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

Quarterly report pursuant to Section 13 or 15(d)

Overview

Overview

6 Months Ended

Jun. 30, 2020

Organization, Consolidation and Presentation of Financial Statements [Abstract]

1.	OVERVIEW

Nature of Business

Interpace Biosciences, Inc. (“Interpace” or 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.

Impact of COVID-19 pandemic

We have taken what we believe are necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We continue to follow the Centers for Disease Control and Prevention’s (“CDC”) guidance and the recommendations and restrictions provided by state and local authorities. The majority of our employees who do not work in a lab setting are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our labs require in-person staffing and we have been able to continue to operate our labs, minimizing infection risk to lab staff through a combination of social distancing and appropriate protective equipment. There can be no assurance, however, that key employees will not become ill or that we will able to continue to operate our labs. While a number of employees were furloughed most have returned to work.

The continuing impact that the COVID-19 pandemic will have on our operations, including duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time. Accordingly, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.

Through the second quarter of 2020 our revenues were impacted by lower than expected clinical service volume from March through June 2020, which we believe resulted from the pandemic related temporary reduction in non-essential testing procedures. While our pharma services revenue increased throughout the first quarter of 2020, during the second quarter our pharma services business also softened. Currently, our clinical services business has recovered to levels prior to the pandemic and our pharma services business is also recovering, but more slowly.

As our business operations continue to be impacted by the pandemic, we continue to monitor the situation and the guidance that is being provided by relevant federal, state and local public health authorities. We may take additional actions based upon their recommendations. However, it is possible that we may have to make further adjustments to our operating plans in reaction to developments that are beyond our control.

While we do not anticipate any lab closures at this time beyond periodic, temporary work stoppages to clean and disinfect the labs, this could change in the future based upon conditions caused by the pandemic. Further, while we have acquired additional inventories of lab supplies, including reagents, it is possible that we could experience supply chain shortages if the pandemic continues for a prolonged period and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies.

We will continue to monitor the actual and potential impact of the pandemic upon our operations. We have developed and will continue to update our contingency plans in order to mitigate pandemic-related, adverse financial impacts upon our business.

Restatement

We have restated herein our unaudited consolidated financial statements as of June 30, 2020 and for the three and six-months ended June 30, 2020 and June 30, 2019. 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 and six-months ended June 30, 2020 and June 30, 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 for the three months ended June 30, 2020 and June 30, 2019, respectively and approximately $0.2 million for the six months ended June 30, 2020 and June 30, 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)

	June 30, 2020
	As Previously Reported			Restatement Amount			Restatement Reference	As Restated
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	15,106		$	-			$	15,106
Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively		7,239			-				7,239
Other current assets		3,751			-				3,751
Total current assets		26,096			-				26,096
Property and equipment, net		7,249							7,249
Other intangible assets, net		31,439			(17,820	)	(a) (c)		13,619
Goodwill		8,433			-				8,433
Operating lease right of use assets		5,172			-				5,172
Other long-term assets		42			-				42
Total assets	$	78,431		$	(17,820	)		$	60,611

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,348		$	-			$	3,348
Accrued salary and bonus		2,247			-				2,247
Other accrued expenses		9,737			-				9,737
Current liabilities from discontinued operations		766			-				766
Total current liabilities		19,498			-				16,098
Contingent consideration		2,207			-				2,207
Operating lease liabilities, net of current portion		3,940			-				3,940
Line of credit		3,400			-				3,400
Other long-term liabilities		4,557			-				4,557
Total liabilities		30,202			-				30,202

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 4,036,595 shares issued and outstanding, respectively;		402			-				402
Additional paid-in capital		182,980			-				182,980
Accumulated deficit		(179,919	)		(17,820	)	(a) (c)		(197,739	)
Treasury stock, at cost (11,781 shares)		(1,770	)		-				(1,770	)
Total stockholders’ equity		1,693			(17,820	)			(16,127	)
Total liabilities and stockholders’ equity	$	31,895		$	(17,820	)		$	14,075

Total liabilities, preferred stock and stockholders’ equity	$	78,431		$	(17,820	)		$	60,611

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended June 30, 2020										Three Months Ended June 30, 2019
	As Previously Reported			Restatement Amount			Restatement Reference	As Restated			As Previously Reported			Restatement Amount			Restatement Reference	As Restated

Revenue, net	$	5,446		$	-			$	5,446		$	6,270		$	-			$	6,270
Cost of revenue (excluding amortization of $1,115 and $897 for the three months , respectively)		3,850			-				3,850			3,031			-				3,031
Gross profit		1,596			-				1,596			3,239			-				3,239
Operating expenses:
Sales and marketing		1,596			-				1,596			2,959			-				2,959
Research and development		550			-				550			647			-				647
General and administrative		4,107			-				4,107			2,788			-				2,788
Acquisition related expense		-			-				-			1,295			-				1,295
Acquisition related amortization expense		1,031			84		(a)		1,115			813			84		(a)		897
Total operating expenses		7,284			84		(a)		7,368			8,502			84		(a)		8,586

Operating loss		(5,688	)		(84	)	(a)		(5,772	)		(5,263	)		(84	)	(a)		(5,347	)
Interest accretion		(167	)		-				(167	)		(91	)		-				(91	)
Other income (expense), net		438			-				438			74			-				74
Loss from continuing operations before tax		(5,417	)		(84	)	(a)		(5,501	)		(5,280	)		(84	)	(a)		(5,364	)
Provision for income taxes		13			-				13			5			-				5
Loss from continuing operations, net of tax		(5,430	)		(84	)	(a)		(5,514	)		(5,285	)		(84	)	(a)		(5,369	)
Less adjustment for preferred stock deemed dividend		-			-				-			-			-				-
Loss from continuing operations attributable to common stockholders		(5,430	)		(84	)	(a)		(5,514	)		(5,285	)		(84	)	(a)		(5,369	)

(Loss) income from discontinued operations, net of tax		(66	)		-				(66	)		65			-				65

Net loss attributable to common stockholders	$	(5,496	)	$	(84	)	(a)	$	(5,580	)	$	(5,220	)	$	(84	)	(a)	$	(5,304	)


Basic and diluted loss per share of common stock:
From continuing operations	$	(1.35	)	$	(0.02	)		$	(1.37	)	$	(1.39	)	$	(0.02	)		$	(1.41	)
From discontinued operations		(0.01	)		-				(0.01	)		0.02			-				0.02
Net loss per basic and diluted share of common stock	$	(1.36	)	$	(0.02	)		$	(1.38	)	$	(1.37	)	$	(0.02	)		$	(1.39	)
Weighted average number of common shares and
common share equivalents outstanding:
Basic		4,033			4,033				4,033			3,813			3,813				3,813
Diluted		4,033			4,033				4,033			3,813			3,813				3,813

	Six Months Ended June 30, 2020										Six Months Ended June 30, 2019
	As Previously Reported			Restatement Amount			Restatement Reference	As Restated			As Previously Reported			Restatement Amount			Restatement Reference	As Restated

Revenue, net	$	14,645		$	(141	)	(c)	$	14,504		$	12,280		$	-			$	12,280
Cost of revenue (excluding amortization of $2,230 and $1,794 for the six months, respectively)		9,963			-				9,963			5,654			-				5,654
Gross profit		4,682			(141	)	(c)		4,541			6,626			-				6,626
Operating expenses:
Sales and marketing		4,077			-				4,077			5,369			-				5,369
Research and development		1,360			-				1,360			1,175			-				1,175
General and administrative		8,993			6		(c)		8,999			5,299			(177	)	(c)		5,122
Acquisition related expense		-			-				-			1,696			-				1,696
Acquisition related amortization expense		2,062			168		(a)		2,230			1,626			168		(a)		1,794
Total operating expenses		16,492			174		(a) (c)		16,666			15,165			(9	)	(a) (c)		15,156

Operating loss		(11,810	)		(315	)	(a) (c)		(12,125	)		(8,539	)		9		(a) (c)		(8,530	)
Interest accretion		(276	)		-				(276	)		(220	)		-				(220	)
Other income (expense), net		485			-				485			123			-				123
Loss from continuing operations before tax		(11,601	)		(315	)	(a) (c)		(11,916	)		(8,636	)		9		(a) (c)		(8,627	)
Provision for income taxes		28			-				28			10			-				10
Loss from continuing operations, net of tax		(11,629	)		(315	)	(a) (c)		(11,944	)		(8,646	)		9		(a) (c)		(8,637	)
Less adjustment for preferred stock deemed dividend		(3,033	)		-				(3,033	)		-			-				-
Loss from continuing operations attributable to common stockholders		(14,662	)		(315	)	(a) (c)		(14,977	)		(8,646	)		9		(a) (c)		(8,637	)

(Loss) income from discontinued operations, net of tax		(130	)		-				(130	)		7			-				7

Net loss attributable to common stockholders	$	(14,792	)	$	(315	)	(a) (c)	$	(15,107	)	$	(8,639	)	$	9		(a) (c)	$	(8,630	)

Basic and diluted loss per share of common stock:
From continuing operations	$	(3.65	)	$	(0.08	)		$	(3.73	)	$	(2.36	)	$	-			$	(2.36	)
From discontinued operations		(0.03	)		-				(0.03	)		-			-				-
Net loss per basic and diluted share of common stock	$	(3.68	)	$	(0.08	)		$	(3.76	)	$	(2.36	)	$	-			$	(2.36	)
Weighted average number of common shares and common share equivalents outstanding:
Basic		4,018			4,018				4,018			3,665			3,665				3,665
Diluted		4,018			4,018				4,018			3,665			3,665				3,665

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

	As Previously Reported										As Restated
	For The Six Months Ended					Restatement			Restatement		For The Six Months Ended
	June 30, 2020					Amount			Reference		June 30, 2020
	Shares		Amount								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
Common stock issued		-		-								-		-
Balance at June 30		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	)
Treasury stock purchased		7		(49	)		-					7		(49	)
Balance at June 30		19		(1,770	)		-					19		(1,770	)
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
Common Stock issued				-			-							-
Stock-based compensation expense				400			-							400
Balance at June 30				182,980			-							182,980
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	)
Net loss				(5,496	)		(84	)		(a)				(5,580	)
Balance at June 30				(179,919	)		(17,820	)						(197,739	)

Total stockholders’ equity			$	1,693		$	(17,820	)					$	(16,127	)

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

	As Previously Reported										As Restated
	For The Six Months Ended					Restatement			Restatement		For The Six Months Ended
	June 30, 2019					Amount			Reference		June 30, 2019
	Shares		Amount								Shares		Amount
Common stock:
Balance at January 1		2,877	$	287		$	-					2,877	$	287
Common stock issued		9		1			-					9		1
Common stock issued through offerings		933		94			-					933		94
Balance at March 31		3,819		382			-					3,819		382
Common stock issued		10		1								10		1
Balance at June 30		3,829		383			-					3,829		383
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	)
Treasury stock purchased		-		-			-					-		-
Balance at June 30		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
Stock-based compensation expense				266			-							266
Balance at March 31				181,954			-							181,954
Common Stock issued				72			-							72
Stock-based compensation expense				205			-							205
Balance at June 30				182,231			-							182,231
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	)
Net loss				(5,220	)		(84	)		(a)				(5,304	)
Balance at June 30				(150,073	)		(17,483	)						(167,556	)

Total stockholders’ equity			$	30,829		$	(17,483	)					$	13,346

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)

	For The Six Months Ended June 30,
	2020							2020
	As Previously Reported			Restatement Amount			Restatement Reference	As Restated

Cash Flows From Operating Activities
Net loss	$	(11,759	)	$	(315	)	(a) (c)	$	(12,074	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,540			168		(a)		2,708
Interest accretion		276			-				276
Mark to market on warrants		(49	)		-				(49	)
Stock-based compensation		818			-				818
Bad debt expense		250			-				250
Other gains and expenses, net		-			-				-
Other changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		2,708			141		(c)		2,849
(Increase) decrease in other current assets		(788	)		-				(788	)
(Decrease) increase in accounts payable		(1,464	)		103		(c)		(1,361	)
(Decrease) increase in accrued salaries and bonus		(94	)		-				(94	)
(Decrease) increase in accrued liabilities		856			(97	)	(c)		759
Increase in long-term liabilities		33			-				33
Net cash used in operating activities		(6,673	)		-				(6,673	)

Cash Flows From Investing Activity
Purchase of property and equipment		(913	)		-				(913	)
Sale of property and equipment		-			-				-
Net cash provided by investing activity		(913	)		-				(913	)

Cash Flows From Financing Activities
Issuance of common stock, net of expenses		434			-				434
Borrowings on Line of Credit, net		400			-				400
Issuance of Series B preferred stock, net of expenses		19,537			-				19,537
Net cash provided by financing activities		20,371			-				20,371

Net increase in cash and cash equivalents		12,785			-				12,785
Cash and cash equivalents – beginning		2,321			-				2,321
Cash and cash equivalents – ending	$	15,106		$	-			$	15,106

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, in thousands)

	For The Six Months Ended June 30,
	2019							2019
	As Previously Reported			Restatement Amount			Restatement Reference	As Restated

Cash Flows From Operating Activities
Net loss	$	(8,639	)	$	9		(a) (c)	$	(8,630	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,749			168		(a)		1,917
Interest accretion		220			-				220
Mark to market on warrants		(45	)		-				(45	)
Stock-based compensation		990			-				990
Bad debt expense		499			-				499
Other gains and expenses, net		18			-				18
Other changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		(3,982	)		-				(3,982	)
(Increase) decrease in other current assets		(252	)		-				(252	)
(Decrease) increase in accounts payable		530			-				530
(Decrease) increase in accrued salaries and bonus		(141	)		(120	)	(c)		(261	)
(Decrease) increase in accrued liabilities		1,154			(57	)	(c)		1,097
Increase in long-term liabilities		114			-				114
Net cash used in operating activities		(7,785	)		-				(7,785	)

Cash Flows From Investing Activity
Purchase of property and equipment		(48	)		-				(48	)
Sale of property and equipment		13			-				13
Net cash provided by investing activity		(35	)		-				(35	)

Cash Flows From Financing Activities
Issuance of common stock, net of expenses		5,962			-				5,962
Borrowings on Line of Credit, net		-			-				-
Issuance of Series B preferred stock, net of expenses		-			-				-
Net cash provided by financing activities		5,962			-				5,962

Net decrease in cash and cash equivalents		(1,858	)		-				(1,858	)
Cash and cash equivalents – beginning		6,068			-				6,068
Cash and cash equivalents – ending	$	4,210		$	-				4,210