|12 Months Ended|
Dec. 31, 2019
|Subsequent Events [Abstract]|
Impact of COVID-19 pandemic
We have taken what we believe are all necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We are following CDC guidance and local restrictions. All employees who do not work in a lab are currently on a telecommunication work arrangement. Our employees in the lab are wearing what we believe is appropriate protective gear. If an employee tests positive, then we will take necessary and available precautions in the lab to reduce the potential spread of COVID-19, including decontamination and temporary lab closures. There can be no assurance that key employees will not become ill or that we will able to continue to operate our labs. We have furloughed a significant number of employees as a result of reductions in customer demand and we have closed our administrative offices. Our management, finance staff and sales personnel have generally been able to successfully work remotely. Our labs require in-person staffing and as of the date of this report, we have been able to successfully operate our labs though a combination of social distancing and protective equipment.
The extent to which the COVID-19 pandemic impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the continued spread of the coronavirus globally is adversely affecting global economies and financial markets resulting in an economic downturn which could materially and adversely impact our operations including, without limitation, the functioning of our laboratories, the availability of supplies including reagents, the progress and data collection of our pharma services, customer demand and travel and employee health and availability.
We believe that the COVID-19 pandemic will adversely impact our results of operations, cash flows and financial condition for the first and second quarters of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue has been impacted by lower than expected clinical service volume throughout March 2020. We believe this has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. While we experienced a substantial increase in clinical services revenue compared to the first quarter of 2019, our March 2020 test volume decreased substantially compared to our February 2020 volume. Our pharma services preliminary first quarter revenue increased throughout the first quarter and average daily accessions improved in March 2020 as compared to January and February 2020.
We continue to monitor the rapidly evolving situation and guidance from authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these dynamic circumstances, there may be developments outside our control requiring us to adjust our operating plan.
Currently volume of testing in our clinical services labs has slowed, as noted above, and we believe we have taken the necessary actions to support the lower volume. Our pharma services customers have indicated that there could be a slowdown in clinical trials but thus far volume has not suffered. All of our labs are currently operating and we believe we are appropriately staffed for the volume of work. At this time, we do not anticipate any lab closures beyond temporary work stoppages from time to time to clean and disinfect the labs. To date, we have not lost any of our customer base and we are not aware of any customers with potential bankruptcy or payment issues. Lab supplies including reagents have been secured to mitigate any potential supply chain issues for the foreseeable future and we are not observing any shortages due to supply chain issues. Our third party clinical services billing and collections company has taken steps to continue operations remotely. There have been indications that payer processing may slow down but so far there has been little or no material impact to our collections.
As of April 21, 2020 we have approximately $18.4 million of cash on hand which includes $3.4 million drawn on our credit facility, $2.1 million in advances received under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, and $0.65 million in the form of a grant received from the Department of Health and Human Services, which is subject to certain conditions regarding its use, including developing coronavirus and serology tests. Also as of April 21, 2020, the Company has maximized its borrowing under its line of credit facility and therefore has no further availability on its credit facility; however, we are in the process of seeking to expand availability under the credit facility from $4.0 to $8.0 million on terms similar to existing terms, but there can be no assurance that such credit line extension will be granted or that it will be granted on commercially reasonable and acceptable terms. As of the date of this report, the Company believes it will be able to access additional financing though commercial bank loans and the sale of its securities, although there can no assurance that financing market conditions will not change or that such financing can be obtained. It is anticipated that if business conditions remain at these lower levels for clinical services customers and our pharma services customers similarly reduce their demand until the end of July and thereafter demand recovers to pre COVID-19 pandemic levels, then we believe we will have ample resources to continue to service our customers. However, should business conditions deteriorate further or last longer than anticipated, then our business may be materially and adversely affected.
The Company’s leadership team is monitoring the situation on a daily basis and is has developed contingency plans to potentially mitigate the anticipated adverse financial impact of the COVID-19 pandemic. These contingency plans include significant cost saving actions to offset any volume shortfall and additional action plans to react to further potential declines.
As of April 2020, we are in the process of launching a new product line of antibody testing for the COVID-19 virus. We are currently validating a serological test that detects antibodies specific to the virus. However, there is no guarantee that we will be successful or realize any revenue or benefit from these efforts.
In January 2020, under the Agreement with the Agent, the Company sold 80,341 (as adjusted for the reverse stock split) shares of common stock for approximate net proceeds to the Company of $0.5 million.
Reverse stock split
On January 15, 2020, the Company effected a one-for-ten reverse split of its issued and outstanding shares of its common stock (the “Reverse Stock Split”). Every 10 shares of common stock issued and outstanding were automatically combined into one share of issued and outstanding common stock, without any change in the par value per share. Our common stock began trading on The Nasdaq Capital Market on a Reverse Stock Split-adjusted basis on January 15, 2020. There was no change in its ticker symbol as a result of the Reverse Stock Split.
Federal Stimulus Programs in Connection with Coronavirus Pandemic
During April 2020, the Company applied for various federal stimulus loans, grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including an approximate $3.5 million loan request under the Small Business Administration (SBA) Paycheck Protection Program (PPP), an approximate $0.65 million grant from the Department of Health and Human Services (HSS), and approximately $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program. Each of these loans, grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds.
As of April 21, 2020, we received $2.1 million in advances under the CMS accelerated and advance payment program, as well as the $0.65 million HSS grant. The CMS advance will be offset against future Medicare billings of the Company, and the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. There is no guarantee that any other loans, grants or advances will be approved. As of April 21, 2020, the Company’s PPP loan has not yet been approved, pending new legislation increasing the pool. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The PPP loans and accrued interest are forgivable after eight weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The unforgiven portion of the PPP loan is payable over two years at an interest rate of 1%, with a deferral of payments for the first six months. If the Company is successful in obtaining a PPP loan, we intend to use the proceeds for purposes consistent with the PPP and expect to meet the conditions for forgiveness of the loan.
Securities Purchase and Exchange Agreement
On January 10, 2020, the Company entered into a Securities Purchase and Exchange Agreement (the “Securities Purchase and Exchange Agreement”) with 1315 Capital II, L.P., a Delaware limited partnership (“1315 Capital”), and Ampersand 2018 Limited Partnership, a Delaware limited partnership (“Ampersand” and, together with 1315 Capital, the “Investors”) pursuant to which the Company agreed to sell to the Investors at the Closing (as defined in the Securities Purchase and Exchange Agreement) an aggregate of $20.0 million in Series B convertible preferred stock of the Company, par value $0.01 per share (the “Series B Preferred Stock”), at an issuance price per share of $1,000. Pursuant to the Securities Purchase and Exchange Agreement, 1315 Capital agreed to purchase 19,000 shares of Series B Preferred Stock at an aggregate purchase price of $19.0 million and Ampersand agreed to purchase 1,000 shares of Series B Preferred Stock at an aggregate purchase price of $1.0 million.
In addition, the Company agreed to exchange $27.0 million of the Company’s existing Series A convertible preferred stock, par value $0.01 per share, held by Ampersand (the “Series A Preferred Stock”), represented by 270 shares of Series A Preferred Stock with a stated value of $100,000 per share, which represents all of the Company’s issued and outstanding Series A Preferred Stock, for 27,000 newly created shares of Series B Preferred Stock (such shares of Series B Preferred Stock, the “Exchange Shares” and such transaction, the “Exchange”). Following the Exchange, no shares of Series A Preferred Stock remained designated, authorized, issued or outstanding. The Series B Preferred Stock has a conversion price of sixty cents ($0.60) (as adjusted to $6.00 following effectuation of the Reverse Stock Split defined and described below and subject to further adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization affecting such shares) as compared to a conversion price of $0.80 on the Series A Preferred Stock (as adjusted to $8.00 following effectuation of the Reverse Stock Split and subject to further adjustment in the event of any stock dividend, stock split, combination, or other similar recapitalization affecting such shares), but did not include certain rights applicable to the Series A Preferred Stock, including a six-percent (6%) dividend, a conversion price adjustment for any failure by the Company to achieve a revenue target of $34.0 million in 2020 related to its diagnostics business or a weighted-average anti-dilution adjustment. Under the terms of the Securities Purchase and Exchange Agreement, Ampersand also agreed to waive all dividends and weighted-average anti-dilution adjustments accrued to date on the Series A Preferred Stock.
The Series B Preferred Stock was offered and sold pursuant to an exemption from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. The shares to be issued upon conversion of the Series B Preferred Stock have not been registered under the Securities Act and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from the registration requirements.
In connection with the Company’s application for the PPP loan, both Ampersand and 1315 Capital consented to, and agreed to vote (by proxy or otherwise) their Series B Preferred Stock in favor of any “Fundamental Action” taken by the Company as determined by the Company’s Board of Directors. “Fundamental Actions” include the Company’s ability to a) authorize, create or issue any debt securities for borrowed money or funded debt; b) merge with or acquire all or substantially all of the assets of one or more other companies or entities with a value in excess of $20 million; c) transfer, by sale, exclusive license or otherwise, material intellectual property rights of the Company or any of its direct or indirect subsidiaries, other than those accomplished in the ordinary course of business; d) declare or pay any cash dividend or make any cash distribution on any equity interests of the Company other than the Series B Shares; d) incur any additional individual debt, indebtedness for borrowed money or other additional liabilities; and e) change any accounting methods or practices of the Company, except for those changes required by GAAP or applicable regulatory agencies or authorities.
Revolving line of credit
Using the proceeds received from the additional financing described above, the Company repaid the $3 million balance on the line of credit in January 2020. As of April 21, 2020, we had $3.4 million outstanding on the Revolving Line.
Letter of Credit
On March 31, 2020, SVB issued an irrevocable standby letter of credit in the amount of $0.35 million held for security by our Rutherford, NJ landlord pursuant to the July 19, 2019 assignment of the lease. As of March 31, 2020, $0.6 million of our Line of Credit is used to secure the issuances of standby letters of credit by SVB.
On October 15, 2019, the Company received notice from Nasdaq indicating that the Company had until April 13, 2020 to regain compliance with the minimum bid price requirement of Nasdaq. On January 30, 2020 the Company received notice from Nasdaq stating that the Company was now in compliance with the minimum bid price requirement and that the matter was now closed. However, upon the filing of this Amendment, we will no longer be in compliance with the minimum stockholder equity requirements of Nasdaq.as amended
The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef