 | ) | |||||||||||||||||
| Balance at June 30 | (150,073 | ) | (17,483 | ) | (167,556 | ) | ||||||||||||||||||
| Total stockholders’ equity | $ | 30,829 | $ | (17,483 | ) | $ | 13,346 | |||||||||||||||||
| 14 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
| For The Six Months Ended June 30, | ||||||||||||||
| 2020 | 2020 | |||||||||||||
| As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||
| Cash Flows From Operating Activities | ||||||||||||||
| Net loss | $ | (11,759 | ) | $ | (315 | ) | (a) (c) | $ | (12,074 | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
| Depreciation and amortization | 2,540 | 168 | (a) | 2,708 | ||||||||||
| Interest accretion | 276 | - | 276 | |||||||||||
| Mark to market on warrants | (49 | ) | - | (49 | ) | |||||||||
| Stock-based compensation | 818 | - | 818 | |||||||||||
| Bad debt expense | 250 | - | 250 | |||||||||||
| Other gains and expenses, net | - | - | - | |||||||||||
| Other changes in operating assets and liabilities: | ||||||||||||||
| Decrease (increase) in accounts receivable | 2,708 | 141 | (c) | 2,849 | ||||||||||
| (Increase) decrease in other current assets | (788 | ) | - | (788 | ) | |||||||||
| (Decrease) increase in accounts payable | (1,464 | ) | 103 | (c) | (1,361 | ) | ||||||||
| (Decrease) increase in accrued salaries and bonus | (94 | ) | - | (94 | ) | |||||||||
| (Decrease) increase in accrued liabilities | 856 | (97 | ) | (c) | 759 | |||||||||
| Increase in long-term liabilities | 33 | - | 33 | |||||||||||
| Net cash used in operating activities | (6,673 | ) | - | (6,673 | ) | |||||||||
| Cash Flows From Investing Activity | ||||||||||||||
| Purchase of property and equipment | (913 | ) | - | (913 | ) | |||||||||
| Sale of property and equipment | - | - | - | |||||||||||
| Net cash provided by investing activity | (913 | ) | - | (913 | ) | |||||||||
| Cash Flows From Financing Activities | ||||||||||||||
| Issuance of common stock, net of expenses | 434 | - | 434 | |||||||||||
| Borrowings on Line of Credit, net | 400 | - | 400 | |||||||||||
| Issuance of Series B preferred stock, net of expenses | 19,537 | - | 19,537 | |||||||||||
| Net cash provided by financing activities | 20,371 | - | 20,371 | |||||||||||
| Net increase in cash and cash equivalents | 12,785 | - | 12,785 | |||||||||||
| Cash and cash equivalents – beginning | 2,321 | - | 2,321 | |||||||||||
| Cash and cash equivalents – ending | $ | 15,106 | $ | - | $ | 15,106 | ||||||||
| 15 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, in thousands)
| For The Six Months Ended June 30, | ||||||||||||||
| 2019 | 2019 | |||||||||||||
| As Previously Reported | Restatement Amount | Restatement Reference | As Restated | |||||||||||
| Cash Flows From Operating Activities | ||||||||||||||
| Net loss | $ | (8,639 | ) | $ | 9 | (a) (c) | $ | (8,630 | ) | |||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||
| Depreciation and amortization | 1,749 | 168 | (a) | 1,917 | ||||||||||
| Interest accretion | 220 | - | 220 | |||||||||||
| Mark to market on warrants | (45 | ) | - | (45 | ) | |||||||||
| Stock-based compensation | 990 | - | 990 | |||||||||||
| Bad debt expense | 499 | - | 499 | |||||||||||
| Other gains and expenses, net | 18 | - | 18 | |||||||||||
| Other changes in operating assets and liabilities: | ||||||||||||||
| Decrease (increase) in accounts receivable | (3,982 | ) | - | (3,982 | ) | |||||||||
| (Increase) decrease in other current assets | (252 | ) | - | (252 | ) | |||||||||
| (Decrease) increase in accounts payable | 530 | - | 530 | |||||||||||
| (Decrease) increase in accrued salaries and bonus | (141 | ) | (120 | ) | (c) | (261 | ) | |||||||
| (Decrease) increase in accrued liabilities | 1,154 | (57 | ) | (c) | 1,097 | |||||||||
| Increase in long-term liabilities | 114 | - | 114 | |||||||||||
| Net cash used in operating activities | (7,785 | ) | - | (7,785 | ) | |||||||||
| Cash Flows From Investing Activity | ||||||||||||||
| Purchase of property and equipment | (48 | ) | - | (48 | ) | |||||||||
| Sale of property and equipment | 13 | - | 13 | |||||||||||
| Net cash provided by investing activity | (35 | ) | - | (35 | ) | |||||||||
| Cash Flows From Financing Activities | ||||||||||||||
| Issuance of common stock, net of expenses | 5,962 | - | 5,962 | |||||||||||
| Borrowings on Line of Credit, net | - | - | - | |||||||||||
| Issuance of Series B preferred stock, net of expenses | - | - | - | |||||||||||
| Net cash provided by financing activities | 5,962 | - | 5,962 | |||||||||||
| Net decrease in cash and cash equivalents | (1,858 | ) | - | (1,858 | ) | |||||||||
| Cash and cash equivalents – beginning | 6,068 | - | 6,068 | |||||||||||
| Cash and cash equivalents – ending | $ | 4,210 | $ | - | 4,210 | |||||||||
| 16 |
| 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, 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 business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the six-month period ended June 30, 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. | GOING CONCERN |
The accompanying consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty. As of June 30, 2020, the Company had cash and cash equivalents of $15.1 million, net accounts receivable of $7.2 million, total current assets of $26.1 million and total current liabilities of $16.1 million. For the six-months ended June 30, 2020, the Company had a net loss of $12.1 million and cash used in operating activities was $6.7 million. As of September 30, 2020 we had approximately $5.2 million of cash on hand due principally to additional losses incurred through September 2020, slower collections due to the pandemic, as well as repayment of approximately $3.4 million to SVB under our line of credit, which we are currently unable to borrow under.
| 17 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
The Company’s cash and cash equivalents balance is decreasing and we do not expect to generate positive cash flows from operations for the year ending December 31, 2020. We intend to meet our ongoing capital needs by using our available cash; proceeds under the Securities Purchase and Exchange Agreement (as defined and further discussed in Note 16, Equity); borrowings under the Revolving Line of Credit (as defined below) with Silicon Valley Bank (“SVB”), once reinstated, as well as by increasing our line of credit limit as a result of the additional accounts receivable acquired in July 2019 as a result of our acquisition of the Biopharma business of Cancer Genetics, Inc. (“CGI”), and presently known as our pharma services business (which requires a modification to the bank agreement and approval by both SVB and the preferred shareholders), as well as revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options. The Company is currently unable to borrow under its line of credit and there is no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive. These liquidity factors, among others, have raised substantial doubts about our ability to continue as a going concern.
In September 2019, we entered into the Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell shares of our common stock in an aggregate offering price of up to $3.7 million through the Agent (the “ATM arrangement”). As of June 30, 2020, approximately 178,000 shares of common stock were sold for net proceeds of approximately $0.7 million. As a result of the preferred shares transaction mentioned below, additional shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the preferred shares. See Note 16, Equity, for more detail relative to the ATM arrangement and related share sales. In addition, if our common stock is delisted by Nasdaq Capital Markets (“Nasdaq”) due to our failure to meet the minimum stockholders’ equity requirement, we may no longer be able to eligible to sell under the Agreement as well. See Note 19, Subsequent Events.
In January 2020, we sold 20,000 Series B preferred shares to investors, led by 1315 Capital II, L.P. (“1315 Capital”), for net proceeds of approximately $19.5 million. See Note 16, Equity, for more detail.
The Company maintains a secured revolving line of credit facility (the “Revolving Line of Credit”), with a limit of up to $4.0 million, available for working capital purposes, with a three-year term. The borrowing limit of the Revolving Line of Credit is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. As of June 30, 2020, $3.4 million was outstanding and there was no remaining Revolving Line of Credit available.
As of July 31, 2020, the Company was in violation of a financial covenant under its Loan and Security Agreement, dated November 13, 2018, as amended March 18, 2019 (as so amended, the “SVB Loan Agreement”). Additionally, due to the untimely filing of our second quarter form 10-Q (this Report) with the SEC subsequent to the filing deadline, the Company is in violation of the SVB Loan Agreement and during September 2020, the Company paid down the outstanding Revolving Line of Credit balance of $3.4 million in full. Additionally during September 2020, the Company transferred $0.35 million into a restricted cash money market account with SVB to serve as collateral for the Company’s letters of credit supporting two of its facilities. Prior to September 2020, the collateral for the letters of credit was accounted for as a reduction in the availability under the Revolving Line of Credit.
While the Company has received a waiver of default from SVB and is in compliance with the terms of the SVB Loan Agreement as of the date of this Report, we currently do not have the ability to drawn down on the Revolving Line of Credit.
See Note 1, Overview, regarding the potential adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition for the third quarter of fiscal 2020 and possibly beyond.
During April 2020, the Company applied for various federal stimulus grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of May 1, 2020, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, which is recorded in other accrued expenses on the Company’s condensed consolidated balance sheet, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, beginning with Medicare billings in April 2021 and the HSS grant is subject to certain conditions regarding its use. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. The Company applied the HHS grant in its entirety towards qualified second quarter expenses related to laboratory equipment and supplies purchased to prevent, prepare for, and respond to coronavirus, including development of coronavirus and serology tests, as well as revenue lost during the second quarter as a result of the pandemic. The portion attributed to lost revenue, $0.45 million, was recorded in Other income and $0.2 million was recorded as an offset to cost of revenue expenses.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Secured Creditor Asset Purchase Agreement dated July 15, 2019, by and among the Company, CGI, Interpace Diagnostics Group, Inc. and Partners for Growth IV, L.P. (“Asset Purchase Agreement”). The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Assets and Other Current Liabilities, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.
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INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
| 4. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Accounting Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include accounting for valuation allowances related to deferred income taxes, contingent consideration, allowances for doubtful accounts, revenue recognition, unrecognized tax benefits, and asset impairments involving other intangible assets. The Company periodically reviews these matters and reflects changes in estimates in earnings as appropriate. Actual results could materially differ from those estimates.
Revenue Recognition
Our clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’s performance obligation is fulfilled upon the completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based on the estimated transaction price or NRV, 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.
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.
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INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
Financing and Payment
For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical 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 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.
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INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
Other Current Assets
Other current assets consisted of the following as of June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||
| (unaudited) | ||||||||
| Lab supply inventory | 2,331 | 1,825 | ||||||
| Prepaid expenses | 728 | 971 | ||||||
| Funds in escrow | - | 888 | ||||||
| Due from CGI | 525 | 92 | ||||||
| Other | 167 | 75 | ||||||
| Total other current assets | $ | 3,751 | $ | 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- and six-month periods ended June 30, 2020 and 2019 is as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Basic weighted average number of common shares | 4,033 | 3,813 | 4,018 | 3,665 | ||||||||||||
| Potential dilutive effect of stock-based awards | - | - | - | - | ||||||||||||
| Diluted weighted average number of common shares | 4,033 | 3,813 | 4,018 | 3,665 | ||||||||||||
| 21 |
INTERPACE BIOSCIENCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information in thousands, except per share amounts)
The Company’s Preferred Stock, on an as converted basis of 7,833,334 shares for the three- and six-months ended June 30, 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 | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Options | 638 | 394 | 638 | 394 | ||||||||||||
| Stock-settled stock appreciation rights (SARs) | - | 2 | - | 2 | ||||||||||||
| Restricted stock | 6 | - | 6 | - | ||||||||||||
| Restricted stock units (RSUs) | 36 | 54 | 36 | 54 | ||||||||||||
| Warrants | 1,420 | 1,420 | 1,420 | 1,420 | ||||||||||||
| 2,100 | 1,870 | 2,100 | 1,870 | |||||||||||||
| 5. | GOODWILL AND OTHER INTANGIBLE ASSETS |
Goodwill is attributable to the acquisition of our pharma services in July 2019. The carrying value of the intangible assets acquired was $15.6 million, with goodwill of approximately $8.3 million and identifiable intangible assets of approximately $7.3 million. The goodwill balance at June 30, 2020 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of June 30, 2020 and December 31, 2019 are as follows:
| As Restated | ||||||||||||
| As of June 30, 2020 | As of December 31, 2019 | |||||||||||
| Life | Carrying | Carrying | ||||||||||
| (Years) | Amount | Amount | ||||||||||
| Asuragen acquisition: | ||||||||||||
| Thyroid | 9 | $ | 8,519 | $ | 8,519 | |||||||
| RedPath acquisition: | ||||||||||||
| Pancreas test | 7 | 16,141 | 16,141 | |||||||||
| Barrett’s test | 9 | 6,719 | 6,719 | |||||||||
| BioPharma acquisition: | ||||||||||||
| Trademarks | 10 | 1,600 | 1,600 | |||||||||
| Customer relationships | 8 | 5,700 | 5,700 | |||||||||