|6 Months Ended|
Jun. 30, 2020
|Organization, Consolidation and Presentation of Financial Statements [Abstract]|
The accompanying consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty. As of June 30, 2020, the Company had cash and cash equivalents of $15.1 million, net accounts receivable of $7.2 million, total current assets of $26.1 million and total current liabilities of $16.1 million. For the six-months ended June 30, 2020, the Company had a net loss of $11.8 million and cash used in operating activities was $6.7 million. As of September 30, 2020 we had approximately $5.2 million of cash on hand due principally to additional losses incurred through September 2020, slower collections due to the pandemic, as well as repayment of approximately $3.4 million to SVB under our line of credit, which we are currently unable to borrow under.
The Company’s cash and cash equivalents balance is decreasing and we do not expect to generate positive cash flows from operations for the year ending December 31, 2020. We intend to meet our ongoing capital needs by using our available cash; proceeds under the Securities Purchase and Exchange Agreement (as defined and further discussed in Note 16, Equity); borrowings under the Revolving Line of Credit (as defined below) with Silicon Valley Bank (“SVB”), once reinstated, as well as by increasing our line of credit limit as a result of the additional accounts receivable acquired in July 2019 as a result of our acquisition of the Biopharma business of Cancer Genetics, Inc. (“CGI”), and presently known as our pharma services business (which requires a modification to the bank agreement and approval by both SVB and the preferred shareholders), as well as revenue growth and margin improvement; collection of accounts receivable; containment of costs; and the potential use of other financing options. The Company is currently unable to borrow under its line of credit and there is no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive. These liquidity factors, among others, have raised substantial doubts about our ability to continue as a going concern.
In September 2019, we entered into the Equity Distribution Agreement (the “Equity Distribution Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell shares of our common stock in an aggregate offering price of up to $3.7 million through the Agent (the “ATM arrangement”). As of June 30, 2020, approximately 178,000 shares of common stock were sold for net proceeds of approximately $0.7 million. As a result of the preferred shares transaction mentioned below, additional shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the preferred shares. See Note 16, Equity, for more detail relative to the ATM arrangement and related share sales. In addition, if our common stock is delisted by Nasdaq Capital Markets (“Nasdaq”) due to our failure to meet the minimum stockholders’ equity requirement, we may no longer be able to eligible to sell under the Agreement as well. See Note 19, Subsequent Events.
In January 2020, we sold 20,000 Series B preferred shares to investors, led by 1315 Capital II, L.P. (“1315 Capital”), for net proceeds of approximately $19.5 million. See Note 16, Equity, for more detail.
The Company maintains a secured revolving line of credit facility (the “Revolving Line of Credit”), with a limit of up to $4.0 million, available for working capital purposes, with a three-year term. The borrowing limit of the Revolving Line of Credit is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. As of June 30, 2020, $3.4 million was outstanding and there was no remaining Revolving Line of Credit available.
As of July 31, 2020, the Company was in violation of a financial covenant under its Loan and Security Agreement, dated November 13, 2018, as amended March 18, 2019 (as so amended, the “SVB Loan Agreement”). Additionally, due to the untimely filing of our second quarter form 10-Q (this Report) with the SEC subsequent to the filing deadline, the Company is in violation of the SVB Loan Agreement and during September 2020, the Company paid down the outstanding Revolving Line of Credit balance of $3.4 million in full. Additionally during September 2020, the Company transferred $0.35 million into a restricted cash money market account with SVB to serve as collateral for the Company’s letters of credit supporting two of its facilities. Prior to September 2020, the collateral for the letters of credit was accounted for as a reduction in the availability under the Revolving Line of Credit.
While the Company has received a waiver of default from SVB and is in compliance with the terms of the SVB Loan Agreement as of the date of this Report, we currently do not have the ability to drawn down on the Revolving Line of Credit.
See Note 1, Overview, regarding the potential adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition for the third quarter of fiscal 2020 and possibly beyond.
During April 2020, the Company applied for various federal stimulus grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of May 1, 2020, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, which is recorded in other accrued expenses on the Company’s condensed consolidated balance sheet, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, beginning with Medicare billings in April 2021 and the HSS grant is subject to certain conditions regarding its use. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. The Company applied the HHS grant in its entirety towards qualified second quarter expenses related to laboratory equipment and supplies purchased to prevent, prepare for, and respond to coronavirus, including development of coronavirus and serology tests, as well as revenue lost during the second quarter as a result of the pandemic. The portion attributed to lost revenue, $0.45 million, was recorded in Other income and $0.2 million was recorded as an offset to cost of revenue expenses.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Secured Creditor Asset Purchase Agreement dated July 15, 2019, by and among the Company, CGI, Interpace Diagnostics Group, Inc. and Partners for Growth IV, L.P. (“Asset Purchase Agreement”). The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Assets and Other Current Liabilities, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.
The entire disclosure when substantial doubt is raised about the ability to continue as a going concern. Includes, but is not limited to, principal conditions or events that raised substantial doubt about the ability to continue as a going concern, management's evaluation of the significance of those conditions or events in relation to the ability to meet its obligations, and management's plans that alleviated or are intended to mitigate the conditions or events that raise substantial doubt about the ability to continue as a going concern.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef