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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, 2023

 

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   (I.R.S. Employer
Incorporation or organization)   Identification No.)

 

Waterview Plaza, Suite 310, 2001 Route 46, 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 3, 2023
Common Stock, par value $0.01 per share   4,321,772

 

 

 

 

 

 

INTERPACE BIOSICENCES, INC.

FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2023

TABLE OF CONTENTS

 

    Page No.
     
  PART I - FINANCIAL INFORMATION  
     
Item 1. Unaudited Interim Condensed Consolidated Financial Statements 3
     
  Condensed Consolidated Balance Sheets at September 30, 2023 (unaudited) and December 31, 2022 3
     
  Condensed Consolidated Statements of Operations for the three and nine-month periods ended September 30, 2023 and 2022 (unaudited) 4
     
  Condensed Consolidated Statements of Stockholders’ Deficit for the three and nine-month periods ended September 30, 2023 and 2022 (unaudited) 5
     
  Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2023 and 2022 (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, Use of Proceeds and Issuer Purchases of Equity Securities 33
     
Item 3. Defaults Upon Senior Securities 33
     
Item 4. Mine Safety Disclosures 33
     
Item 5. Other Information 33
     
Item 6. Exhibits 33
     
Signatures 34

 

2
 

 

PART I. FINANCIAL INFORMATION

 

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

   September 30,   December 31, 
   2023   2022 
   (unaudited)     
ASSETS          
Current assets:          
Cash and cash equivalents  $5,032   $4,828 
Accounts receivable   4,830    5,032 
Other current assets   1,576    2,294 
Total current assets   11,438    12,154 
Property and equipment, net   762    480 
Intangible assets, net   27    861 
Operating lease right of use assets   1,978    2,439 
Other long-term assets   45    45 
Total assets  $14,250   $15,979 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
Current liabilities:          
Accounts payable  $1,352   $1,050 
Accrued salary and bonus   1,299    1,456 
Other accrued expenses   8,815    8,419 
Line of credit - current   -    2,500 
Current liabilities of discontinued operations   858    858 
Total current liabilities   12,324    14,283 
Contingent consideration   -    518 
Operating lease liabilities, net of current portion   1,556    1,848 
Note payable at fair value   11,565    11,165 
Other long-term liabilities   4,949    4,701 
Total liabilities   30,394    32,515 
           
Commitments and contingencies (Note 9)   -     -  
           
Redeemable preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 shares Series B issued and outstanding   46,536    46,536 
           
Stockholders’ deficit:          
Common stock, $.01 par value; 100,000,000 shares authorized; 4,407,492 and 4,367,830 shares issued, respectively; 4,321,772 and 4,296,710 shares outstanding, respectively   405    405 
Additional paid-in capital   188,017    187,516 
Accumulated deficit   (249,105)   (249,017)
Treasury stock, at cost (85,720 and 71,120 shares, respectively)   (1,997)   (1,976)
Total stockholders’ deficit   (62,680)   (63,072)
Total liabilities and stockholders’ deficit   (32,286)   (30,557)
           
Total liabilities, preferred stock and stockholders’ deficit  $14,250   $15,979 

 

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)

 

   2023   2022   2023   2022 
   For The Three Months   For The Nine Months 
   Ended September 30,   Ended September 30, 
   2023   2022   2023   2022 
                 
Revenue, net  $9,078   $8,189   $29,931   $23,506 
Cost of revenue   4,124    3,457    12,163    10,286 
Gross profit   4,954    4,732    17,768    13,220 
Operating expenses:                    
Sales and marketing   2,498    2,236    7,444    6,987 
Research and development   149    191    484    626 
General and administrative   2,124    2,767    7,515    8,636 
Acquisition related amortization expense   199    318    834    953 
Change in fair value of contingent consideration   -    -    -    (311)
Total operating expenses   4,970    5,512    16,277    16,891 
                     
Operating (loss) income from continuing operations   (16)   (780)   1,491    (3,671)
Interest accretion expense   (26)   (38)   (92)   (123)
Note payable interest   (230)   (230)   (682)   (620)
Other expense, net   (252)   (217)   (408)   (20)
(Loss) income from continuing operations before tax   (524)   (1,265)   309    (4,434)
Provision (benefit) for income taxes   4    (11)   12    24 
(Loss) income from continuing operations   (528)   (1,254)   297    (4,458)
                     
Loss from discontinued operations, net of tax   (86)   (12,954)   (385)   (15,936)
                     
Net loss  $(614)  $(14,208)  $(88)  $(20,394)
                     
Basic income (loss) per share of common stock:                    
From continuing operations  $(0.12)  $(0.30)  $0.07   $(1.05)
From discontinued operations   (0.02)   (3.05)   (0.09)   (3.77)
Net loss per basic and diluted share of common stock  $(0.14)  $(3.35)  $(0.02)  $(4.82)
                     
Diluted income (loss) per share of common stock:                    
From continuing operations  $(0.12)  $(0.30)  $0.07   $(1.05)
From discontinued operations   (0.02)   (3.05)   (0.09)   (3.77)
Net loss per basic and diluted share of common stock  $(0.14)  $(3.35)  $(0.02)  $(4.82)
                     
Weighted average number of common shares and common share equivalents outstanding:                    
Basic   4,319    4,242    4,313    4,227 
Diluted   4,319    4,242    4,355    4,227 

 

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   Capital   Deficit   Total 
                   Additional         
   Common Stock   Treasury Stock   Paid in   Accumulated     
   Shares   Amount   Shares   Amount   Capital   Deficit   Total 
Balance -December 31, 2021   4,228,169   $403    32,757   $(1,868)  $186,106   $(227,059)  $(42,418)
                                    
Issuance of common stock   44,139    1    -    -    58    -    59 
Treasury stock purchased        -    13,129    (60)   -    -    (60)
Stock-based compensation expense   -    -    -    -    325    -    325 
Net loss   -    -    -    -    -    (2,247)   (2,247)
Balance -March 31, 2022   4,272,308   $404    45,886   $(1,928)  $186,489   $(229,306)  $(44,341)
                                   
Issuance of common stock   5,009    -    -    -    -    -    - 
Treasury stock purchased        -    1,483    (6)   -    -    (6)
Stock-based compensation expense   -    -    -    -    334    -    334 
Net loss   -    -    -    -    -    (3,939)   (3,939)
Balance -June 30, 2022   4,277,317   $404    47,369   $(1,934)  $186,823   $(233,245)  $(47,952)
                                   
Issuance of common stock   16,349    -    -    -    48    -    48 
Treasury stock purchased        -    -    -    -    -    - 
Stock-based compensation expense   -    -    -    -    519    -    519 
Net loss   -    -    -    -    -    (14,208)   (14,208)
Balance -September 30, 2022   4,293,666   $404    47,369   $(1,934)  $187,390   $(247,453)  $(61,593)
                                    
Balance -December 31, 2022   4,367,830   $405    71,120   $(1,976)  $187,516   $(249,017)  $(63,072)
                                   
Issuance of common stock   22,996    -    -    -    -    -    - 
Treasury stock purchased        -    8,292    (9)   -    -    (9)
Stock-based compensation expense   -    -    -    -    192    -    192 
Net income   -    -    -    -    -    351    351 
Balance -March 31, 2023   4,390,826   $405    79,412   $(1,985)  $187,708   $(248,666)  $(62,538)
Stock-based compensation expense   -    -    -    -    157    -    157 
Net income   -    -    -    -    -    175    175 
Balance -June 30, 2023   4,390,826   $405    79,412   $(1,985)  $187,865   $(248,491)  $(62,206)
                                   
Issuance of common stock   16,666    -    -    -    -    -    - 
Treasury stock purchased   -    -    6,308    (12)   -    -    (12)
Stock-based compensation expense   -    -    -    -    152    -    152 
Net loss   -    -    -    -    -    (614)   (614)
Balance -September 30, 2023   4,407,492   $405    85,720   $(1,997)  $188,017   $(249,105)  $(62,680)

 

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)

 

   2023   2022 
   For The Nine Months Ended September 30, 
   2023   2022 
         
Cash Flows From Operating Activities          
Net loss  $(88)  $(20,394)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Depreciation and amortization   954    2,206 
Interest accretion expense   92    123 
Amortization of deferred financing fees   42    45 
Stock-based compensation   501    1,133 
ESPP expense   -    46 
Goodwill impairment   -    8,433 
Intangible asset impairment   -    3,827 
Change in fair value of note payable   400    46 
Mark to market on warrants   -    (71)
Change in fair value of contingent consideration   -    (311)
Other changes in operating assets and liabilities:          
Accounts receivable   202    107 
Other current assets   176    (45)
Operating lease right of use assets   461    - 
Other long-term assets   -    (1)
Accounts payable   228    (447)
Accrued salaries and bonus   (157)   (1,312)
Other accrued expenses   (118)   (914)
Operating lease liabilities   (292)   - 
Other long-term liabilities   248    113 
Net cash provided by (used in) operating activities   2,649    (7,416)
           
Cash Flows From Investing Activity          
Proceeds from sale of Interpace Pharma Solutions, net   500    7,431 
Working capital adjustment on sale of Interpace Pharma Solutions   (117)   - 
Purchase of property and equipment   (328)   (126)
Net cash provided by investing activities   55    7,305 
           
Cash Flows From Financing Activities          
Issuance of common stock, net of expenses   -    106 
Proceeds from convertible debt   -    2,000 
(Payments) borrowings on line of credit   (2,500)   1,000 
Net cash (used in) provided by financing activities   (2,500)   3,106 
           
Net increase in cash, cash equivalents and restricted cash   204    2,995 
Cash, cash equivalents and restricted cash from continuing operations– beginning   4,828    2,922 
Cash, cash equivalents and restricted cash from discontinued operations– beginning   -    392 
Cash, cash equivalents and restricted cash – beginning  $4,828   $3,314 
Cash, cash equivalents and restricted cash from continuing operations– ending  $5,032   $6,309 
Cash, cash equivalents and restricted cash from discontinued operations– ending   -    - 
Cash, cash equivalents and restricted cash – ending  $5,032   $6,309 

 

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

 

6
 

 

INTERPACE BIOSCIENCES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Tabular information in thousands, except per share amounts)

 

1. OVERVIEW

 

Nature of Business

 

Interpace Biosciences, Inc. (“Interpace” or the “Company”) is a company that 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 develops and commercializes genomic tests and related first line assays principally focused on early detection of patients with indeterminate biopsies and at high risk of cancer using the latest technology.

 

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, 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, 2022, as filed with the Securities & Exchange Commission (“SEC”) on March 27, 2023 and as amended on April 28, 2023.

 

The 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 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, TVG, Inc., its commercial services business unit which was sold on December 22, 2015 and its Interpace Pharma Solutions, Inc. business (“Pharma Solutions”) which was sold on August 31, 2022. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the nine-month period ended September 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2023.

 

3. LIQUIDITY

 

In October 2021, the Company entered into a $7.5 million revolving credit facility with Comerica Incorporated (“Comerica”) (the “Comerica Loan Agreement”). See Note 17, Revolving Line of Credit, and Note 19, Subsequent Events for more details and for updates to the revolving credit facility. Also in October 2021, the Company entered into an $8.0 million term loan with BroadOak Fund V, L.P. (“BroadOak”) (the “BroadOak Loan Agreement”), the proceeds of which were used to repay in full at their maturity the existing secured promissory note with Ampersand Capital Partners (“Ampersand”) (the “Ampersand Note”) and 1315 Capital II, L.P (“1315 Capital”) (the “1315 Capital Note”). In May 2022, the Company entered into a Subordinated Convertible Promissory Note agreement with BroadOak for an additional $2.0 million (the “Convertible Note”), which was converted into a subordinated term loan and was added to the outstanding BroadOak Loan Agreement balance. See Note 14, Notes Payable, for more details and Note 19, Subsequent Events.

 

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 later in January 2022 when 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. However, 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. In May 2022, the Company was notified by CMS/NCCI that processing of claims for dates of service after January 1, 2022 would be completed beginning July 1, 2022. However, on June 9, 2022, the Company was notified that its local Medicare Administrator Contractor, Novitas Solutions Inc. (“Novitas”) re-priced ThyGeNEXT® (0245U) from $2,919 to $806.59 retroactively effective to January 1, 2022. On July 20, 2022 the Clinical Diagnostic Laboratory Tests (CDLT) Advisory Panel affirmed a gapfill price for ThyGeNEXT® of $806.59. As a result of the ThyGeNEXT® pricing change, the Company reduced its net realizable value, or NRV rates, for ThyGeNEXT® Medicare billing to reflect the $806.59 pricing for tests performed during the second quarter of 2022. In addition, in order to reflect the retroactive pricing change to January 1, 2022, the Company recorded an NRV adjustment of $0.7 million during the second quarter of 2022 to reduce revenue recorded during the first quarter of 2022. Effective January 1, 2023, the gapfill price for ThyGeNEXT® was set at $1,266.07.

 

7
 

 

Further, along with many laboratories, the Company may be affected by the Proposed Local Coverage Determination (“LCD”) DL39365, which is currently under consideration by Novitas. If finalized, this Proposed LCD, which governs “Genetic Testing for Oncology,” could impact the existing Medicare coverage for one of our molecular tests, PancraGEN®. On June 5, 2023 the Company announced that Novitas issued the final LCD of Genetic Testing for Oncology (L39365) which if finalized, would have established non-coverage for the Company’s widely used PancraGEN® test effective July 17, 2023. On July 6, 2023, Novitas announced that it would not be implementing the final Genetic Testing for Oncology LCD (L39365) as scheduled on July 17, 2023. Novitas then issued a new virtually identical proposed LCD affecting the same companies and tests and reaching the same conclusions as noted in the previously rescinded LCD on July 27, 2023. In response, the Company participated in a public meeting presentation and submitted detailed written comments supporting the use of PancraGEN®. The timing and content of any final implemented LCD is uncertain at this time; the process could potentially take a year or longer from issuance of the updated proposed LCD to reach a conclusion. As a result, the Company is able to continue offering PancraGEN® and the related Point2® fluid chemistry tests for amylase, CEA, and glucose. In the event Novitas ultimately restricts coverage for the PancraGEN® test, the Company’s liquidity could be negatively impacted.

 

For the nine months ended September 30, 2023, the Company had operating income from continuing operations of $1.5 million. As of September 30, 2023, the Company had cash and cash equivalents of $5.0 million, total current assets of $11.4 million and current liabilities of $12.3 million. As of November 3, 2023, the Company had approximately $3.1 million of cash on hand.

 

The Company expects to generate positive cash flows from operations for the year ending December 31, 2023. The Company intends to meet its ongoing capital needs by using its available cash, as well as through targeted margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options and other strategic alternatives. However, if the Company is unable to meet the financial covenants under the Comerica Loan Agreement, as amended, the revolving line of credit and notes payable will become due and payable immediately. As of November 1, 2023, the Company had $4.75 million in potential availability under the Comerica Loan Agreement.

 

The Company continues to explore various strategic alternatives, 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. With the delisting of its common stock from Nasdaq in February 2021, and the possible removal of its common stock from trading on the OTCQX® if it failed to meet minimum market capitalization of $5 million by July 3, 2023, the Company’s ability to raise additional capital on terms acceptable to it has been adversely impacted. There can be no assurance that the Company will be successful in obtaining such funding on terms acceptable to it. The Company was notified in May 2023 that it had met the market capitalization requirements and was cleared to remain on OTCQX®.

 

With the improvement in operating cash flows associated with the disposition of the Pharma Solutions business, and the Company’s improved operating performance, as of the date of this filing, the Company anticipates that current cash and cash equivalents and forecasted cash receipts will be sufficient to meet its anticipated cash requirements through the next twelve months.

 

8
 

 

4. DISCONTINUED OPERATIONS

 

Liabilities classified as discontinued operations as of both September 30, 2023 and December 31, 2022 consists of accrued expenses of which $766 of liabilities related to the former commercial services business unit.

 

The table below presents the significant components of its former Pharma Solutions business unit’s results included within loss from discontinued operations, net of tax in the condensed consolidated statements of operations for the three- and nine months ended September 30, 2023 and 2022.

 

   2023   2022   2023   2022 
   For The Three Months Ended   For The Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
         
Revenue, net  $-   $1,267   $-   $5,678 
                     
Loss from discontinued operations   -    (13,012)   (137)   (15,888)
Income tax expense   86    (58)   248    48 
Loss from discontinued operations, net of tax  $(86)  $(12,954)  $(385)  $(15,936)

 

Cash used from discontinued operations, operating activities, for the nine months ended September 30, 2022, was approximately $2.8 million. There was cash provided by discontinued operations, investing activities, for the nine months ended September 30, 2022 of $7.3 million which pertained to the net proceeds received from the Pharma Solutions sale. Cash used from discontinued operations, operating activities, was $20,000, and provided by investing activities was $0.4 million for the nine months ended September 30, 2023. Depreciation and amortization expense within discontinued operations for the three and nine-months ended September 30, 2022 was $0.3 million and $1.1 million, respectively. There was no depreciation and amortization expense for the three or nine months ended September 30, 2023 in discontinued operations.

 

5. 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 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, 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.

 

9
 

 

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. The Company recorded an NRV adjustment of $0.7 million as a reduction of revenue during the second quarter of 2022 to record the impact on revenue recorded during the first quarter of 2022. See Note 3, Liquidity, for more details.

 

For our discontinued Pharma Solutions, project level activities, including study setup and project management, were satisfied over the life of the contract while performance-related obligations were satisfied at a point in time as the Company processes samples delivered by the customer. Revenues were 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 discontinued Pharma Solutions, were 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 its since discontinued Pharma Solutions. 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 Solutions represented, primarily, the performance of laboratory tests in support of clinical trials for Pharma Solutions customers. The Company billed these services directly to the customer.

 

Leases

 

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

 

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 8, Leases.

 

10
 

 

Other Current Assets

 

Other current assets consisted of the following as of September 30, 2023 and December 31, 2022:

 

   September 30, 2023   December 31, 2022 
Lab supplies  $1,093   $1,224 
Prepaid expenses   440    390 
Funds in escrow   -    500 
Other   43    180 
Total other current assets  $1,576   $2,294 

 

In the third quarter of 2023, the $0.5 million funds in escrow that pertained to the Company’s sale of Pharma Solutions in 2022 were released to the Company.

 

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, 2023 and 2022 is as follows:

 

   2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
Basic weighted average number of common shares   4,319    4,242    4,313    4,227 
Potential dilutive effect of stock-based awards   -    -    42    - 
Diluted weighted average number of common shares   4,319    4,242    4,355    4,227 

 

11
 

 

The Company’s Series B Redeemable Preferred Stock, on an as converted basis into common stock of 7,833,334 shares for the three- and nine-months ended September 30, 2023, 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):

 

   2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
Options   469    578    394    578 
Restricted stock units (RSUs)   277    340    277    340 
Warrants   -    54    -    54 
Anti-dilutive securities   746    972    671    972 

 

6. INTANGIBLE ASSETS

 

The net carrying value of the identifiable intangible assets from all acquisitions as of September 30, 2023 and December 31, 2022 are as follows:

 

      

As of

September 30, 2023

  

As of

December 31, 2022

 
   Life   Carrying   Carrying 
   (Years)   Amount   Amount 
             
Asuragen acquisition:              
Thyroid  9   $8,519   $8,519 
RedPath acquisition:              
Pancreas test  7    16,141    16,141 
Barrett’s test  9    6,682    6,682 
               
CLIA Lab  2.3    609    609 
               
Total      $31,951   $31,951 
               
Accumulated Amortization       (31,924)   (31,090)
               
Net Carrying Value      $27   $861 

 

Amortization expense was approximately $0.2 million and $0.3 million for the three-month periods ended September 30, 2023 and 2022, respectively, and $0.8 million and $1.0 million for the nine-month periods ended September 30, 2023 and 2022, respectively. The remaining amortization expense of approximately $27,000 will be amortized in 2023.

 

7. 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.

 

12
 

 

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 September 30, 2023   Fair Value Measurements 
       Fair   As of September 30, 2023 
   Amount   Value   Level 1   Level 2   Level 3 
                     
Liabilities:                         
Contingent consideration:                         
Asuragen (1)  $610   $610   $  -   $  -   $610 
Note payable:                         
BroadOak loan   10,000    11,565    -    -    11,565 
   $10,610   $12,175   $-   $-   $12,175 

 

(1) See Note 10, Other Accrued Expenses

 

       Fair Value Measurements 
   As of December 31, 2022   As of December 31, 2022 
   Amount   Fair Value   Level 1   Level 2   Level 3 
                     
Liabilities:                         
Contingent consideration:                         
Asuragen (1)  $1,088   $1,088   $-   $-   $1,088 
Note payable:                         
BroadOak loan   10,000    11,165    -    -    11,165 
   $11,088   $12,253   $-   $-   $12,253 

 

13
 

 

(1) See Note 10, Other Accrued Expenses

 

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.

 

A roll forward of the carrying value of the Contingent Consideration Liability and BroadOak Loan to September 30, 2023 is as follows:

 

                   Adjustment     
           Transferred   Accretion/   to Fair Value/     
   December 31, 2022   Issued   to Accrued Expenses   Interest Accrued   Mark to Market  

September 30,

2023

 
                         
Asuragen  $1,088   $   -   $(570)  $        92   $ -   $            610 
                               
BroadOak loans   11,165    -    -    -    400    11,565 
                               
   $12,253   $-   $(570)  $92   $400   $12,175 

 

Certain of the Company’s non-financial assets, such as intangible assets 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.

 

8. LEASES

 

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

 

   Classification on the Balance Sheet  September 30, 2023   December 31, 2022