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Overview
 6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Overview
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