FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2022

Accounting Policies [Abstract]

FAIR VALUE MEASUREMENTS

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities reported and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable under the circumstances. Significant estimates include accounting for valuation allowances related to deferred income taxes, contingent consideration, allowances for doubtful accounts, revenue recognition, unrecognized tax benefits, and asset impairments involving other intangible assets. The Company periodically reviews these matters and reflects changes in estimates in earnings as appropriate. Actual results could materially differ from those estimates.

Revenue Recognition

Our clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’s performance obligation is fulfilled upon the completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based on the estimated transaction price or net realizable value (“NRV”), which is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. To the extent the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.

For our clinical services, we regularly review the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates and adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we will adjust the estimates of contractual allowances, which affects net revenue in the period such variances become known.

For our pharma services, project level activities, including study setup and project management, are satisfied over the life of the contract while performance-related obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Revenues are recognized at a point in time when the test results or other deliverables are reported to the customer.

Financing and Payment

For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical services are typically thirty days and in our pharma services, up to sixty days. Commercial third-party-payers are required to respond to a claim within a time period established by their respective state regulations, generally between thirty to sixty days. However, payment for commercial third-party claims may be subject to a denial and appeal process, which could take up to two years in some instances where multiple appeals are submitted. The Company generally appeals all denials from commercial third-party payers. We bill Medicare directly for tests performed for Medicare patients and must accept Medicare’s fee schedule for the covered tests as payment in full.

Costs to Obtain or Fulfill a Customer Contract

Sales commissions are expensed in the period in which they have been earned. These costs are recorded in sales and marketing expense in the condensed consolidated statements of operations.

Accounts Receivable

The Company’s accounts receivable represent unconditional rights to consideration and are generated using its clinical services and pharma services. The Company’s clinical services are fulfilled upon completion of the test, review and release of the test results. In conjunction with fulfilling these services, the Company bills the third-party payer or direct-bill payer. Contractual adjustments represent the difference between the list prices and the reimbursement rates set by third-party payers, including Medicare, commercial payers, and amounts billed to direct-bill payers. Specific accounts may be written off after several appeals, which in some cases may take longer than twelve months. Pharma services represent, primarily, the performance of laboratory tests in support of clinical trials for pharma services customers. The Company bills these services directly to the customer.

Leases

The Company determines if an arrangement contains a lease in whole or in part at the inception of the contract. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term while lease liabilities represent our obligation to make lease payments arising from the lease. All leases with terms greater than twelve months result in the recognition of a ROU asset and a liability at the lease commencement date based on the present value of the lease payments over the lease term. Unless a lease provides all of the information required to determine the implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of the lease payments. We use the implicit interest rate in the lease when readily determinable.

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability. See Note 7, Leases.

Other Current Assets

Other current assets consisted of the following as of March 31, 2022 and December 31, 2021:

	March 31, 2022		December 31, 2021
	(unaudited)
Lab supply inventory	$	2,059	$	1,786
Prepaid expenses		610		800
Other		108		108
Total other current assets	$	2,777	$	2,694

Long-Lived Assets, including Finite-Lived Intangible Assets

Finite-lived intangible assets are stated at cost less accumulated amortization. Amortization of finite-lived acquired intangible assets is recognized on a straight-line basis, using the estimated useful lives of the assets of approximately two years to ten years in acquisition-related amortization expense in the condensed consolidated statements of operations.

The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows. This analysis requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary.

Basic and Diluted Net Loss per Share

A reconciliation of the number of shares of common stock, par value $0.01 per share, used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, 2022 and 2021 is as follows:

	Three Months
	Ended March 31,
	2022		2021
	(unaudited)
Basic weighted average number of common shares		4,208		4,089
Potential dilutive effect of stock-based awards		-		-
Diluted weighted average number of common shares		4,208		4,089

The Company’s Series B Preferred Stock, on an as converted basis into common stock of 7,833,334 shares for the three- months ended March 31, 2022, and the following outstanding stock-based awards and warrants, were excluded from the computation of the effect of dilutive securities on loss per share for the following periods as they would have been anti-dilutive (rounded to thousands):

	Three Months
	Ended March 31,
	2022		2021
	(unaudited)
Options		641		1,061
Restricted stock units (RSUs)		319		395
Warrants		1,339		1,405
		2,299		2,861

5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is attributable to the acquisition of our pharma services in July 2019. The carrying value of the intangible assets acquired was $15.6 million, with goodwill of approximately $8.3 million and identifiable intangible assets of approximately $7.3 million. The goodwill balance at March 31, 2022 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of March 31, 2022 and December 31, 2021 are as follows:

			As of March 31, 2022			As of December 31, 2021
	Life		Carrying			Carrying
	(Years)		Amount			Amount
			(unaudited)
Asuragen acquisition:
Thyroid		9	$	8,519		$	8,519
RedPath acquisition:
Pancreas test		7		16,141			16,141
Barrett’s test		9		6,682			6,682
BioPharma acquisition:
Trademarks		10		1,600			1,600
Customer relationships		8		5,700			5,700
CLIA Lab		2.3		609			609
Total			$	39,251		$	39,251
Accumulated Amortization				(32,500	)		(31,964	)
Net Carrying Value			$	6,751		$	7,287

Amortization expense was approximately $0.5 million and $1.1 million for the three-month periods ended March 31, 2022 and 2021, respectively. Estimated amortization expense for the remainder of 2022 and the next four years is as follows:

2022		2023		2024		2025		2026
$	1,607	$	1,734	$	873	$	873	$	873

The following table displays a roll forward of the carrying amount of goodwill from December 31, 2021 to March 31, 2022:

	Carrying
	Amount
Balance as of December 31, 2021	$	8,433
Adjustments		-
Balance as of March 31, 2022	$	8,433

6. FAIR VALUE MEASUREMENTS

Cash and cash equivalents, accounts receivable and accounts payable approximate fair value due to their relative short-term nature. The Company’s financial liabilities reflected at fair value in the condensed consolidated financial statements include contingent consideration, warrant liability and note payable. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based upon observable inputs used in the valuation techniques, the Company is required to provide information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values into three broad levels as follows:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
Level 3:	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The valuation methodologies used for the Company’s financial instruments measured on a recurring basis at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth in the tables below:

	As of March 31, 2022				Fair Value Measurements
	Carrying		Fair		As of March 31, 2022
	Amount		Value		Level 1		Level 2		Level 3
					(unaudited)
Liabilities:
Contingent consideration:
Asuragen (1)	$	1,833	$	1,833	$	-	$	-	$	1,833
Other accrued expenses:
Warrant liability (2)		8		8		-		-		8
Note payable:
BroadOak loan		7,835		7,835		-		-		7,835
	$	9,676	$	9,676	$	-	$	-	$	9,676

	As of December 31, 2021				Fair Value Measurements
	Carrying		Fair		As of December 31, 2021
	Amount		Value		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration:
Asuragen (1)	$	1,871	$	1,871	$	-	$	-	$	1,871
Other accrued expenses:
Warrant liability (2)		71		71		-		-		71
Note payable:
BroadOak loan		7,942		7,942		-		-		7,942
	$	9,884	$	9,884	$	-	$	-	$	9,884

(1)(2) See Note 9, Accrued Expenses and Long-Term Liabilities

In connection with the acquisition of certain assets from Asuragen, Inc., the Company recorded contingent consideration related to contingent payments and other revenue-based payments. The Company determined the fair value of the contingent consideration based on a probability-weighted income approach derived from revenue estimates. The fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement.

In connection with the BroadOak loan, the Company records the loan at fair value. The fair value of the loan is determined by a probability-weighted approach regarding the loan’s change in control feature. See Note 14, Notes Payable, for more details. The fair value measurement is based on the estimated probability of a change in control and thus represents a Level 3 measurement.

A roll forward of the carrying value of the Contingent Consideration Liability, 2017 Underwriters’ Warrants and BroadOak Loan to March 31, 2022 is as follows:

								Adjustment
						Accretion/		to Fair Value/
	December 31, 2021		Earned			Interest Accrued		Mark to Market			March 31, 2022
	(unaudited)
Asuragen	$	1,871	$	(159	)	$	121	$	-		$	1,833
Underwriters Warrants		71		-			-		(63	)		8
BroadOak Loan		7,942		-			-		(107	)		7,835
	$	9,884	$	(159	)	$	121	$	(170	)	$	9,676

Certain of the Company’s non-financial assets, such as other intangible assets and goodwill, are measured at fair value on a nonrecurring basis when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.