For the nine months ended September 30, 2016, the Company incurred a net loss of $14.6 million and cash used in operating activities was $6.6 million.  The Company did not raise any capital or incur any funded debt during the first nine months of 2016, but it did enter into a Credit Agreement with SCM Specialty Finance Opportunities Fund, L.P. on September 28, 2016 as described further below, on which it has not yet drawn. The Company also anticipates operating losses to continue for the foreseeable future due to, among other things, costs related to its commercial operations, developing products and product candidates, right sizing and reorganizing its administrative organization and winding down activities and managing obligations related to its discontinued operations.

 

The accompanying condensed, 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. As of September 30, 2016, the Company had cash and cash equivalents of $1.7 million, net accounts receivable of $2.8 million, current assets of $6.7 million and current liabilities of $19.9 million.

As a result of the sale of substantially all of its CSO business in December 2015, which generated net cash proceeds of $26.8 million (of which $21.6 million was used to repay long-term debt and fees), the Company focused its resources and strategic initiatives on its molecular diagnostics business. As with many companies in a similar stage, sufficient capital is required before achieving profitability. Accordingly, the Company may require additional capital in 2016 and will require additional capital in 2017 and beyond. In order to obtain such capital and fund its operations, the Company may be required to restructure all or a portion of its obligations related to the sale of its CSO business as well as obligations owed to the former equity holders of RedPath Integrated Pathology, Inc.(“RedPath”) arising out of the Company’s acquisition of RedPath. The first payment of secured debt to RedPath Equityholder Representative, LLC (the “RedPath Equityholder Representative”), as representative of the former equity holders of RedPath, has been extended several times from its original due date of October 1, 2016 and is now due December 31, 2016 unless further extended. There is no guarantee that additional capital will or can be raised or that adequate restructuring will be accomplished that are sufficient to fund the Company's operations for the rest of 2016 and beyond or that the terms of such additional capital, if available, will be acceptable to the Company. Accordingly, the Company continues to explore sales of assets and various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances and alternatives, business development, and other alternatives. Additionally, the Company continues to focus on increasing sales of its commercial molecular diagnostic tests, closely managing cash and further streamlining operations. If, however, the Company is unsuccessful in obtaining capital and executing its plans for the business to continue operations, when needed, including the restructuring of its debt and other liabilities, then it may be forced to sell off assets, seek protection under the U.S. Bankruptcy Code, or be forced into liquidation or substantially alter or restructure its business operations. In the event of a default on its secured note, the RedPath Equityholder Representative could foreclose on the Company’s assets, force the Company into bankruptcy or pursue other remedies. In such events, stockholders may not be able to recoup their investment. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern.

 

During the first nine months of 2016, the Company commenced negotiations with certain of its creditors and former sales representatives and executives to restructure its current and long-term obligations related to the sale of the majority of its CSO business in December 2015. The proposed restructuring by the Company includes reducing or extending the term of certain of its obligations, converting a portion to equity and/or forgiving portions thereof. However, any such restructuring may be dependent on the Company raising additional capital. The Company believes that this proposed restructuring, if achieved, will not only improve its liquidity but also provide the flexibility for future funding. No assurance, however, can be given that the negotiations to restructure the Company’s debt and obligations will be successful.

 

At September 30, 2016, the Company had the following debt obligations that it has been seeking to restructure:

 

 

 

There is, however, no guarantee that the Company will be successful in restructuring its outstanding debt.

A summary of the Company’s most significant contractual obligations over the next 12 months are as follows:

 

 

On September 28, 2016 (the “Closing Date”), the Company and its wholly-owned direct and indirect subsidiaries, Interpace Diagnostics, LLC (“Interpace LLC”) and Interpace Diagnostics Corporation (“IDC” and together with Interpace LLC, its “Subsidiaries”), entered into a Credit Agreement (the “Credit Agreement”) with SCM Specialty Finance Opportunities Fund, L.P. (the “Lender”). Pursuant to and subject to the terms of the Credit Agreement, the Lender agreed to provide a revolving loan (the “Loan”) to the Company in the maximum principal amount of $1.2 million (“Facility Cap”). Also on the Closing Date, the Company and its Subsidiaries acknowledged and agreed to an Intercreditor Agreement (the “Intercreditor Agreement”) by and between the Lender and the RedPath Equityholder Representative pursuant to which the Lender has a first lien security interest on all of the accounts receivable (and related intangibles) of the Company and its Subsidiaries and the RedPath Equityholder Representative has a second lien security interest, subordinated to the Lender, on all the accounts receivables (and related intangibles) of the Company and its Subsidiaries. In addition, pursuant to the Intercreditor Agreement, the RedPath Equityholder Representative has a first lien security interest on all other assets of the Company and its Subsidiaries and the Lender has no lien with respect to such other assets. The maturity date of the Loan is September 28, 2018. The Loan bears interest at an annual rate equal to the Prime Rate (as defined in the Credit Agreement) plus 2.75%, payable in cash monthly in arrears. The interest rate will be increased by 5.0% in the event of a default under the Credit Agreement. Events of default under the Credit Agreement, some of which are subject to certain cure periods, include a failure to pay or perform obligations when due, the making of a material misrepresentation to the Lender, the rendering of certain judgments or decrees against the Company and its Subsidiaries and the initiation, voluntarily or involuntarily, of a bankruptcy or similar proceeding against the Company or its Subsidiaries.

 

 

The Company agreed to pay certain out-of-pocket costs and expenses incurred by the Lender in connection with the Credit Agreement and related documents, the administration of the Loan and related documents and the enforcement or protection of the Lender’s rights. The Lender is also entitled to: (a) a $12,000 origination fee; (b) a monthly unused line fee equal to the amount which is one-twelfth of one percent (0.083%) of the difference between (i) the outstanding balance of the Loan during the preceding month, and (ii) the Facility Cap on the date of determination; (c) a monthly collateral management fee equal to one-sixth of one percent (0.1666%) of the average daily balance under the Credit Agreement outstanding during the preceding month; and (d) a termination fee equal to (i) two percent (2%) of the Facility Cap if the Credit Agreement is terminated before the first anniversary of the Closing Date (the “First Anniversary”), or (ii) one percent (1%) of the Facility Cap if the Credit Agreement is terminated after the First Anniversary. The Company must also pay certain fees in the event that (a) the amount outstanding under the Credit Agreement exceeds the availability under the Credit Agreement’s borrowing base, and (b) receivables are not properly deposited in the appropriate lockbox account.

 

 

The Credit Agreement contains customary representations and warranties in favor of the Lender and certain covenants, including, among other things, financial covenants relating to loan turnover rates, liquidity and revenue targets. 

As of November 17, 2016, the Company had not borrowed any funds under the Credit Agreement.

 

On September 30, 2016, the Company, Interpace LLC, and the RedPath Equityholder Representative entered into an amendment to the $10.7 million interest free secured note payable to the former equity holders of RedPath to extend by one month, until November 1, 2016, subject to the terms of the amendment, the due date for the first quarterly payment of principal under the note. Effective October 31, 2016 the Company, Interpace LLC, and the RedPath Equityholder Representative entered into a fourth amendment to the note to extend until November 20, 2016, subject to the terms of the amendment, the due date for the first quarterly payment of principal. On November 16, 2016 the Company, Interpace LLC, and the RedPath Equityholder Representative entered into a fifth amendment to the note to extend until December 31, 2016, subject to the terms of the amendment, the due date for the first quarterly payment of principal under the note. In addition, the fifth amendment also amends the note to add as an event of default the failure of the Company to maintain a minimum net cash balance from operations of no less than $400,000, excluding proceeds from borrowed money, at the end of every week. The fifth amendment also contains a reporting requirement for the Company to provide to the RedPath Equityholder Representative, on a weekly basis, a 13-week cash flow forecast commencing November 22, 2016.

Under the note, the Company is required to make eight installment payments of principal, with each payment equal to $1,333,750, together with accrued and unpaid interest, if any. The first quarterly payment of principal under the note originally was due on October 1, 2016 and the first payment is now due on December 31, 2016. Subsequent payments are to be made on the first day of each fiscal quarter, beginning on April 1, 2017.

The Company currently has no means to make the first quarterly payment of principal due on December 31, 2016, and if the due date for the first quarterly payment of principal is not extended by the RedPath Equityholder Representative or other equity or debt capital is not raised, the RedPath Equityholder Representative could foreclose on the Company’s assets, force the Company into bankruptcy or pursue other remedies. Accordingly, the Company continues to explore sales of assets and various dilutive and non-dilutive sources of funding, including equity and debt financings, strategic alliances and alternatives, business development, and other alternatives.