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 | (I.R.S. Employer | |
| Incorporation or organization) | 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 November 3, 2023 | |
| Common Stock, par value $0.01 per share |
INTERPACE BIOSICENCES, INC.
FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 2023
TABLE OF CONTENTS
| 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 | $ | $ | ||||||
| Accounts receivable | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| 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 | ||||||||
| Line of credit - current | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Contingent consideration | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Note payable at fair value | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Redeemable 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)
| For The Three Months | For The Nine Months | |||||||||||||||
| Ended September 30, | Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Acquisition related amortization expense | ||||||||||||||||
| Change in fair value of contingent consideration | ( | ) | ||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating (loss) income from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Interest accretion expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Note payable interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other expense, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss) income from continuing operations before tax | ( | ) | ( | ) | ( | ) | ||||||||||
| Provision (benefit) for income taxes | ( | ) | ||||||||||||||
| (Loss) income from continuing operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss from discontinued operations, net of tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic income (loss) per share of common stock: | ||||||||||||||||
| From continuing operations | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| From discontinued operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss per basic and diluted share of common stock | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted income (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)
| Additional | ||||||||||||||||||||||||||||
| Common Stock | Treasury Stock | Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance -December 31, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||
| Treasury stock purchased | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance -March 31, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||
| Treasury stock purchased | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance -June 30, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||
| Treasury stock purchased | - | |||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance -September 30, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Balance -December 31, 2022 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||
| Treasury stock purchased | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance -March 31, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance -June 30, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Issuance of common stock | - | |||||||||||||||||||||||||||
| Treasury stock purchased | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Stock-based compensation expense | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance -September 30, 2023 | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
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 Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Interest accretion expense | ||||||||
| Amortization of deferred financing fees | ||||||||
| Stock-based compensation | ||||||||
| ESPP expense | ||||||||
| Goodwill impairment | ||||||||
| Intangible asset impairment | ||||||||
| Change in fair value of note payable | ||||||||
| Mark to market on warrants | ( | ) | ||||||
| Change in fair value of contingent consideration | ( | ) | ||||||
| Other changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Other current assets | ( | ) | ||||||
| Operating lease right of use assets | ||||||||
| Other long-term assets | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued salaries and bonus | ( | ) | ( | ) | ||||
| Other accrued expenses | ( | ) | ( | ) | ||||
| Operating lease liabilities | ( | ) | ||||||
| Other long-term liabilities | ||||||||
| Net cash provided by (used in) operating activities | ( | ) | ||||||
| Cash Flows From Investing Activity | ||||||||
| Proceeds from sale of Interpace Pharma Solutions, net | ||||||||
| Working capital adjustment on sale of Interpace Pharma Solutions | ( | ) | ||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ||||||||
| Cash Flows From Financing Activities | ||||||||
| Issuance of common stock, net of expenses | ||||||||
| Proceeds from convertible debt | ||||||||
| (Payments) borrowings on line of credit | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||
| Cash, cash equivalents and restricted cash from continuing operations– beginning | ||||||||
| Cash, cash equivalents and restricted cash from discontinued operations– beginning | ||||||||
| Cash, cash equivalents and restricted cash – beginning | $ | $ | ||||||
| Cash, cash equivalents and restricted cash from continuing operations– ending | $ | $ | ||||||
| Cash, cash equivalents and restricted cash from discontinued operations– ending | ||||||||
| 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 (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 $
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 $
| 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 $
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 $
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 $
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 $
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.
| For The Three Months Ended | For The Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue, net | $ | $ | $ | $ | ||||||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Income tax expense | ( | ) | ||||||||||||||
| Loss from discontinued operations, net of tax | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Cash
used from discontinued operations, operating activities, for the nine months ended September 30, 2022, was approximately $
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 $
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 | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Funds in escrow | ||||||||
| Other | ||||||||
| Total other current assets | $ | $ | ||||||
In
the third quarter of 2023, the $
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- and nine-month periods ended September 30, 2023 and 2022 is as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| 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 Redeemable Preferred Stock, on an as converted basis into common stock of 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):
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Options | ||||||||||||||||
| Restricted stock units (RSUs) | ||||||||||||||||
| Warrants | ||||||||||||||||
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 | $ | $ | |||||||||
| RedPath acquisition: | |||||||||||
| Pancreas test | |||||||||||
| Barrett’s test | |||||||||||
| CLIA Lab | |||||||||||
| Total | $ | $ | |||||||||
| Accumulated Amortization | ( | ) | ( | ) | |||||||
| Net Carrying Value | $ | $ | |||||||||
Amortization
expense was approximately $
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) | $ | $ | $ | $ | $ | |||||||||||||||
| Note payable: | ||||||||||||||||||||
| BroadOak loan | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| (1) |
| 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) | $ | $ | $ | $ | $ | |||||||||||||||
| Note payable: | ||||||||||||||||||||
| BroadOak loan | ||||||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| 13 |
| (1) |
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 | $ | $ | $ | ( | ) | $ | | $ | $ | | ||||||||||||||
| BroadOak loans | ||||||||||||||||||||||||
| $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||
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 | |||||||