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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2021

 

OR

 

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

 

For the transition period from _______________ to _______________

 

Commission File Number: 000-24249

 

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

 

Delaware   22-2919486

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filer   Accelerated filer ☐
Non-accelerated filer   Smaller reporting company
    Emerging Growth Company

 

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

 

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

 

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 November 5, 2021
 Common Stock, par value $0.01 per share   4,174,447

 

 

 

 
 

 

INTERPACE BIOSICENCES, INC.

FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

 

    Page No.
     
  PART I - FINANCIAL INFORMATION  
     
Item 1. Unaudited Interim Condensed Consolidated Financial Statements  
     
  Condensed Consolidated Balance Sheets at September 30, 2021 (unaudited) and December 31, 2020 3
     
  Condensed Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2021 and 2020 (unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’ Deficit for the three- and nine-month periods ended September 30, 2021 and 2020 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the nine- month periods ended September 30, 2021 and 2020 (unaudited) 6
     
  Notes to Unaudited Condensed Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 22
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
     
Item 4. Controls and Procedures 32
     
  PART II - OTHER INFORMATION
     
Item 1. Legal Proceedings 33
     
Item 1A. Risk Factors 33
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 33
     
Item 3. Defaults Upon Senior Securities 33
     
Item 4. Mine Safety Disclosures 33
     
Item 5. Other Information 33
     
Item 6. Exhibits 34
     
Signatures 35

 

2

 

 

PART I. FINANCIAL INFORMATION

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

         
   September 30,   December 31, 
   2021   2020 
   (unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $3,180   $2,772 
Restricted cash   250    600 
Accounts receivable, net of allowance for doubtful accounts of $72 and $275, respectively   6,518    8,028 
Other current assets   3,135    2,722 
Total current assets   13,083    14,122 
Property and equipment, net   6,484    7,349 
Other intangible assets, net   8,014    11,351 
Goodwill   8,433    8,433 
Operating lease right of use assets, net   3,989    4,384 
Other long-term assets   304    42 
Total assets  $40,307   $45,681 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $2,427   $4,511 
Accrued salary and bonus   2,728    3,161 
Notes payable - related parties   7,872    - 
Other accrued expenses   9,043    9,795 
Current liabilities from discontinued operations   766    766 
Total current liabilities   22,836    18,233 
Contingent consideration, net of current portion   1,663    1,818 
Operating lease liabilities, net of current portion   3,152    3,540 
Other long-term liabilities   4,768    4,637 
Total liabilities   32,419    28,228 
           
Commitments and contingencies (Note 8)   -       
           
Preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 Series B issued and outstanding   46,536    46,536 
           
Stockholders’ deficit:          
Common stock, $.01 par value; 100,000,000 shares authorized; 4,194,111 and 4,075,257 shares issued, respectively; 4,174,447 and 4,055,593 shares outstanding, respectively   403    402 
Additional paid-in capital   186,052    184,404 
Accumulated deficit   (223,330)   (212,116)
Treasury stock, at cost (19,664 and 19,664 shares, respectively)   (1,773)   (1,773)
Total stockholders’ deficit   (38,648)   (29,083)
Total liabilities, preferred stock and stockholders’ deficit  $40,307   $45,681 

 

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

 

3

 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

   2021   2020   2021   2020 
   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2021   2020   2021   2020 
Revenue, net  $9,472   $8,248   $30,461   $22,752 
Cost of revenue (excluding amortization of $1,112 and $1,115 for the three months and $3,336 and $3,346 for the nine months, respectively)   5,848    5,194    16,965    15,156 
Gross profit   3,624    3,054    13,496    7,596 
Operating expenses:                    
Sales and marketing   2,456    2,699    7,585    6,776 
Research and development   416    763    1,475    2,123 
General and administrative   3,278    3,795    9,582    12,683 
Transition expenses   363    687    2,474    798 
Gain on DiamiR transaction   -    -    (235)   - 
Acquisition related amortization expense   1,112    1,115    3,336    3,346 
Total operating expenses   7,625    9,059    24,217    25,726 
                     
Operating loss   (4,001)   (6,005)   (10,721)   (18,130)
Interest accretion expense   (106)   (138)   (375)   (414)
Related party interest   (151)   -    (372)   - 
Other income (expense), net   45    (12)   (255)   473 
Loss from continuing operations before tax   (4,213)   (6,155)   (11,723)   (18,071)
(Benefit) provision for income taxes   (714)   14    (684)   43 
Loss from continuing operations   (3,499)   (6,169)   (11,039)   (18,114)
                     
Loss from discontinued operations, net of tax   (62)   (65)   (175)   (194)
                     
Net loss   (3,561)   (6,234)   (11,214)   (18,308)
                     
Less adjustment for preferred stock deemed dividend   -    -    -    (3,033)
                     
Net loss attributable to common stockholders  $(3,561)  $(6,234)  $(11,214)  $(21,341)
                     
Basic and diluted loss per share of common stock:                    
From continuing operations  $(0.84)  $(1.53)  $(2.68)  $(5.25)
From discontinued operations   (0.01)   (0.01)   (0.04)   (0.05)
Net loss per basic and diluted share of common stock  $(0.85)  $(1.54)  $(2.72)  $(5.30)
Weighted average number of common shares and common share equivalents outstanding:                    
Basic   4,165    4,038    4,119    4,025 
Diluted   4,165    4,038    4,119    4,025 

 

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

 

4

 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(unaudited, in thousands)

 

   Shares   Amount   Shares   Amount 
   For The Three and
Nine Months Ended
   For The Three and
Nine Months Ended
 
   September 30, 2021   September 30, 2020 
   Shares   Amount   Shares   Amount 
Common stock:                    
Balance at January 1   4,075   $402    3,932   $393 
Common stock issued   9    -    37    1 
Restricted stock issued   12    -    6    - 
Common stock issued through market sales   -    -    80    8 
Common stock issued through ESPP   36    -    -    - 
Balance at March 31   4,132    402    4,055    402 
Common stock issued   10    -    -    - 
Balance at June 30   4,142    402    4,055    402 
Common stock issued   13    -    5    - 
Common stock issued through ESPP   39    1    -    - 
Balance at September 30   4,194    403    4,060    402 
Treasury stock:                    
Balance at January 1   20    (1,773)   12    (1,721)
Treasury stock purchased   -    -    -    - 
Balance at March 31   20    (1,773)   12    (1,721)
Treasury stock purchased   -    -    7    (49)
Balance at June 30   20    (1,773)   19    (1,770)
Treasury stock purchased   -    -    -    - 
Balance at September 30   20    (1,773)   19    (1,770)
Additional paid-in capital:                    
Balance at January 1        184,404         182,514 
Extinguishment of Series A Shares        -         (828)
Beneficial Conversion Feature in connection with Series B Issuance        -         2,205 
Amortization of Beneficial Conversion Feature        -         (2,205)
Common stock issued        108         - 
Common stock issued through market sales        -         476 
Stock-based compensation expense        286         418 
Balance at March 31        184,798         182,580 
Stock-based compensation expense        551         400 
Balance at June 30        185,349         182,980 
Common stock issued        226         - 
Stock-based compensation expense        477         563 
Balance at September 30        186,052         183,543 
Accumulated deficit:                    
Balance at January 1        (212,116)        (185,665)
Net loss        (4,207)        (6,494)
Balance at March 31        (216,323)        (192,159)
Net loss        (3,446)        (5,580)
Balance at June 30        (219,769)        (197,739)
Net loss        (3,561)        (6,234)
Balance at September 30        (223,330)        (203,973)
                     
Balance at January 1        )         
Stock-based compensation expense                  
Balance at March 31                  
Stock-based compensation expense                  
Balance at June 30                  
Stock-based compensation expense                  
Total stockholders’ deficit       $(38,648)       $(21,798)

 

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

 

5

 

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

 

   2021   2020 
`  For The Nine Months Ended September 30, 
   2021   2020 
Cash Flows From Operating Activities          
Net loss  $(11,214)  $(18,308)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation and amortization   4,350    4,102 
Interest accretion expense   375    414 
Reversal of 2019 bonus accrual   -    (1,156)
Bad debt (recovery) expense   (140)   250 
Mark to market on warrants   137    (62)
Stock-based compensation   1,228    1,354 
Amortization of deferred financing fees   110    - 
Accrued interest - Related Parties   372    - 
ESPP expense   86    27 
Change in fair value of contingent consideration   (57)   - 
Gain on DiamiR transaction   (235)   - 
Other gains and expenses, net   (2)   - 
Other changes in operating assets and liabilities:          
Decrease in accounts receivable   1,788    1,625 
Increase in other current assets   (413)   (898)
Increase in other long-term assets   (14)   - 
Decrease in accounts payable   (2,084)   (1,319)
(Decrease) increase in accrued salaries and bonus   (433)   129 
(Decrease) increase in accrued liabilities   (1,349)   1,472 
Decrease in long-term liabilities   (6)   (25)
Net cash used in operating activities   (7,501)   (12,395)
           
Cash Flows From Investing Activities          
Purchase of property and equipment   (192)   (1,275)
Sale of property and equipment   39    - 
Net cash used in investing activities   (153)   (1,275)
           
Cash Flows From Financing Activities          
Issuance of common stock, net of expenses   335    434 
Issuance of Series B preferred stock, net of expenses   -    19,223 
Loan proceeds - related parties   7,500    - 
Deferred financing fees   (123)   - 
Payments on line of credit   -    (3,000)
Net cash provided by financing activities   7,712    16,657 
Net increase in cash, cash equivalents and restricted cash   58    2,987 
Cash, cash equivalents and restricted cash – beginning   3,372    2,321 
Cash, cash equivalents and restricted cash – ending  $3,430   $5,308 

 

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

 

6

 

 

1. OVERVIEW

 

Nature of Business

 

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

 

COVID-19 pandemic

 

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

 

As our business operations continue to be impacted by the pandemic, we continue to monitor the situation and the guidance that is being provided by relevant federal, state and local public health authorities. We may take additional actions based upon their recommendations. However, it is possible that we may have to make further adjustments to our operating plans in reaction to developments that are beyond our control.

 

While we do not anticipate any lab closures at this time beyond periodic, temporary work stoppages to clean and disinfect the labs, this could change in the future based upon conditions caused by the pandemic. It is also possible that we could experience supply chain shortages if the pandemic worsens and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.

 

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

 

Transition costs

 

To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford, NJ facility to our Morrisville, NC facility. We invested several million dollars to facilitate this relocation, including but not limited to the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes. We believe that this investment will result in a reduction in future operating costs; however, it is not certain whether we will fully realize the anticipated savings. We have also undergone several other cost-cutting initiatives and those costs are categorized as transition expenses as well.

 

7

 

 

2. BASIS OF PRESENTATION

 

The accompanying unaudited interim condensed consolidated financial statements and related notes (the “Interim Financial Statements”) should be read in conjunction with the consolidated financial statements of the Company and its wholly-owned subsidiaries (Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation, Interpace Pharma Solutions, Inc. and Interpace Diagnostics, LLC), and related notes as included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities & Exchange Commission (“SEC”) on April 1, 2021 and as amended on April 29, 2021 and August 20, 2021.

 

The condensed Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly owned subsidiaries: Group DCA, LLC, 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 nine-month period ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021.

 

3. LIQUIDITY

 

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 September 30, 2021, the Company had cash and cash equivalents, net of restricted cash of $3.2 million, net accounts receivable of $6.5 million, total current assets, net of restricted cash of $12.8 million and total current liabilities of $22.8 million. For the nine month period ended September 30, 2021, the Company had a net loss of $11.2 million and cash used in operating activities was $7.5 million. As of November 5, 2021 we had approximately $2.4 million of cash on hand, net of restricted cash.

 

The Company has and may continue to delay, scale-back, or eliminate certain of its activities and other aspects of its operations until such time as the Company is successful in securing additional funding. The Company is exploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources.

 

The delisting from Nasdaq of our common stock which is now quoted for trading on OTCQX and the Company’s resulting inability to use Form S-3 for offerings by it may each have an adverse impact on our ability to raise additional capital. The quotation of our common stock on OTCQX may provide significantly less liquidity than when our stock was listed on Nasdaq and we may experience greater difficulty in raising capital through the public or private sale of equity securities. The future success of the Company is dependent upon its ability to obtain additional funding. There can be no assurance, however, that the Company will be successful in obtaining such funding in sufficient amounts, on terms acceptable to the Company, or at all. In October 2021, the Company entered into a $7.5 million revolving credit facility with Comerica Bank (“Comerica Loan Agreement”). In addition, also in October 2021, the Company entered into a new $8.0 million term loan with BroadOak Fund V, L.P. (“BroadOak”) (“BroadOak Term Loan”), the proceeds of which were used to repay in full at their maturity the notes extended by Ampersand 2018 Limited Partnership (“Ampersand”) and 1315 Capital II, L.P. (“1315 Capital”). See Note 20, Subsequent Events for more details. As of the date of this Report, the Company currently anticipates that current cash and cash equivalents will be sufficient to meet its anticipated operating cash requirements through the end of fiscal 2022.

 

8

 

 

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 net realizable value (“NRV”), which is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. To the extent the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.

 

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.

 

Financing and Payment

 

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

 

Costs to Obtain or Fulfill a Customer Contract

 

Sales commissions are expensed in the period in which they have been earned. These costs are recorded in sales and marketing expense in the condensed consolidated statements of operations.

 

Accounts Receivable

 

The Company’s accounts receivables represent unconditional rights to consideration and are generated using its clinical services and pharma services. The Company’s clinical services are fulfilled upon completion of the test, review and release of the test results. In conjunction with fulfilling these services, the Company bills the third-party payer or direct-bill payer. Contractual adjustments represent the difference between the list prices and the reimbursement rates set by third-party payers, including Medicare, commercial payers, and amounts billed to direct-bill payers. Specific accounts may be written off after several appeals, which in some cases may take longer than twelve months. Pharma services represent, primarily, the performance of laboratory tests in support of clinical trials for pharma services customers. The Company bills these services directly to the customer.

 

9

 

 

Leases

 

The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. We use the implicit interest rate in the lease when readily determinable.

 

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 7, Leases.

 

Other Current Assets

 

Other current assets consisted of the following as of September 30, 2021 and December 31, 2020:

 SCHEDULE OF OTHER CURRENT ASSETS

   September 30, 2021   December 31, 2020 
   (unaudited)     
Lab supply inventory  $2,271   $2,052 
Prepaid expenses   734    625 
Other   130    45 
Total other current assets  $3,135   $2,722 

 

Long-Lived Assets, including Finite-Lived Intangible Assets

 

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

 

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

 

Basic and Diluted Net Loss per Share

 

A reconciliation of the number of shares of common stock, par value $0.01 per share, used in the calculation of basic and diluted loss per share for the three- and nine-month periods ended September 30, 2021 and 2020 is as follows:

 SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
   (unaudited)   (unaudited) 
Basic weighted average number of common shares   4,165    4,038    4,119    4,025 
Potential dilutive effect of stock-based awards   -    -    -    - 
Diluted weighted average number of common shares   4,165    4,038    4,119    4,025 

 

10

 

 

The Company’s Series B Preferred Stock, on an as converted basis of 7,833,334 shares for the three- and nine-months ended September 30, 2021, and the following outstanding stock-based awards and warrants, were excluded from the computation of the effect of dilutive securities on loss per share for the following periods as they would have been anti-dilutive (rounded to thousands):

 SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
   (unaudited)   (unaudited) 
Options   684    878    684    878 
Restricted stock and restricted stock units (RSUs)   366    28    366    28 
Warrants   1,405    1,405    1,405    1,405 
    2,455    2,311    2,455    2,311 

 

Reclassifications

 

The Company reclassified certain prior period balances to conform to the current year presentation.

 

5. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill is attributable to the acquisition of our pharma services in July 2019. The carrying value of the intangible assets acquired was $15.6 million, with goodwill of approximately $8.3 million and identifiable intangible assets of approximately $7.3 million. In 2019, there was an adjustment to goodwill of $0.1 million. The goodwill balance at September 30, 2021 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of September 30, 2021 and December 31, 2020 are as follows:

 SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS CARRYING VALUE

       As of
September 30,
2021
   As of
December 31,
2020
 
   Life   Carrying   Carrying 
   (Years)   Amount   Amount 
       (unaudited)     
Asuragen acquisition:               
Thyroid   9   $8,519   $8,519 
RedPath acquisition:               
Pancreas test   7    16,141    16,141 
Barrett’s test   9    6,682    6,682 
BioPharma acquisition:               
Trademarks   10    1,600    1,600 
Customer relationships   8    5,700    5,700 
                
CLIA Lab   2.3    609    609 
                
Total       $39,251   $39,251 
                
Accumulated Amortization       $(31,237)  $(27,900)
                
Net Carrying Value       $8,014   $11,351 

 

Amortization expense was approximately $1.1 million for both the three-month periods ended September 30, 2021 and 2020, respectively and approximately $3.3 million for both the nine-month periods ended September 30, 2021 and 2020, respectively. Estimated amortization expense for the next five years is as follows:

 

SCHEDULE OF FUTURE ESTIMATED AMORTIZATION EXPENSE 

2021   2022   2023   2024   2025 
$1,112   $2,155   $2,099   $873   $873 

 

11

 

 

The following table displays a roll forward of the carrying amount of goodwill from December 31, 2020 to September 30, 2021:

 

SCHEDULE OF GOODWILL CARRYING VALUE 

   Carrying 
   Amount 
Balance as of December 31, 2020  $8,433 
Adjustments   - 
Balance as of September 30, 2021  $8,433 

 

 

6. FAIR VALUE MEASUREMENTS

 

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

 

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

 

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

 SCHEDULE OF FINANCIAL INSTRUMENT MEASURED ON RECURRING BASIS

   As of September 30, 2021   Fair Value Measurements 
   Carrying   Fair   As of September 30, 2021 
   Amount   Value   Level 1   Level 2   Level 3 
          (unaudited)         
Liabilities:                    
Contingent consideration:                         
Asuragen (1)  $2,136   $2,136   $      -   $-   $2,136 
Other long-term liabilities:                         
Warrant liability (2)   158    158    -    -    158 
   $2,294   $2,294   $-   $-   $2,294 

 

   As of December 31, 2020   Fair Value Measurements 
   Carrying   Fair   As of December 31, 2020 
   Amount   Value   Level 1   Level 2   Level 3 
                     
Liabilities:                         
Contingent consideration:                         
Asuragen (1)  $2,216   $2,216   $-   $-   $2,216 
Other long-term liabilities:                         
Warrant liability (2)   21    21    -    -    21 
   $2,237   $2,237   $-   $-   $2,237 

 

(1)(2) See Note 9, Accrued Expenses and Long-Term Liabilities 

 

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

 

12

 

 

A roll forward of the carrying value of the Contingent Consideration Liability and the 2017 Underwriters’ Warrants to September 30, 2021 is as follows:

 SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION

              

Cancellation

of Obligation/

  

Adjustment

 to Fair Value/

     
   December 31, 2020   Payments   Accretion   Conversions Exercises   Mark to Market   September 30,
2021
 
   (unaudited) 
Contingent consideration liability  $2,216   $(398)  $375   $      -   $(57)  $2,136 
                               
Underwriters Warrants   21    -    -    -    137    158 
   $2,237   $(398)  $375   $-   $80   $2,294 

 

Certain of the Company’s non-financial assets, such as other intangible assets and goodwill, are measured at fair value on a nonrecurring basis when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized. 

 

7. LEASES

 

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

 

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

SCHEDULE OF FINANCING AND OPERATING LEASES 

   Classification on the Balance Sheet  September 30,
2021
   December 31,
2020
 
       (unaudited)       
Assets             
Financing lease assets  Property and equipment, net  $652   $597 
Operating lease assets  Operating lease right of use assets   3,989    4,384 
Total lease assets     $4,641   $4,981 
              
Liabilities             
Current             
Financing lease liabilities  Other accrued expenses  $98   $177 
Operating lease liabilities  Other accrued expenses   1,030    1,027 
Total current lease liabilities     $1,128   $1,204 
Noncurrent             
Financing lease liabilities  Other long-term liabilities   75    138 
Operating lease liabilities  Operating lease liabilities, net of current portion   3,152    3,540 
Total long-term lease liabilities      3,227    3,678 
Total lease liabilities     $4,355   $4,882 

 

13

 

 

The weighted average remaining lease term for the Company’s operating leases was 6.6 years as of September 30, 2021 and 7.1 years as of December 31, 2020 and the weighted average discount rate for those leases was 6.4% and 6.0% as of September 30, 2021 and December 31, 2020, respectively. The Company’s operating lease expenses are recorded within “Cost of revenue” and “General and administrative expenses.”

 

The table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of September 30, 2021:

SCHEDULE OF MATURITIES OF OPERATING AND FINANCING LEASE LIABILITIES 

   Operating Leases   Financing Leases 
2021 (remaining through December 31)   312    39 
2022   1,192    86 
2023   794    60 
2024   473    - 
2025   402    - 
2026   414    - 
Thereafter   1,510    - 
Total minimum lease payments   5,097    185 
Less: amount of lease payments representing effects of discounting   915    12 
Present value of future minimum lease payments   4,182    173 
Less: current obligations under leases   1,030    98 
Long-term lease obligations  $3,152   $75 

 

As of September 30, 2021, contractual obligations with terms exceeding one year and estimated minimum future rental payments required by non-cancelable operating leases with initial or remaining lease terms exceeding one year were as follows:

 

 

       Less than   1 to 3   3 to 5   After 
   Total   1 Year   Years   Years   5 Years 
Operating lease obligations  $5,097   $312   $1,986   $875   $1,924 
Total  $5,097   $312   $1,986   $875   $1,924 

 

8. COMMITMENTS AND CONTINGENCIES

 

Litigation

 

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. There is currently litigation involving the Company at this time.

 

Due to the nature of the businesses in which the Company is engaged, it is subject to certain risks. Such risks include, among others, risk of liability for personal injury or death to persons using products or services that the Company promotes or commercializes. There can be no assurance that substantial claims or liabilities will not arise in the future due to the nature of the Company’s business activities. There is also the risk of employment related litigation and other litigation in the ordinary course of business.

 

The Company could also be held liable for errors and omissions of its employees in connection with the services it performs that are outside the scope of any indemnity or insurance policy. The Company could be materially adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnification agreement; if the indemnity, although applicable, is not performed in accordance with its terms; or if the Company’s liability exceeds the amount of applicable insurance or indemnity.

 

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9. ACCRUED EXPENSES AND LONG-TERM LIABILITIES

 

Other accrued expenses consisted of the following as of September 30, 2021 and December 31, 2020:

 

   September 30, 2021   December 31, 2020 
   (unaudited)     
Accrued royalties  $3,572   $2,710 
Upfront Medicare payment   -    2,066 
Operating lease liabilities   1,030    1,027 
All others   1,056    1,182 
Accrued professional fees   931    854 
Unclaimed property   565    565 
Contingent consideration   473    398 
Accrued pharma services invoices   438    108 
Taxes payable   248    334 
Accrued lab costs - diagnostics   514    161 
Financing lease liabilities   98    177 
ESPP payable   37    108 
Accrued sales and marketing - diagnostics   41    51 
Deferred revenue   40    54 
Total other accrued expenses  $9,043   $9,795 

 

Long-term liabilities consisted of the following as of September 30, 2021 and December 31, 2020:

 

   September 30, 2021   December 31, 2020 
   (unaudited)     
Uncertain tax positions  $4,517   $4,342 
Warrant liability   158    21 
Financing lease liabilities   75    138 
Deferred revenue   18    136 
Total other long-term liabilities  $4,768   $4,637 

 

10. STOCK-BASED COMPENSATION

 

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

 

The following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted during the nine-month periods ended September 30, 2021 and 2020.

 

   September 30, 2021   September 30, 2020 
   (unaudited) 
Risk-free interest rate   0.78%   0.79%
Expected life   6.0 years    6.6 years 
Expected volatility   134.79%   122.24%
Dividend yield   -    - 

 

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During March 2021, the Company granted 312,500 stock options with an exercise price of $6.00 and 152,500 RSUs. The market value of the Company’s common stock was $5.00 at the grant date of these awards. The Company recognized approximately $0.5 million and $0.6 million of stock-based compensation expense during the three-month periods ended September 30, 2021 and 2020, respectively and approximately $1.3 million and $1.4 million of stock-based compensation expense during the nine-month periods ended September 30, 2021 and 2020, respectively. The following table has a breakout of stock-based compensation expense by line item.

 SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE

   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
   (unaudited)   (unaudited) 
Cost of revenue  $52   $60   $154   $187 
Sales and marketing   76    39    201    136 
Research and development   24    30    83    99 
General and administrative*   325    434    876    959 
Total stock compensation expense  $477   $563   $1,314   $1,381 

 

* Includes ESPP expense

 

11. INCOME TAXES

 

Generally, accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate for the full year. The authoritative guidance for accounting for income taxes allows use of the discrete method when it provides a better estimate of income tax expense. Due to the Company’s valuation allowance position, it is the Company’s position that the discrete method provides a more accurate estimate of income tax expense and therefore income tax expense for the current quarter has been presented using the discrete method. As the year progresses, the Company refines its estimate based on the facts and circumstances by each tax jurisdiction. The following table summarizes income tax expense on loss from continuing operations and the effective tax rate for three- and nine-month periods ended September 30, 2021 and 2020:

 SCHEDULE OF EFFECTIVE INCOME TAX RATE

                 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2021   2020   2021   2020 
   (unaudited)   (unaudited) 
(Benefit) provision for income tax  $(714)  $14   $(684)  $43 
Effective income tax rate   16.9%   0.2%   5.8%   0.2%

 

The Company participated in the State of New Jersey’s Technology Business Tax Certificate Transfer Program (the “Program”) sponsored by The New Jersey Economic Development Authority. The Program enables approved biotechnology companies with unused net operating losses (NOLs) and unused research and development credits to sell these benefits for at least 80% of the value of the tax benefits to unaffiliated, profitable corporate taxpayers in the State of New Jersey. The Program is administered by The New Jersey Economic Development Authority and the New Jersey Department of the Treasury’s Division of Taxation. In July 2021, the Company completed the sale of NOLs totaling approximately $0.7 million. This amount is a current state tax benefit and is reflected in the statement of operations for the three- and nine-months ended September 30, 2021. Income tax expense for both the three- and nine-month periods ended September 30, 2020 was primarily due to minimum state and local taxes.

 

12. SEGMENT INFORMATION

 

We operate under one segment which is the business of developing and selling clinical and pharma services.

 

13. DISCONTINUED OPERATIONS

 

The components of liabilities classified as discontinued operations consist of the following as of September 30, 2021 and December 31, 2020:

 SCHEDULE OF DISCONTINUED OPERATIONS

   September 30, 2021   December 31, 2020 
   (unaudited)     
Accrued liabilities   766