UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of Incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices and zip code) |
| (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.
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).
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 ☐ | |
| 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 ☐
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 May 6, 2022 | |
| Common Stock, par value $0.01 per share |
INTERPACE BIOSICENCES, INC.
FORM 10-Q FOR PERIOD ENDED MARCH 31, 2022
TABLE OF CONTENTS
| 2 |
PART I. FINANCIAL INFORMATION
INTERPACE BIOSCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts
receivable, net of allowance for doubtful accounts of $ | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Other intangible assets, net | ||||||||
| Goodwill | ||||||||
| Operating lease right of use assets | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued salary and bonus | ||||||||
| Other accrued expenses | ||||||||
| Current liabilities from discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Contingent consideration | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Line of credit | ||||||||
| Note payable at fair value | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Preferred stock, $ par value; shares authorized, shares Series B issued and outstanding | ||||||||
| Stockholders’ deficit: | ||||||||
| Common stock, $ par value; shares authorized; and shares issued, respectively; and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Treasury stock, at cost ( and shares, respectively) | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
Total liabilities and stockholders’ deficit | $ | ( | ) | $ | ( | ) | ||
Total liabilities, preferred stock and stockholders’ deficit | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited, in thousands, except for per share data)
| Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue, net | $ | $ | ||||||
| Cost
of revenue (excluding amortization of $ | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Sales and marketing | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Transition expense | ||||||||
| Acquisition related amortization expense | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Interest accretion expense | ( | ) | ( | ) | ||||
| Related party interest | - | ( | ) | |||||
| Note payable interest | ( | ) | - | |||||
| Other income (expense), net | ( | ) | ||||||
| Loss from continuing operations before tax | ( | ) | ( | ) | ||||
| Provision for income taxes | ||||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted loss per share of common stock: | ||||||||
| From continuing operations | $ | ( | ) | $ | ( | ) | ||
| From discontinued operations | ( | ) | ( | ) | ||||
| Net loss per basic and diluted share of common stock | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of common shares and common share equivalents outstanding: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(unaudited, in thousands)
| For The Three Months Ended | For The Three Months Ended | |||||||||||||||
| March 31, 2022 | March 31, 2021 | |||||||||||||||
| Shares | Amount | Shares | Amount | |||||||||||||
| Common stock: | ||||||||||||||||
| Balance at January 1 | $ | $ | ||||||||||||||
| Common stock issued | - | |||||||||||||||
| Restricted stock issued | - | - | ||||||||||||||
| Common stock issued through ESPP | - | - | ||||||||||||||
| Balance at March 31 | ||||||||||||||||
| Treasury stock: | ||||||||||||||||
| Balance at January 1 | ( | ) | ( | ) | ||||||||||||
| Treasury stock purchased | ( | ) | - | |||||||||||||
| Balance at March 31 | ( | ) | ( | ) | ||||||||||||
| Additional paid-in capital: | ||||||||||||||||
| Balance at January 1 | ||||||||||||||||
| Common stock issued | ||||||||||||||||
| Stock-based compensation expense | ||||||||||||||||
| Balance at March 31 | ||||||||||||||||
| Accumulated deficit: | ||||||||||||||||
| Balance at January 1 | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||
| Balance at March 31 | ( | ) | ( | ) | ||||||||||||
| Total stockholders’ deficit | $ | ( | ) | $ | ( | ) | ||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 5 |
INTERPACE BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
| ` | For The Three Months Ended March 31, | |||||||
| 2022 | 2021 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Interest accretion expense | ||||||||
| Bad debt (recovery) expense | - | ( | ) | |||||
| Mark to market on warrants | ( | ) | ||||||
| Amortization of deferred financing fees | - | |||||||
| Amortization of loan costs | - | |||||||
| Interest - note payable | - | |||||||
| Stock-based compensation | ||||||||
| ESPP expense | ||||||||
| Change in fair value of note payable | ( | ) | - | |||||
| Change in fair value of contingent consideration | - | ( | ) | |||||
| Other gains and expenses, net | - | ( | ) | |||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in accounts receivable | ( | ) | ||||||
| Increase in other current assets | ( | ) | ( | ) | ||||
| Increase in other long-term assets | ( | ) | - | |||||
| Increase (decrease) in accounts payable | ( | ) | ||||||
| Increase (decrease) in accrued salaries and bonus | ( | ) | ||||||
| Decrease in accrued liabilities | ( | ) | ( | ) | ||||
| Increase in long-term liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows From Investing Activity | ||||||||
| Purchase of property and equipment | ( | ) | - | |||||
| Sale of property and equipment | - | |||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash Flows From Financing Activities | ||||||||
| Issuance of common stock, net of expenses | ||||||||
| Loan proceeds - related parties | - | |||||||
| Financing fees - related party | - | ( | ) | |||||
| Borrowings on line of credit | - | |||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash – beginning | ||||||||
| Cash, cash equivalents and restricted cash – ending | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 6 |
INTERPACE BIOSCIENCES, INC.
NOTES TO THE 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.
COVID-19 pandemic
The COVID-19 pandemic, together with related precautionary measures, continues to impact portions of the regions in which we operate. These regions are attempting to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting travel, and mandating social distancing and face coverings. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.
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.
We continue to monitor the COVID-19 pandemic and the guidance that is being provided by relevant federal, state and local public health authorities and may take additional actions based upon their recommendations. It is possible that we may have to make adjustments to our operating plans in reaction to developments that are beyond our control.
Lab closures experienced thus far by the Company have consisted of periodic, temporary work stoppages to clean and disinfect the labs. However, this could change in the future based upon conditions caused by the pandemic. Inflation and supply chain disruptions, whether caused by restrictions or slowdowns in shipping or logistics, increases in demand for certain goods used in our operations, or otherwise, could impact our operations in the near term. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.
We have contingency plans in place and will continue to monitor and update them in order to mitigate pandemic-related, adverse financial impacts upon our business.
Transition costs
Transition expenses are primarily related to the Rutherford, New Jersey lab closing and subsequent move to Morrisville, North Carolina, which was completed during the first half of Fiscal 2021, as well as other cost-saving initiatives consisting primarily of reductions in headcount and the implementation of a new laboratory information system. To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford facility to our Morrisville facility. The transition included the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes.
| 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, 2021, as filed with the Securities & Exchange Commission (“SEC”) on March 31, 2022 and as amended on April 29, 2022.
The condensed Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly owned subsidiaries: Group DCA, LLC, InServe Support Solutions; and TVG, Inc. and its Commercial Services business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three-month period ended March 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.
| 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.
For
the three months ended March 31, 2022, we had an operating loss of $
In January 2022, the Company announced that the Centers for Medicare & Medicaid Services, or CMS, issued a new billing policy whereby CMS will no longer reimburse for the use of the Company’s ThyGeNEXT® and ThyraMIR® tests when billed together by the same provider/supplier for the same beneficiary on the same date of service. On February 28, 2022, the Company announced that the National Correct Coding Initiative (NCCI) program issued a response on behalf of CMS stating that the January 2022 billing policy reimbursement change for ThyGeNEXT® (0245U) and ThyraMIR® (0018U) tests has been retroactively reversed to January 1, 2022. CMS is currently reimbursing the Company for one of its two thyroid tests, and has agreed to retroactively reimburse for the second test once they have completed their internal administrative adjustments. We have been notified by CMS/NCCI that processing of claims for dates of service after January 1, 2022 will be completed beginning July 1, 2022. As of the date of this filing, the Company has not yet realized the full cash collection benefit of current and retroactive Thyroid testing and such cash collections may be temporarily reduced or delayed until we resolved the matter with CMS. As of the date of this filing, the Company currently anticipates that current cash and cash equivalents will be insufficient to meet its anticipated cash requirements through the next twelve months. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
| 8 |
On
January 7, 2021, the Company entered into secured promissory notes in the amount of $
On September 29, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) October 31, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On September 29, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner.
In
October 2021, the Company entered into a $
Although the Company is targeting to achieve Adjusted EBITDA and cash flow breakeven during Fiscal 2022, we may not generate positive cash flows from operations for the year ending December 31, 2022. We intend to meet our ongoing capital needs by using our available cash and availability under the Comerica Loan Agreement, as well as through revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options. However, if we are unable to meet the financial covenants under the Comerica Loan Agreement, the revolving line of credit and notes payable will become due and payable immediately.
In January 2022, the Company’s registration statement for a rights offering filed with the Securities and Exchange Commission (SEC) became effective; however, the rights offering was subsequently terminated in January 2022. The Company is currently exploring various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances, business development and other sources in order to provide additional liquidity and expand the business through acquisitions or other strategic transactions. With the Company’s delisting from Nasdaq in February 2021, its ability to raise additional capital on terms acceptable to the Company has been adversely impacted. There can be no assurance that the Company will be successful in obtaining such funding on terms acceptable to the Company.
| 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.
| 9 |
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.
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 receivable 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.
| 10 |
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 March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Lab supply inventory | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Other | ||||||||
| Total other current assets | $ | $ | ||||||
Long-Lived Assets, including Finite-Lived Intangible Assets
Finite-lived intangible assets are stated at cost less accumulated amortization. Amortization of finite-lived acquired intangible assets is recognized on a straight-line basis, using the estimated useful lives of the assets of approximately two years to ten years in acquisition-related amortization expense in the condensed consolidated statements of operations.
The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows. This analysis requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary.
A reconciliation of the number of shares of common stock, par value $ per share, used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, 2022 and 2021 is as follows:
| Three Months | ||||||||
| Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Basic weighted average number of common shares | ||||||||
| Potential dilutive effect of stock-based awards | - | - | ||||||
| Diluted weighted average number of common shares | ||||||||
| 11 |
The
Company’s Series B Preferred Stock, on an as converted basis into common stock of
| Three Months | ||||||||
| Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Options | ||||||||
| Restricted stock units (RSUs) | ||||||||
| Warrants | ||||||||
| 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 $
As of March 31, 2022 | As of December 31, 2021 | |||||||||||
| Life | Carrying | Carrying | ||||||||||
| (Years) | Amount | Amount | ||||||||||
| (unaudited) | ||||||||||||
| Asuragen acquisition: | ||||||||||||
| Thyroid | $ | $ | ||||||||||
| RedPath acquisition: | ||||||||||||
| Pancreas test | ||||||||||||
| Barrett’s test | ||||||||||||
| BioPharma acquisition: | ||||||||||||
| Trademarks | ||||||||||||
| Customer relationships | ||||||||||||
| CLIA Lab | ||||||||||||
| Total | $ | $ | ||||||||||
| Accumulated Amortization | ( | ) | ( | ) | ||||||||
| Net Carrying Value | $ | $ | ||||||||||
Amortization
expense was approximately $
| 2022 | 2023 | 2024 | 2025 | 2026 | ||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||
| 12 |
The following table displays a roll forward of the carrying amount of goodwill from December 31, 2021 to March 31, 2022:
| Carrying | ||||
| Amount | ||||
| Balance as of December 31, 2021 | $ | |||
| Adjustments | ||||
| Balance as of March 31, 2022 | $ | |||
| 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, warrant liability and note payable. 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. |
| 13 |
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The valuation methodologies used for the Company’s financial instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below:
| As of March 31, 2022 | Fair Value Measurements | |||||||||||||||||||
| Carrying | Fair | As of March 31, 2022 | ||||||||||||||||||
| Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Contingent consideration: | ||||||||||||||||||||
| Asuragen (1) | $ | $ | $ | $ | $ | |||||||||||||||
| Other accrued expenses: | ||||||||||||||||||||
| Warrant liability (2) | - | - | ||||||||||||||||||
| Note payable: | ||||||||||||||||||||
| BroadOak loan | - | - | ||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| As of December 31, 2021 | Fair Value Measurements | |||||||||||||||||||
| Carrying | Fair | As of December 31, 2021 | ||||||||||||||||||
| Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Contingent consideration: | ||||||||||||||||||||
| Asuragen (1) | $ | $ | $ | $ | $ | |||||||||||||||
| Other accrued expenses: | ||||||||||||||||||||
| Warrant liability (2) | - | - | ||||||||||||||||||
| Note payable: | ||||||||||||||||||||
| BroadOak loan | - | - | ||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| (1)(2) |
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.
In connection with the BroadOak loan, the Company records the loan at fair value. The fair value of the loan is determined by a probability-weighted approach regarding the loan’s change in control feature. See Note 14, Notes Payable, for more details. The fair value measurement is based on the estimated probability of a change in control and thus represents a Level 3 measurement.
| 14 |
A roll forward of the carrying value of the Contingent Consideration Liability, 2017 Underwriters’ Warrants and BroadOak Loan to March 31, 2022 is as follows:
| Adjustment | ||||||||||||||||||||
| Accretion/ | to Fair Value/ | |||||||||||||||||||
December 31, 2021 | Earned | Interest Accrued | Mark to Market | March 31, 2022 | ||||||||||||||||
| (unaudited) | ||||||||||||||||||||
| Asuragen | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| Underwriters Warrants | ( | ) | ||||||||||||||||||
| BroadOak Loan | ( | ) | ||||||||||||||||||
| $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||
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:
| Classification on the Balance Sheet | March 31, 2022 | |||||
| (unaudited) | ||||||
| Assets | ||||||
| Financing lease assets | Property and equipment, net | $ | ||||
| Operating lease assets | Operating lease right of use assets | |||||
| Total lease assets | $ | |||||
| Liabilities | ||||||
| Current | ||||||
| Financing lease liabilities | Other accrued expenses | $ | ||||
| Operating lease liabilities | Other accrued expenses | |||||
| Total current lease liabilities | $ | |||||
| Noncurrent | ||||||
| Financing lease liabilities | Other long-term liabilities | |||||
| Operating lease liabilities | Operating lease liabilities, net of current portion | |||||
| Total long-term lease liabilities | ||||||
| Total lease liabilities | $ | |||||
The
weighted average remaining lease term for the Company’s operating leases was
| 15 |
The table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2022:
| Operating Leases | Financing Leases | |||||||
| 2022 | $ | $ | ||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026-2030 | ||||||||
| Total minimum lease payments | ||||||||
| Less: amount of lease payments representing effects of discounting | ||||||||
| Present value of future minimum lease payments | ||||||||
| Less: current obligations under leases | ||||||||
| Long-term lease obligations | $ | $ | ||||||
As of March 31, 2022, 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 | $ | $ | $ | $ | $ | |||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||
| 8. | COMMITMENTS AND CONTINGENCIES |
Litigation
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm the Company’s business. There is no pending litigation involving the Company at this time.
Due to the nature of the businesses in which the Company is engaged, it is subject to certain risks. Such risks include, among others, risk of liability for personal injury or death to persons using products or services that the Company promotes or commercializes. There can be no assurance that substantial claims or liabilities will not arise in the future due to the nature of the Company’s business activities. There is also the risk of employment related litigation and other litigation in the ordinary course of business.
The Company could also be held liable for errors and omissions of its employees in connection with the services it performs that are outside the scope of any indemnity or insurance policy. The Company could be materially adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnification agreement; if the indemnity, although applicable, is not performed in accordance with its terms; or if the Company’s liability exceeds the amount of applicable insurance or indemnity.
| 16 |
| 9. | ACCRUED EXPENSES AND LONG-TERM LIABILITIES |
Other accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Accrued royalties | $ | $ | ||||||
| Contingent consideration | ||||||||
| Operating lease liability | ||||||||
| Financing lease liability | ||||||||
| Deferred revenue | ||||||||
| Interest payable | ||||||||
| Warrant liability | ||||||||
| Accrued sales and marketing - diagnostics | ||||||||
| Accrued lab costs - diagnostics | ||||||||
| Accrued professional fees | ||||||||
| Taxes payable | ||||||||
| Unclaimed property | ||||||||
| All others | ||||||||
| Total other accrued expenses | $ | $ | ||||||
Long-term liabilities consisted of the following as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Uncertain tax positions | $ | $ | ||||||
| Deferred revenue | ||||||||
| Other | ||||||||
| Total other long-term liabilities | $ | $ | ||||||
| 10. | STOCK-BASED COMPENSATION |
Historically,
| March 31, 2022 | March 31, 2021 | |||||||
| (unaudited) | ||||||||
| Risk-free interest rate | % | % | ||||||
| Expected life | years | years | ||||||
| Expected volatility | % | % | ||||||
| Dividend yield | ||||||||
| 17 |
During March 2021, the Company granted stock options with an exercise price of $ and RSUs. The market value of the Company’s common stock was $ at the grant date of these awards. The Company recognized approximately $ million and $ million of stock-based compensation expense during the three-month periods ended March 31, 2022 and 2021, respectively. The following table has a breakout of stock-based compensation expense by line item.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Cost of revenue | $ | $ | ||||||
| Sales and marketing | ||||||||
| Research and development | ||||||||
| General and administrative* | ||||||||
| Total stock compensation 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 the three-month periods ended March 31, 2022 and 2021:
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Provision for income tax | $ | $ | ||||||
| Effective income tax rate | ( | %) | ( | %) | ||||
Income tax expense for both the three-month periods ended March 31, 2022 and 2021 was primarily due to minimum state and local taxes.
| 12. | SEGMENT INFORMATION |
We
operate under
| 13. | DISCONTINUED OPERATIONS |
The components of liabilities classified as discontinued operations consist of the following as of March 31, 2022 and December 31, 2021:
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Accrued liabilities | ||||||||
| Current liabilities from discontinued operations | ||||||||
| Total liabilities | $ | $ | ||||||
| 18 |
The table below presents the significant components of CSO’s results included within loss from discontinued operations, net of tax in the condensed consolidated statements of operations for the three-months ended March 31, 2022 and 2021.
| Three Months Ended | ||||||||
| March 31, | ||||||||
| 2022 | 2021 | |||||||
| (unaudited) | ||||||||
| Income from discontinued operations, before tax | $ | $ | ||||||
| Income tax expense | ||||||||
| Loss from discontinued operations, net of tax | $ | ( | ) | $ | ( | ) | ||
| 14. | NOTES PAYABLE |
BroadOak Loan
On
October 29, 2021, the Company and its subsidiaries entered into a Loan and Security Agreement (the “BroadOak Loan Agreement”)
with BroadOak, providing for a term loan in the aggregate principal amount of $
The BroadOak Loan Agreement contains affirmative and negative restrictive covenants that are applicable from and after the date of the Term Loan advance. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc., could adversely affect our ability to conduct our business. The BroadOak Loan Agreement also contains customary events of default.
In connection with the BroadOak Loan Agreement, the Company and its subsidiaries entered into that certain First Amendment to Loan and Security Agreement and Consent with Comerica, dated as of November 1, 2021 (the “Comerica Amendment”), pursuant to which Comerica consented to the Company’s and its subsidiaries’ entry into the BroadOak Loan Agreement, and amended that certain Loan and Security Agreement among Comerica, the Company and its subsidiaries (the “Comerica Loan Agreement”) to, among other things, permit the indebtedness, liens and encumbrances contemplated by the BroadOak Loan Agreement.
As a condition for BroadOak to extend the Term Loan to the Company and its subsidiaries, the Company’s existing creditor, Comerica, and BroadOak entered into that certain Subordination and Intercreditor Agreement, dated as of November 1, 2021, pursuant to which BroadOak agreed to subordinate all of the indebtedness and obligations of the Company and its subsidiaries owing to BroadOak to all of the indebtedness and obligations of the Company and its subsidiaries owing to Comerica (the “Intercreditor Agreement”). BroadOak further agreed to subordinate all of its respective security interests in assets or property of the Company and its subsidiaries to Comerica’s security interests in such assets or property. The Intercreditor Agreement provides that it is solely for the benefit of BroadOak and Comerica and is not for the benefit of the Company or any of its subsidiaries.
| 19 |
The Company concluded that the Note met the definition of a “recognized financial liability” which is an acceptable financial instrument eligible for the fair value option under ASC 825-10-15-4, and did not meet the definition of any of the financial instruments listed within ASC 825-10-15-5 that are not eligible for the fair value option. The Note is not convertible and does not have any component recorded to shareholders’ equity. Accordingly, the Company elected the fair value option for the Note.
Related Party Secured Promissory Note
On
January 7, 2021, the Company entered into secured promissory notes in the amount of $