NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular
information in thousands, except per share amounts)
The
accompanying unaudited interim condensed consolidated financial statements and related notes (the “Interim Financial Statements”)
should be read in conjunction with the consolidated financial statements of Interpace Diagnostics Group, Inc. (the “Company”
or “Interpace”), and its wholly-owned subsidiaries, Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation
and Interpace Diagnostics, LLC, and related notes as included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 21, 2019. The condensed
Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in
the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.
The condensed Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary
for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly owned
subsidiaries: Group DCA, LLC, or Group DCA; InServe Support Solutions; and TVG, Inc. and its Commercial Services (“CSO”)
business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated
in consolidation. Operating results for the three-month period ended March 31, 2019 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2019.
As
of March 31, 2019, the Company had cash and cash equivalents of $9.1 million, net accounts receivable of $11.2 million,
total current assets of $22.2 million and total current liabilities of $9.8 million. For the quarter ended March 31, 2019,
the Company had a net loss of $3.4 million and cash used in operating activities was $3.0 million.
The
Company does not expect to generate positive cash flows from operations for the year ending December 31, 2019. The Company believes
however, that it has sufficient cash balances to meet near term obligations and further intends to meet its capital needs by revenue
growth, containing costs, entering into strategic alliances as well as exploring other options, including the possibility of raising
additional debt or equity capital as necessary. There is, however, no assurance the Company will be successful in meeting its
capital requirements prior to becoming cash flow positive.
In
November 2018, the Company entered into up to a $4.0 million secured Line of Credit facility including a 3-year term loan
for $850,000 with Silicon Valley Bank (“SVB”). The proceeds of the term loan are expected to be used for
laboratory capital expenditures and will be repaid monthly. The term loan draw date will be on or before June 30, 2019. The
$3.15 million balance of the Line of Credit is available for working capital purposes as a revolving line of credit and has a
three-year term, ending November 2021. As of April 2, 2019, $0.25 million of this amount has been reserved, but not
drawn, for a letter of credit related to the security deposit for our Pittsburgh facility lease. The borrowing limit of the
revolving line of credit is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the
aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Term loan
outstanding amounts incur interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the
“Prime Rate”) and 5.00%. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime
Rate plus 0.5%.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
3.
|
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
Services
We
are a fully integrated commercial and bioinformatics company that develops and provides clinically useful molecular diagnostic
tests and pathology services. We develop and commercialize genomic tests and related first line assays principally focused on
early detection of patients with indeterminate biopsies and at high risk of cancer using the latest technology to help personalized
medicine and improve patient diagnosis and management. Our tests and services provide mutational analysis of genomic material
contained in suspicious cysts, nodules and lesions with the goal of better informing treatment decisions in patients at risk of
thyroid, pancreatic, and other cancers. The molecular diagnostic tests we offer enable healthcare providers to better assess cancer
risk, helping to avoid unnecessary surgical treatment in patients at low risk. We currently have four commercialized molecular
diagnostic tests in the marketplace for which we are receiving reimbursement: PancraGEN
®
, which is a pancreatic
cyst and pancreaticobiliary solid lesion genomic test that helps physicians better assess risk of pancreaticobiliary cancers using
our proprietary PathFinderTG
®
platform; ThyGeNEXT
®
, which is an expanded oncogenic mutation
panel that helps identify malignant thyroid nodules, and replaced ThyGenX
®
; ThyraMIR
®
, which assesses
thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay; and RespriDx
®
, which
is a genomic test that helps physicians differentiate metastatic or recurrent lung cancer from the presence of newly formed primary
lung cancer and which also utilizes our PathFinderTG
®
platform to compare the genomic fingerprint of two or more
sites of lung cancer. BarreGEN
®
, an esophageal cancer risk classifier for Barrett’s Esophagus that also utilizes
our PathFinder TG
®
platform, is currently in a Clinical Evaluation Program or (“CEP”) whereby we gather
information from physicians using BarreGEN
®
to assist us in positioning our product for full launch, partnering
and potentially supporting reimbursement with payers.
Revenue
from Contracts with Customers (ASC 606)
The
Company derives its revenues from the performance of its proprietary tests. The Company’s performance obligation is fulfilled
upon completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill
payers for the proprietary tests performed. 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.
The
Company regularly reviews the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement
rates and adjusts 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 would affect net revenue
in the period such variances become known.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
Disaggregated
Revenues
We
operate in a single operating segment and, therefore, the results of our operations are reported on a consolidated basis for purposes
of segment reporting, which is consistent with internal management reporting. For the three-month periods ended March 31, 2019
and 2018, substantially all of the Company’s revenues were derived from its Gastrointestinal and Endocrine molecular diagnostic
tests.
Financing
and Payment
For
non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers are typically thirty 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.
Costs
to Obtain or Fulfill a Customer Contract
Sales
commissions are expensed when incurred because the amortization period would have been one year or less. 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 proprietary molecular
diagnostic tests. The Company’s 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 directly bills the hospital or service
provider. Accounts receivable is recognized for all payer groups net of contractual adjustment and net of estimated uncollectable
amounts. Contractual adjustments represent the difference between the list prices and the reimbursement rate set by third party
payers, including Medicare, commercial payers, or amounts billed directly to hospitals and service providers. Specific accounts
may be written off after several appeals, which in some cases may take longer than twelve months.
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 6, Leases
.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
Other
Current Assets
Other
current assets consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Indemnification
assets
|
|
$
|
875
|
|
|
$
|
875
|
|
Prepaid
expenses
|
|
|
941
|
|
|
|
1,230
|
|
Other
|
|
|
72
|
|
|
|
65
|
|
Total
other current assets
|
|
$
|
1,888
|
|
|
$
|
2,170
|
|
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 nine 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.
Discontinued
Operations
The
Company accounts for business dispositions and its businesses held for sale in accordance with ASC 205-20,
Discontinued Operations
(“ASC 205-20”)
. ASC 205-20 requires the results of operations of business dispositions to be segregated from continuing
operations and reflected as discontinued operations in current and prior periods. See Note 12,
Discontinued Operations
for further information.
Basic
and Diluted Net Loss per Share
A
reconciliation of the number of shares of common stock used in the calculation of basic and diluted loss per share for
the three-month periods ended March 31, 2019 and 2018 is as follows:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
Basic
weighted average number of common shares
|
|
|
35,147
|
|
|
|
27,855
|
|
Potential
dilutive effect of stock-based awards
|
|
|
-
|
|
|
|
-
|
|
Diluted weighted
average number of common shares
|
|
|
35,147
|
|
|
|
27,855
|
|
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
The
following outstanding stock-based awards were excluded from the computation of the effect of dilutive securities on loss per
share for the following periods because they would have been anti-dilutive:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
Options
|
|
|
3,936
|
|
|
|
2,256
|
|
Stock-settled
stock appreciation rights (SARs)
|
|
|
25
|
|
|
|
84
|
|
Restricted
stock units (RSUs)
|
|
|
607
|
|
|
|
220
|
|
Warrants
|
|
|
14,196
|
|
|
|
13,542
|
|
|
|
|
18,764
|
|
|
|
16,102
|
|
4.
|
OTHER
INTANGIBLE ASSETS
|
The
net carrying value of the identifiable intangible assets as of March 31, 2019 and December 31, 2018 are as follows:
|
|
|
|
|
As
of
March 31, 2019
|
|
|
As
of
December 31, 2018
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Life
|
|
|
Carrying
|
|
|
Carrying
|
|
|
|
(Years)
|
|
|
Amount
|
|
|
Amount
|
|
Diagnostic
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asuragen
acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Thyroid
|
|
|
9
|
|
|
$
|
8,519
|
|
|
$
|
8,519
|
|
RedPath
acquisition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Pancreas
test
|
|
|
7
|
|
|
|
16,141
|
|
|
|
16,141
|
|
Barrett’s
test
|
|
|
9
|
|
|
|
18,351
|
|
|
|
18,351
|
|
Total
|
|
|
|
|
|
$
|
43,011
|
|
|
$
|
43,011
|
|
Diagnostic
lab:
|
|
|
|
|
|
|
|
|
|
|
|
|
CLIA
Lab
|
|
|
2.3
|
|
|
$
|
609
|
|
|
$
|
609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
$
|
(14,580
|
)
|
|
$
|
(13,767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Carrying Value
|
|
|
|
|
|
$
|
29,040
|
|
|
$
|
29,853
|
|
Amortization
expense was approximately $0.8 million for the three-month periods ended March 31, 2019 and 2018, respectively. Amortization of
our diagnostic assets begins upon launch of the product. Estimated amortization expense for the next five years is as follows,
based on current assumptions of future product launches:
2019
|
|
|
2020
|
|
|
2021
|
|
|
2022
|
|
|
2023
|
|
$
|
3,252
|
|
|
$
|
4,272
|
|
|
$
|
4,908
|
|
|
$
|
2,987
|
|
|
$
|
2,987
|
|
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
5.
|
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 and warrant liability. 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, 2019
|
|
|
Fair
Value Measurements
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
As
of March 31, 2019
|
|
|
|
Amount
|
|
|
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
(unaudited)
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asuragen
(1)
|
|
$
|
3,136
|
|
|
$
|
3,136
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,136
|
|
Other
long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability
(2)
|
|
|
358
|
|
|
|
358
|
|
|
|
-
|
|
|
|
-
|
|
|
|
358
|
|
|
|
$
|
3,494
|
|
|
$
|
3,494
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,494
|
|
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
|
|
As
of December 31, 2018
|
|
|
Fair
Value Measurements
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
As
of December 31, 2018
|
|
|
|
Amount
|
|
|
Value
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent
consideration:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asuragen
(1)
|
|
$
|
3,127
|
|
|
$
|
3,127
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,127
|
|
Other
long-term liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
liability
(2)
|
|
|
361
|
|
|
|
361
|
|
|
|
-
|
|
|
|
-
|
|
|
|
361
|
|
|
|
$
|
3,488
|
|
|
$
|
3,488
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,488
|
|
(1)(2)
See Note 8,
Accrued Expenses and Long-Term Liabilities
In
connection with the acquisition of certain assets from Asuragen, 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.
On
June 21, 2017, the Company issued 575,000 Underwriters Warrants, related to a public offering on the same date that included
a cash settlement feature in the event of certain circumstances. Accordingly, the Underwriters Warrants are classified as liabilities
and were fair valued using the Black Scholes Option-Pricing Model, the inputs for which include exercise price of the respective
warrants, market price of the underlying common shares, expected term, volatility based on the Company’s historical
market price, and the risk-free rate corresponding to the expected term of the underlying exchange agreement. Changes to the fair
value of the warrant liabilities were recorded in Other income (expense), net.
A
roll forward of the carrying value of the Contingent Consideration Liability and the Underwriters’ Warrants to March 31,
2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Cancellation
|
|
|
Adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
Obligation/
|
|
|
to
Fair Value/
|
|
|
|
|
|
|
December
31, 2018
|
|
|
Payments
|
|
|
Accretion
|
|
|
Conversions
Exercises
|
|
|
Mark
to Market
|
|
|
March
31, 2019
|
|
|
|
(unaudited)
|
|
Asuragen
|
|
$
|
3,127
|
|
|
$
|
(120
|
)
|
|
$
|
129
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriters
Warrants
|
|
|
361
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
358
|
|
|
|
$
|
3,488
|
|
|
$
|
(120
|
)
|
|
$
|
129
|
|
|
$
|
-
|
|
|
$
|
(3
|
)
|
|
$
|
3,494
|
|
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.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use model that requires a lessee
to record a right-of-use asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with
terms longer than 12 months. Effective January 1, 2019, the Company adopted the provisions of Topic 842 using the alternative
modified transition method, with a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption,
and prior periods not restated, as allowed under the provisions of Topic 842. The Company also elected to use the practical expedients
permitted under the transition guidance of Topic 842, which provides for the following: the carryforward of the Company’s
historical lease classification, no requirement for reassessment of whether an expired or existing contract contains an embedded
lease, no reassessment of initial direct costs for any leases that exist prior to the adoption of the new standard, and the election
to consolidate lease and non-lease components. The Company also elected to keep all leases with an initial term of 12 months or
less off the balance sheet.
The
Company recorded $2.4 million of right-of-use lease assets and $2.5 million of lease liabilities upon adoption, primarily relating
to rentals of space for our corporate headquarters and laboratories, as well as equipment leases, all under operating leases.
In addition, the Company recorded a cumulative adjustment to opening accumulated deficit of $0.1 million.
The
table below presents the lease-related assets and liabilities recorded in the Condensed Consolidated Balance Sheet:
|
|
Classification
on the Balance Sheet
|
|
March
31, 2019
|
|
|
|
|
|
|
(unaudited)
|
|
Assets
|
|
|
|
|
|
|
Operating
lease assets
|
|
Operating
lease assets
|
|
$
|
2,320
|
|
Total
lease assets
|
|
|
|
$
|
2,320
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Operating
lease liabilities
|
|
Other
accrued expenses
|
|
$
|
526
|
|
Noncurrent
|
|
|
|
|
|
|
Operating
lease liabilities
|
|
Operating
lease liabilities
|
|
|
1,899
|
|
Total
lease liabilities
|
|
|
|
$
|
2,425
|
|
The
weighted average remaining lease term for the Company’s operating leases was 4.1 years as of March 31, 2019 and the weighted
average discount rate for those leases was 6.0%. The Company’s operating lease expenses are recorded within cost of revenue
and general and administrative expenses.
The
table below reconciles the undiscounted cash flows to the operating lease liabilities recorded on the Company’s Condensed
Consolidated Balance Sheet as of March 31, 2019:
|
|
Operating
Leases
|
|
|
|
|
(unaudited)
|
|
2019
|
|
$
|
495
|
|
2020
|
|
|
675
|
|
2021
|
|
|
671
|
|
2022
|
|
|
629
|
|
2023
|
|
|
250
|
|
Total
minimum lease payments
|
|
|
2,720
|
|
Less:
amount of lease payments representing effects of discounting
|
|
|
295
|
|
Present
value of future minimum lease payments
|
|
|
2,425
|
|
Less:
current obligations under leases
|
|
|
526
|
|
Long-term
lease obligations
|
|
$
|
1,899
|
|
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
As
of December 31, 2018, contractual obligations with terms exceeding one year and estimated minimum future rental payments required
by non-cancelable operating leases with initial or remaining lease terms exceeding one year were as follows:
|
|
|
|
|
Less
than
|
|
|
1
to 3
|
|
|
3
to 5
|
|
|
After
|
|
|
|
Total
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
Operating
lease obligations
|
|
$
|
2,814
|
|
|
$
|
613
|
|
|
$
|
1,322
|
|
|
$
|
879
|
|
|
$
|
-
|
|
Contractual
obligation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
2,814
|
|
|
$
|
613
|
|
|
$
|
1,322
|
|
|
$
|
879
|
|
|
$
|
-
|
|
7.
|
COMMITMENTS
AND CONTINGENCIES
|
Litigation
Due
to the nature of the businesses in which the Company is engaged it is subject to certain risks. Such risks include, among others,
risk of liability for personal injury or death to persons using products the Company promotes or commercializes. There can be
no assurance that substantial claims or liabilities will not arise in the future due to the nature of the Company’s business
activities and recent increases in litigation related to healthcare products and related intellectual property.
The
Company could also be held liable for errors and omissions of its employees in connection with the services it performs that are
outside the scope of any indemnity or insurance policy. The Company could be materially adversely affected if it were required
to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnification agreement; if
the indemnity, although applicable, is not performed in accordance with its terms; or if the Company’s liability exceeds
the amount of applicable insurance or indemnity.
As
of March 31, 2019, the Company’s accrual for litigation and threatened litigation was not material to the condensed consolidated
financial statements.
8.
|
ACCRUED
EXPENSES AND LONG-TERM LIABILITIES
|
Other
accrued expenses consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Accrued
royalties
|
|
$
|
1,670
|
|
|
$
|
1,399
|
|
Indemnification
liability
|
|
|
875
|
|
|
|
875
|
|
Contingent
consideration
|
|
|
510
|
|
|
|
434
|
|
Accrued
professional fees
|
|
|
648
|
|
|
|
701
|
|
Operating
lease liability
|
|
|
526
|
|
|
|
-
|
|
Taxes
payable
|
|
|
306
|
|
|
|
285
|
|
Unclaimed
property
|
|
|
565
|
|
|
|
565
|
|
All
others
|
|
|
913
|
|
|
|
832
|
|
Total
other accrued expenses
|
|
$
|
6,013
|
|
|
$
|
5,091
|
|
Long-term
liabilities consisted of the following as of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
Warrant
liability
|
|
$
|
358
|
|
|
$
|
361
|
|
Uncertain
tax positions
|
|
|
3,895
|
|
|
|
3,838
|
|
Other
|
|
|
-
|
|
|
|
120
|
|
Total
other long-term liabilities
|
|
$
|
4,253
|
|
|
$
|
4,319
|
|
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
9.
|
STOCK-BASED
COMPENSATION
|
Stock
Incentive Plan
The
Company’s stock-incentive program is a long-term retention program that is intended to attract, retain and provide incentives
for talented employees, officers and directors, and to align stockholder and employee interests. Currently, the Company is able
to grant options, SARs and restricted shares from the Interpace Diagnostics Group, Inc. Amended and Restated 2004 Stock Award
and Incentive Plan, (the “Amended 2004 Plan”). Unless earlier terminated by action of its Board of Directors, the
Amended 2004 Plan will remain in effect until such time as no stock remains available for delivery and the Company has no further
rights or obligations under the Amended 2004 Plan with respect to outstanding awards thereunder.
Historically,
stock options have been granted with an exercise price equal to the market value of the common stock on the date of grant, expire
10 years from the date they are granted, and generally vested over a one to three-year period for employees and members of the
Board of Directors. Upon exercise, new shares will be issued by the Company. The Company granted stock options in 2017 which vest
monthly over a one-year period. SARs are generally granted with a grant price equal to the market value of the common stock on
the date of grant, vest one-third each year on the anniversary of the date of grant and expire five years from the date of grant.
The restricted shares and restricted stock units granted to employees generally have a three-year graded vesting period and are
subject to accelerated vesting and forfeiture under certain circumstances. Restricted shares and restricted stock units granted
to board members generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under
certain circumstances.
During
March 2019, the Company’s Chief Executive Officer, Chief Financial Officer, and other executives were granted incentive
stock options to purchase an aggregate of 1,105,440 shares of common stock with an exercise price of $0.98 per share and 276,360
RSUs, subject generally to the executive’s or board member’s, as applicable, continued service with the Company, which
vest one-third each year over a period of three years.
The
following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted
during the three month periods ended March 31, 2019 and 2018.
|
|
March
31, 2019
|
|
|
March
31, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
(unaudited)
|
|
Risk-free
interest rate
|
|
|
2.51%
|
|
|
|
2.65%
|
|
Expected
life
|
|
|
6.0
years
|
|
|
|
6.0
years
|
|
Expected
volatility
|
|
|
127.81%
|
|
|
|
126.93%
|
|
Dividend
yield
|
|
|
-
|
|
|
|
-
|
|
The
Company recognized approximately $0.5 million and $0.6 million of stock-based compensation expense during the three month periods
ended March 31, 2019 and 2018, respectively.
Generally,
accounting standards require companies to provide for income taxes each quarter based on their estimate of the effective tax rate
for the full year. The authoritative guidance for accounting for income taxes allows use of the discrete method when it provides
a better estimate of income tax expense. Due to the Company’s valuation allowance position, it is the Company’s position
that the discrete method provides a more accurate estimate of income tax expense and therefore income tax expense for the current
quarter has been presented using the discrete method. As the year progresses, the Company refines its estimate based on the facts
and circumstances by each tax jurisdiction. The following table summarizes income tax expense on (loss) income from continuing
operations and the effective tax rate for the three-month periods ended March 31, 2019 and 2018:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
Provision
(benefit) from income tax
|
|
$
|
5
|
|
|
$
|
6
|
|
Effective
income tax rate
|
|
|
(0.1
|
%)
|
|
|
(0.2
|
%)
|
Income
tax expense for the three-month periods ended March 31, 2019 and 2018 was primarily due to minimum state and local taxes.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
Since
December 22, 2015, the Company reports its operations as one segment, molecular diagnostics and bioinformatics. The Company’s
reporting segment structure is reflective of the way both the Company’s management and chief operating decision maker view
the business, make operating decisions and assess performance. This structure allows investors to better understand Company performance,
better assess prospects for future cash flows, and make more informed decisions about the Company.
The
Company’s molecular diagnostics and bioinformatics business focuses on developing and commercializing molecular diagnostic
tests, leveraging the latest technology and personalized medicine for better patient diagnosis and management. Through the Company’s
business, the Company aims to provide physicians and patients with diagnostic options for detecting genetic and other molecular
alterations that are associated with gastrointestinal, endocrine and lung cancers, which are principally focused on early detection
of patients at high risk of cancer. Customers in the Company’s segment consist primarily of physicians, hospitals and clinics.
The service offerings throughout the segment have similar long-term average gross margins, contract terms, types of customers
and regulatory environments. They are promoted through one centrally managed marketing group and the chief operating decision
maker views their results on a combined basis.
12.
|
DISCONTINUED
OPERATIONS
|
The
components of liabilities classified as discontinued operations relate to Commercial Services and consist of the following as
of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
192
|
|
|
$
|
192
|
|
Other
|
|
|
726
|
|
|
|
726
|
|
Current
liabilities from discontinued operations
|
|
|
918
|
|
|
|
918
|
|
Total
liabilities
|
|
$
|
918
|
|
|
$
|
918
|
|
As
of March 31, 2019, the Company had no borrowings on its Silicon Valley Bank Loan and Security Agreement (“SVB Loan Agreement”)
and was in compliance with all covenants. The SVB Loan Agreement provides for up to $4.0 million of debt financing and consists
of a term loan (the “Term Loan”) of up to $850,000 and a revolving line of credit based on its outstanding accounts
receivable (the “Revolving Line”) of up to $4.0 million. The Company intends to use the proceeds of the Term Loan
for capital expenditures in connection with its laboratory expansion and the proceeds of the Revolving Line for working capital
purposes. According to the Term Loan provisions, the Company intends to draw the full $850,000 by June 30, 2019.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
Term
Loan outstanding amounts will bear interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the
“Prime Rate”) and 5.00%. The amount that may be borrowed under the Revolving Line is the lower of (i) $4.0 million
or (ii) 80% of the Company’s eligible accounts receivable (as adjusted by SVB) minus any outstanding amounts under the Term
Loan. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. The Company is
also required to pay an unused Revolving Line facility fee monthly in arrears in an amount equal to 0.35% per annum of the average
unused but available portion of the Revolving Line.
14.
|
SUPPLEMENTAL
CASH FLOW INFORMATION
|
The
following table represents cash flows used in the Company’s discontinued operations for the three months ended
March 31, 2019 and 2018:
|
|
Three
Months Ended
|
|
|
|
March
31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in operating activities of discontinued operations
|
|
$
|
-
|
|
|
$
|
(315
|
)
|
Supplemental
Disclosures of Non Cash Activities
(in
thousands)
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
Operating
|
|
|
|
|
|
|
|
|
Adoption of ASC 606
|
|
$
|
-
|
|
|
$
|
2,500
|
|
Adoption of ASC 842 - right of use asset
|
|
$
|
2,449
|
|
|
$
|
-
|
|
Adoption of ASC 842 - operating lease liability
|
|
$
|
(2,536
|
)
|
|
$
|
-
|
|
Taxes accrued for repurchase of restricted shares
|
|
$
|
32
|
|
|
$
|
-
|
|
Investing
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment
|
|
$
|
-
|
|
|
$
|
16
|
|
Stock offering costs in other accrued expenses
|
|
$
|
53
|
|
|
$
|
-
|
|
On
January 25, 2019, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright
& Co., LLC (“Wainwright”) with respect to the issuance and sale of an aggregate of 9,333,334 shares (the “Firm
Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”), in an underwritten
public offering. Pursuant to the Underwriting Agreement, the Company also granted Wainwright an option, exercisable for 30 days,
to purchase an additional 1,400,000 shares of Common Stock. The option expired unexercised. The Firm Shares were offered to the
public at a price of $0.75 per Share. Wainwright purchased the Firm Shares from the Company pursuant to the Underwriting Agreement
at an effective price of $0.6975 per share.
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
The
Company received net proceeds, after deducting underwriter discounts and commissions and other expenses related to the offering,
in the amount of approximately $6.1 million. The Company intends to use the net proceeds from the offering for working capital,
capital expenditures, business development and research and development expenditures, and acquisition of new technologies and
businesses.
In
connection with the Wainwright underwritten public offering, the Company issued to Wainwright’s designees warrants (the
“Underwriter Warrants”) to purchase up to 654,334 shares of Common Stock (representing 7% of the aggregate number
of Firm Shares), at an exercise price of $0.9375 per share (representing 125% of the public offering price). The Underwriter Warrants
are exercisable immediately and expire three years from the date of issuance.
There
was no warrant exercise activity for the three months ended March 31, 2019. Warrants outstanding for the period ended March 31,
2019 are as follows:
Description
|
|
Classification
|
|
|
Exercise
Price
|
|
|
Expiration
Date
|
|
Warrants
Issued
|
|
|
Warrants
Exercised
|
|
|
Warrants
Cancelled/ Expired
|
|
|
Balance
December
31,2018
|
|
|
Balance
March 31,2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private
Placement Warrants, issued January 25, 2017
|
|
Equity
|
|
|
$
|
4.69
|
|
|
June
2022
|
|
|
855,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
855,000
|
|
|
|
855,000
|
|
RedPath
Warrants,issued March 22, 2017
|
|
Equity
|
|
|
$
|
4.69
|
|
|
September
2022
|
|
|
100,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Underwriters
Warrants,issued June 21, 2017
|
|
Liability
|
|
|
$
|
1.32
|
|
|
December
2022
|
|
|
575,000
|
|
|
|
-
|
|
|
|
(40,000
|
)
|
|
|
535,000
|
|
|
|
535,000
|
|
Base
& Overallotment Warrants,issued June 21, 2017
|
|
Equity
|
|
|
$
|
1.25
|
|
|
June
2022
|
|
|
14,375,000
|
|
|
|
(5,672,852
|
)
|
|
|
-
|
|
|
|
8,702,148
|
|
|
|
8,702,148
|
|
Vendor
Warrants,issued August 6, 2017
|
|
Equity
|
|
|
$
|
1.25
|
|
|
August
2020
|
|
|
150,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Warrants
issued October 12, 2017
|
|
Equity
|
|
|
$
|
1.80
|
|
|
April
2022
|
|
|
3,200,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,200,000
|
|
|
|
3,200,000
|
|
Underwriters
Warrants,issued January 25, 2019
|
|
Equity
|
|
|
$
|
0.9375
|
|
|
January
2022
|
|
|
654,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
654,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,909,334
|
|
|
|
(5,672,852
|
)
|
|
|
(40,000
|
)
|
|
|
13,542,148
|
|
|
|
14,196,482
|
|
INTERPACE
DIAGNOSTICS GROUP, INC.
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Tabular
information in thousands, except per share amounts)
17.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
Recently
adopted standards
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is effective for public companies for annual reporting periods
beginning after December 15, 2018, including interim periods within those fiscal years. Topic 842 establishes a right-of-use model
that requires a lessee to record a right-of-use asset and a lease liability, measured on a discounted basis, on the balance sheet
for all leases with terms longer than 12 months. Leases are to be classified as either finance or operating leases, with such
classification affecting the pattern or expense recognition in the statement of operations. We adopted this new standard as of
January 1, 2019, by using the alternative modified transition method. See Note 3,
Significant Accounting Policies
, for
more details.
As
previously disclosed on the Company’s Current Report on Form 8-K, filed with the SEC on April 18, 2019, we were notified
by NASDAQ on April 16, 2019 that we were no longer in compliance with the minimum bid price requirement of NASDAQ. Nasdaq Listing
Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of at least $1.00 per share, and Listing Rule 5810(c)(3)(A)
provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30)
consecutive business days. Based on the closing bid price of our common stock for the thirty (30) consecutive business days from
March 5, 2019 to April 15, 2019, we no longer meet the minimum bid price requirement. The Notification Letter does not impact
our listing on The Nasdaq Capital Market at this time. We have 180 calendar days or until October 14, 2019 to regain compliance
with this requirement or face delisting. To regain compliance, the bid price of our common stock must have a closing bid price
of at least $1.00 per share for a minimum of 10 consecutive business days. We may be eligible for an additional 180 calendar day
compliance period if we do not regain compliance by October 14, 2019. To qualify, we would be required to meet the continued listing
requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with
the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during
the second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the staff of Nasdaq
(the “Staff”) that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq would notify
us that our securities would be subject to delisting. In the event of such a notification, we may appeal the Staff’s determination
to delist its securities, but there can be no assurance the Staff would grant our request for continued listing. We are currently
considering available options to regain compliance.
INTERPACE
DIAGNOSTICS GROUP, INC.