Interpace Biosciences®, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Overview

Overview

3 Months Ended

Mar. 31, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

1.	OVERVIEW

Nature of Business

The Company enables personalized medicine, offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications and pharma services. The Company 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 also provides pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. The Company advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs with the goals of delivering safer, more effective drugs to market more quickly, and improving patient care.

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 the Centers for Disease Control and Prevention’s (“CDC”) guidance and local restrictions. The majority of our employees who do not work in a lab are currently on a telecommunication work arrangement and 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 through a combination of social distancing and protective equipment. Our employees in the lab are wearing what we believe is appropriate protective gear. 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 number of employees as a result of reductions in customer demand.

The extent to which the COVID-19 pandemic impacts our operations is dependent on future developments, which are still highly uncertain and cannot be fully 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 spread of the coronavirus globally is adversely affecting global economies and financial markets 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 second quarter of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue was impacted by lower than expected clinical service volume throughout March 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. Our pharma services first quarter revenue increased throughout the first quarter and average daily accessions improved in March 2020 as compared to January and February 2020. However, as of the date of this Report, our overall business is still down approximately 30% from our run rate before the pandemic.

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.

At this time, we do not anticipate any lab closures beyond temporary work stoppages from time to time to clean and disinfect the labs. 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.

We are monitoring the situation on a daily basis and have 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. While we are continuing to make progress on a regular basis in returning to volumes prior to the pandemic there is, however, no guarantee in the future we will recover the business which has been lost or inactive.

Restatement

We have restated herein our unaudited consolidated financial statements as of March 31, 2020 for the three months ended March 31, 2020 and March 31, 2020. We have also restated impacted amounts within the accompanying footnotes to the consolidated financial statements which have been noted as such.

As a result of overall economic conditions related to the coronavirus pandemic, the impact of the coronavirus pandemic on the Company’s financial results, and the decrease in the price of the Company’s common stock noted during the third quarter of fiscal 2020, the Company performed an internal review of its long-lived assets. Due to an extended delay in the launch of the Company’s Barrett’s test, the Company believes there was a triggering event in Fiscal 2016. The Company applied the required procedures under ASC 360 and assessed the estimated future cash flows related to the Barrett’s intangible asset on an undiscounted basis. It was determined that the carrying value of the asset was in excess of the undiscounted cash flows as of December 31, 2016. As a result, the Company performed a formal valuation of the asset on a discounted basis in order to measure the related impairment. Additionally, the Company concluded that amortization of both the Barrett’s intangible asset and its Thyroid intangible assets should have begun at the point in which the asset was ready for use. The Company’s policy had been to amortize such assets upon launch of the test.

On December 7, 2020, the Company’s management conferred with the Audit Committee of the Company’s Board of Directors and concluded that (1) a non-cash impairment charge for an intangible asset of approximately $12 million should have been recorded during the Company’s 2016 fiscal year; (2) the Company should have initiated amortization of such intangible asset in fiscal 2014 and therefore each of fiscal years 2014, 2015, 2016, 2017, 2018, and 2019 and the first two quarters of fiscal 2020 require adjustment to record amortization expense; (3) the consolidated financial statements contained in the Company’s Annual Reports on Form 10-K for the years ended December 31, 2014, 2015, 2016, 2017, 2018, and 2019, as well as the consolidated financial statements contained in the Quarterly Reports on Form 10-Q for each quarterly period within those fiscal years as well as the quarterly periods ended March 31, 2020 and June 30, 2020, should no longer be relied upon. As a result the Company is restating its consolidated financial statements for the three months ended March 31, 2020 and March 31, 2019 in this Form 10-Q/A.

The following tables present reconciliation from our prior periods as previously reported to the restated values for the consolidated balance sheets and the consolidated statement of operations. A description of misstatements is listed below:

	a)	Amortization expense - We recorded amortization expense starting at the dates of acquisition for our Barrett’s and Thyroid intangible assets. The impact of the additional amortization charge was approximately $0.1 million in the quarters ended March 31, 2020 and March 31, 2019, respectively.

	b)	Asset impairment - We recorded an impairment charge on our Barrett’s intangible asset of approximately $11.6 million in the fourth quarter of 2016.

	c)	Adjustments - Adjustments to correct certain other immaterial errors, including previously unrecorded immaterial adjustments identified in audits of prior years’ financial statements.

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share data)

	March 31, 2020
	As Previously Reported			Restatement Amount			Restatement Reference		As Restated
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,370		$	-				$	13,370
Accounts receivable, net of allowance for doubtful accounts of $275		9,799			-					9,799
Other current assets		4,976			-					4,976
Total current assets		28,145			-					28,145
Property and equipment, net		6,610								6,610
Other intangible assets, net		32,470			(17,736	)		(a) (b)		14,734
Goodwill		8,433			-					8,433
Operating lease right of use assets		2,811			-					2,811
Other long-term assets		42			-					42
Total assets	$	78,511		$	(17,736	)			$	60,775

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,456		$	-				$	4,456
Accrued salary and bonus		1,865			-					1,865
Other accrued expenses		8,639			-					8,639
Current liabilities from discontinued operations		766			-					766
Total current liabilities		15,726			-					15,726
Contingent consideration		2,264			-					2,264
Operating lease liabilities, net of current portion		1,384			-					1,384
Line of credit		1,200			-					1,200
Other long-term liabilities		4,563			-					4,563
Total liabilities		25,137			-					25,137

Commitments and contingencies (Note 8)

Preferred stock, $.01 par value; 5,000,000 shares authorized, 47,000 Series B shares issued and outstanding		46,536			-					46,536

Stockholders’ equity:
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 4,043,673 shares issued and outstanding, respectively;		402			-					402
Additional paid-in capital		182,580			-					182,580
Accumulated deficit		(174,423	)		(17,736	)		(a) (b) (c)		(192,159	)
Treasury stock, at cost (11,781 shares)		(1,721	)		-					(1,721	)
Total stockholders’ equity		6,838			(17,736	)				(10,898	)
Total liabilities and stockholders’ equity	$	31,975		$	(17,736	)			$	14,239

Total liabilities, preferred stock and stockholders’ equity	$	78,511		$	(17,736	)			$	60,775

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except for per share data)

	Three Months Ended March 31, 2020										Three Months Ended March 31, 2019
	As Previously Reported			Restatement Amount			Restatement Reference	As Restated			As Previously Reported			Restatement Amount			Restatement Reference	As Restated

Revenue, net	$	9,200		$	(141	)	(c)	$	9,059		$	6,010		$	-			$	6,010
Cost of revenue		6,113			-				6,113			2,622			-				2,622
Gross profit		3,087			(141	)	(c)		2,946			3,388			-				3,388
Operating expenses:
Sales and marketing		2,481			-				2,481			2,411			-				2,411
Research and development		809			-				809			528			-				528
General and administrative		4,887			6		(c)		4,893			2,912			(177	)	(c)		2,735
Acquisition related amortization expense		1,031			84		(a)		1,115			813			84		(a)		897
Total operating expenses		9,208			90		(a) (c)		9,298			6,664			(93	)	(a) (c)		6,571

Operating loss		(6,121	)		(231	)	(a) (c)		(6,352	)		(3,276	)		93		(a) (c)		(3,183	)
Interest accretion		(109	)		-				(109	)		(129	)		-				(129	)
Other income (expense), net		47			-				47			48			-				48
Loss from continuing operations before tax		(6,183	)		(231	)	(a) (c)		(6,414	)		(3,357	)		93		(a) (c)		(3,264	)
Provision for income taxes		15			-				15			5			-				5
Loss from continuing operations, net of tax		(6,198	)		(231	)	(a) (c)		(6,429	)		(3,362	)		93		(a) (c)		(3,269	)

Loss from discontinued operations, net of tax		(65	)		-				(65	)		(57	)		-				(57	)

Net loss		(6,263	)		(231	)	(a) (c)		(6,494	)		(3,419	)		93		(a) (c)		(3,326	)

Less adjustment for preferred stock deemed dividend		(3,033	)		-				(3,033	)		-			-				-

Net loss attributable to common stockholders		(9,296	)		(231	)			(9,527	)		(3,419	)		93				(3,326	)

Basic and diluted loss per share of common stock:
From continuing operations	$	(2.31	)	$	(0.06	)		$	(2.37	)	$	(0.96	)	$	0.03			$	(0.93	)
From discontinued operations		(0.01	)		-				(0.01	)		(0.01	)		-				(0.01	)
Net loss per basic and diluted share of common stock	$	(2.32	)	$	(0.06	)		$	(2.38	)	$	(0.97	)	$	0.03			$	(0.94	)
Weighted average number of common shares and common share equivalents outstanding:
Basic		4,004			4,004				4,004			3,515			3,515				3,515
Diluted		4,004			4,004				4,004			3,515			3,515				3,515

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

	As Previously Reported										As Restated
	For The Three Months Ended										For The Three Months Ended
	March 31, 2020					Restatement			Restatement		March 31, 2020
	Shares		Amount			Amount			Reference		Shares		Amount
Common stock:
Balance at January 1		3,932	$	393		$	-					3,932	$	393
Common stock issued		37		1			-					37		1
Restricted stock issued		6		-			-					6		-
Common stock issued through market sales		80		8			-					80		8
Common stock issued through offerings		-		-			-					-		-
Balance at March 31		4,055		402			-					4,055		402
Treasury stock:
Balance at January 1		12		(1,721	)		-					12		(1,721	)
Treasury stock purchased		-		-			-					-		-
Balance at March 31		12		(1,721	)		-					12		(1,721	)
Additional paid-in capital:
Balance at January 1				182,514			-							182,514
Common stock issued through offerings, net of expenses				-			-							-
Extinguishment of Series A Shares				(828	)		-							(828	)
Beneficial Conversion Feature in connection with Series B Issuance				2,205			-							2,205
Amortization of Beneficial Conversion Feature				(2,205	)		-							(2,205	)
Common stock issued through market sales				476			-							476
Stock-based compensation expense				418			-							418
Balance at March 31				182,580			-							182,580
Accumulated deficit:
Balance at January 1				(168,160	)		(17,505	)		(a)(b)(c)				(185,665	)
Net loss				(6,263	)		(231	)		(a)(c)				(6,494	)
Adoption of ASC 842				-			-							-
Balance at March 31				(174,423	)		(17,736	)						(192,159	)

Total stockholders’ equity			$	6,838		$	(17,736	)					$	(10,898	)

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

	As Previously Reported										As Restated
	For The Three Months Ended										For The Three Months Ended
	March 31, 2019					Restatement			Restatement		March 31, 2019
	Shares		Amount			Amount			Reference		Shares		Amount
Common stock:
Balance at January 1		2,877	$	287		$	-					2,877	$	287
Common stock issued		9		1			-					9		1
Restricted stock issued		-		-			-					-		-
Common stock issued through market sales		-		-			-					-		-
Common stock issued through offerings		933		94			-					933		94
Balance at March 31		3,819		382			-					3,819		382
Treasury stock:
Balance at January 1		7		(1,680	)		-					7		(1,680	)
Treasury stock purchased		3		(32	)		-					3		(32	)
Balance at March 31		10		(1,712	)		-					10		(1,712	)
Additional paid-in capital:
Balance at January 1				175,820			-							175,820
Common stock issued through offerings, net of expenses				5,868			-							5,868
Extinguishment of Series A Shares				-			-							-
Beneficial Conversion Feature in connection with Series B Issuance				-			-							-
Amortization of Beneficial Conversion Feature				-			-							-
Common stock issued through market sales				-			-							-
Stock-based compensation expense				266			-							266
Balance at March 31				181,954			-							181,954
Accumulated deficit:
Balance at January 1				(141,489	)		(17,492	)		(a)(b)(c)				(158,981	)
Net loss				(3,419	)		93			(a)(c)				(3,326	)
Adoption of ASC 842				55			-							55
Balance at March 31				(144,853	)		(17,399	)						(162,252	)

Total stockholders’ equity			$	35,771		$	(17,399	)					$	18,372

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)

	For The Three Months Ended March 31,
	2020								2020
	As Previously Reported			Restatement Amount			Restatement Reference		As Restated

Cash Flows From Operating Activities
Net loss	$	(6,263	)	$	(231	)		(a)(c)	$	(6,494	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,235			84			(a)		1,319
Interest accretion		109			-					109
Mark to market on warrants		(26	)		-					(26	)
Stock-based compensation		418			-					418
Bad debt expense		250			-					250
Other gains and expenses, net		-			-					-
Other changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		148			141			(c)		289
(Increase) decrease in other current assets		(1,125	)		-					(1,125	)
(Decrease) increase in accounts payable		(356	)		103			(c)		(253	)
(Decrease) increase in accrued salaries and bonus		(476	)		-					(476	)
(Decrease) increase in accrued liabilities		(1,052	)		(97	)		(c)		(1,149	)
Increase in long-term liabilities		16			-					16
Net cash used in operating activities		(7,122	)		-					(7,122	)

Cash Flows From Investing Activity
Purchase of property and equipment		-			-					-
Sale of property and equipment		-			-					-
Net cash provided by investing activity		-			-					-

Cash Flows From Financing Activities
Issuance of common stock, net of expenses		434			-					434
Payments on Line of Credit		(1,800	)		-					(1,800	)
Issuance of Series B preferred stock, net of expenses		19,537			-					19,537
Net cash provided by financing activities		18,171			-					18,171

Net increase in cash and cash equivalents		11,049			-					11,049
Cash and cash equivalents – beginning		2,321			-					2,321
Cash and cash equivalents – ending	$	13,370		$	-				$	13,370

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)

	For The Three Months Ended March 31,
	2019								2019
	As Previously Reported			Restatement Amount			Restatement Reference		As Restated

Cash Flows From Operating Activities
Net loss	$	(3,419	)	$	93			(a)(c)	$	(3,326	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		873			84			(a)		957
Interest accretion		129			-					129
Mark to market on warrants		(3	)		-					(3	)
Stock-based compensation		538			-					538
Bad debt expense		-			-					-
Other gains and expenses, net		18			-					18
Other changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		(1,738	)		-					(1,738	)
(Increase) decrease in other current assets		11			-					11
(Decrease) increase in accounts payable		93			-					93
(Decrease) increase in accrued salaries and bonus		325			(120	)		(c)		205
(Decrease) increase in accrued liabilities		156			(57	)		(c)		99
Increase in long-term liabilities		57			-					57
Net cash used in operating activities		(2,960	)		-					(2,960	)

Cash Flows From Investing Activity
Purchase of property and equipment		(12	)		-					(12	)
Sale of property and equipment		13			-					13
Net cash provided by investing activity		1			-					1

Cash Flows From Financing Activities
Issuance of common stock, net of expenses		6,015			-					6,015
Net cash provided by financing activities		6,015			-					6,015

Net increase in cash and cash equivalents		3,056			-					3,056
Cash and cash equivalents – beginning		6,068			-					6,068
Cash and cash equivalents – ending	$	9,124		$	-				$	9,124