INTERPACE BIOSCIENCES, INC. FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements that are not historical facts, including statements about our plans, objectives, beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words "believes," "expects," "anticipates," "plans," "estimates," "intends," "projects," "should," "could," "may," "will" or similar words and expressions. These forward-looking statements are contained throughout this Form 10-Q.
Forward-looking statements are only predictions and are not guarantees of future performance. These statements are based on current expectations and assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. These predictions are also affected by known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those expressed or implied by any forward-looking statement. Many of these factors are beyond our ability to control or predict. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the following:
? the effect of the Coronavirus (COVID-19) pandemic which has materially and
adversely affected our business and financial results, particularly during
portions of 2020, due to the slowdown in demand for our clinical services, a
reduction in samples received and testing volume and delayed third party
collections and other factors and which may continue to have an adverse effect
on our future business;
? our expectations of future revenues, expenditures, capital or other funding
requirements;
? our ability to continue to perform, bill and receive reimbursement for our
PancraGEN molecular test under the existing LCD, given that such LCD is
currently under review by Novitas, the Company's Medicare administrative
contractor;
? our secured lenders have the right to foreclose on substantially all of our
assets if we are unable to timely repay our outstanding obligations;
? our dependence on sales and reimbursements from our clinical services for all
of our revenue; the ability to continue to generate sufficient revenue from
these and other products and/or solutions that we develop in the future is
important for our ability to meet our financial and other targets;
? our revenue recognition is based, in part, on our estimates for future
collections which may prove to be incorrect with the changes in reimbursement
rates for ThyGeNEXT® by Medicare causing us to revise our NRV's which will
reduce revenues in future periods;
? our ability to finance our business on acceptable terms in the future, which
may limit the ability to grow our business, develop and commercialize products
and services, develop and commercialize new molecular clinical service
solutions and technologies;
? our obligations to make royalty and milestone payments to our licensors;
? our dependence on third parties for the supply of some of the materials used
in our clinical services tests;
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? the potential adverse impact of current and future laws, licensing
requirements and governmental regulations upon our business operations,
including but not limited to the evolving U.S. regulatory environment related
to laboratory developed tests ("LDTs"), pricing of our tests and services and
patient access limitations;
? our reliance on our sales and marketing activities for future business growth
and our ability to continue to expand our sales and marketing activities;
? our being subject to the controlling interests of our two private equity
investors who control, on an as-converted basis, an aggregate of 65% of our
outstanding shares of common stock through their holdings of our Series B
Preferred Stock, and this concentration of ownership along with their
authority for designation rights for a majority of our directors and their
right to approve certain of our actions has a substantial influence on our
decisions;
? our ability to implement our business strategy; and
? the potential impact of existing and future contingent liabilities on our
financial condition.
Please see Part I - Item 1A - "Risk Factors" in our Annual Report on Form 10-K
for the fiscal year ended
OVERVIEW
We are a fully integrated commercial company that 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. 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.
Impact of Our Reliance on CMS and Novitas
In
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Further, along with many laboratories, we may be affected by the Proposed Local
Coverage Determination ("LCD") DL39365, which was posted on
Impact of COVID-19 Pandemic
There continues to be widespread impact from the COVID-19 pandemic. Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains. We have also previously been affected by temporary laboratory closures, employment and compensation adjustments and impediments to administrative activities. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.
In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID-19 pandemic and general global economic conditions.
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. While we believe we have generally recovered from the adverse impact that the COVID-19 pandemic had on our business during 2020, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.
We continue to monitor the COVID-19 pandemic and the guidance that is being provided by relevant federal, state and local public health authorities and may take additional actions based upon their recommendations. It is possible that we may have to make adjustments to our operating plans in reaction to developments that are beyond our control.
Impact of the ongoing military conflict between
In late
Following
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We are also monitoring other macro-economic and geopolitical developments such as inflation and cybersecurity risks so that the Company can be prepared to react to new developments as they arise.
Revenue Recognition
Clinical services derive revenues from the performance of proprietary assays or tests. Our performance obligation is fulfilled upon completion, review and release of test results to the customer, at which time we bill third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based upon 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. To the extent that the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, we estimate the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.
The ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates are regularly reviewed and we adjust the NRV's and related contractual allowances accordingly. If actual collections and related NRV's vary significantly from our estimates, we adjust the estimates of contractual allowances, which affects net revenue in the period such variances become known.
Cost of Revenue
Cost of revenue consists primarily of the costs associated with operating our laboratory and other costs directly related to our tests. Personnel costs, which constitute the largest portion of cost of services, include all labor-related costs, such as salaries, bonuses, fringe benefits and payroll taxes for laboratory personnel. Other direct costs include, but are not limited to, laboratory supplies, certain consulting expenses, royalty expenses, and facility expenses.
CONDENSED CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain statements of operations data. The trends illustrated in this table may not be indicative of future results.
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Consolidated Results of Continuing Operations for the Quarter Ended
Three Months Ended September 30,
2022 2022 2021 2021
% to % to
revenue revenue
Revenue, net $ 8,189 100.0 % $ 8,057 100.0 %
Cost of revenue 3,457 42.2 % 3,620 44.9 %
Gross profit 4,732 57.8 % 4,437 55.1 %
Operating expenses:
Sales and marketing 2,236 27.3 % 2,244 27.9 %
Research and development 191 2.3 % 322 4.0 %
General and administrative 2,767 33.8 % 2,566 31.8 %
Transition expense - 0.0 % 236 2.9 %
Acquisition related
amortization expense 318 3.9 % 894 11.1 %
Total operating expenses 5,512 67.3 % 6,262 77.7 %
Operating loss (780 ) -9.5 % (1,825 ) -22.7 %
Interest accretion expense (38 ) -0.5 % (106 ) -1.3 %
Related party interest - 0.0 % (151 ) -1.9 %
Note payable interest (230 ) -2.8 % - 0.0 %
Other (expense) income, net (217 ) -2.6 % 49 0.6 %
Loss from continuing
operations before tax (1,265 ) -15.4 % (2,033 ) -25.2 %
Benefit for income taxes (11 ) -0.1 % (714 ) -8.9 %
Loss from continuing
operations (1,254 ) -15.3 % (1,319 ) -16.4 %
Loss from discontinued
operations, net of tax (12,954 ) -158.2 % (2,242 ) -27.8 %
Net loss $ (14,208 ) -173.5 % $ (3,561 ) -44.2 %
Revenue, net
Revenue, net for the three months ended
Cost of revenue
Cost of revenue for the three months ended
Gross profit
Gross profit was approximately
Sales and marketing expense
Sales and marketing expense was approximately
30 Research and development
Research and development expense was
General and administrative
General and administrative expense was approximately
Transition expense
Transition expense was approximately
Acquisition amortization expense
During the three months ended
Operating loss
Operating loss from continuing operations was
Benefit for income taxes
The income tax benefit was approximately
Loss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately
31 Consolidated Results of Continuing Operations for the Nine Months EndedSeptember 30, 2022 Compared to the Nine Months EndedSeptember 30, 2021 (in thousands) Nine Months Ended September 30, 2022 2022 2021 2021 % to % to revenue revenue Revenue, net$ 23,506 100.0 %$ 24,006 100.0 % Cost of revenue 10,286 43.8 % 10,205 42.5 % Gross profit 13,220 56.2 % 13,801 57.5 % Operating expenses: Sales and marketing 6,987 29.7 % 6,931 28.9 % Research and development 626 2.7 % 1,178 4.9 % General and administrative 8,636 36.7 % 7,389 30.8 % Transition expense - 0.0 % 897 3.7 % Gain on DiamiR transaction - 0.0 % (235 ) -1.0 % Acquisition related amortization expense 953 4.1 % 2,682 11.2 % Change in fair value of contingent consideration (311 ) -1.3 % (57 ) -0.2 % Total operating expenses 16,891 71.9 % 18,785 78.3 % Operating loss (3,671 ) -15.6 % (4,984 ) -20.8 % Interest accretion expense (123 ) -0.5 % (375 ) -1.6 % Related party interest - 0.0 % (372 ) -1.5 % Note payable interest (620 ) -2.6 % - 0.0 % Other (expense) income, net (20 ) -0.1 % (248 ) -1.0 % Loss from continuing operations before tax (4,434 ) -18.9 % (5,979 ) -24.9 % Provision (benefit) for income taxes 24 0.1 % (684 ) -2.8 % Loss from continuing operations (4,458 ) -19.0 % (5,295 ) -22.1 % Loss from discontinued operations, net of tax (15,936 ) -67.8 % (5,919 ) -24.7 % Net loss$ (20,394 ) -86.8 %$ (11,214 ) -46.7 % Revenue, net
Revenue, net for the nine months ended
Cost of revenue
Cost of revenue for the nine months ended
Gross profit
Gross profit was approximately
32 Sales and marketing expense
Sales and marketing expense was approximately
Research and development
Research and development expense was
General and administrative
General and administrative expense was approximately
Transition expense
Transition expense was approximately
Acquisition amortization expense
During the nine months ended
Change in fair value of contingent consideration
During the nine months ended
Operating loss
Operating loss from continuing operations was
Provision (benefit) for income taxes
Income tax expense was approximately
Loss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately
33 Non-GAAP Financial Measures
In addition to
In this 10-Q, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the ongoing business. Adjusted EBITDA is defined as income or loss from continuing operations, plus depreciation and amortization, acquisition related expenses, transition expenses, non-cash stock based compensation, interest and taxes, and other non-cash expenses including asset impairment costs, bad debt expense, loss on extinguishment of debt, goodwill impairment and change in fair value of contingent consideration, and warrant liability. The table below includes a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.
Reconciliation of Adjusted EBITDA (Unaudited)
($ in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Loss from continuing
operations (GAAP Basis) $ (1,254 ) $ (1,319 ) $ (4,458 ) $ (5,295 )
Transition expenses - 236 - 897
Depreciation and
amortization 353 967 1,076 2,911
Stock-based compensation 501 428 1,110 1,139
Tax (benefit) expense (11 ) (714 ) 24 (684 )
Interest accretion expense 38 106 123 375
Financing interest and
related costs 230 174 620 482
Gain on DiamiR transaction - - - (235 )
Mark to market on warrant
liability (3 ) (71 ) (71 ) 137
Change in fair value of note
payable 206 - 46 -
Change in fair value of
contingent consideration - - (311 ) (57 )
Adjusted EBITDA $ 60 $ (193 ) $ (1,841 ) $ (330 ) LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.
In
The amount that may be borrowed under the Credit Facility is the lower of (i)
the revolving limit of
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In addition, also in
The BroadOak Loan Agreement contains affirmative and negative restrictive covenants, including restrictions on certain mergers, acquisitions, investments and encumbrances which could adversely affect our ability to conduct our business. The BroadOak Loan Agreement also contains customary events of default. The Comerica Loan Agreement contains affirmative and negative restrictive covenants that are applicable whether or not any amounts are outstanding under the Comerica loan agreement. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc., could adversely affect our ability to conduct our business. The Comerica Loan Agreement also contains financial covenants requiring specified minimum liquidity and minimum revenue thresholds and also contains customary events of default. However, if we are unable to meet the financial covenants under the Comerica Loan Agreement, the revolving line of credit and notes payable will become due and payable immediately.
In
On
For the nine months ended
During the nine months ended
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During the nine months ended
For the nine months ended
We will not generate positive cash flows from operations for the year ending
The Company continues to explore various strategic alternatives, dilutive and
non-dilutive sources of funding, including equity and debt financings, strategic
alliances, business development and other sources in order to provide additional
liquidity. With the Company's delisting of its common stock from Nasdaq in
Further, along with many laboratories, we may be affected by the Proposed Local
Coverage Determination ("LCD") DL39365, which was posted on
Our consolidated financial statements assume we will continue as a going concern. Our ability to continue as a going concern depends on having working capital for vendor payments, meeting short-term obligations on other accrued liabilities, and amongst other requirements, making interest payments on our debt obligations. Without positive operating margins and sufficient working capital and the ability to meet our debt obligations, our business will be jeopardized and we may not be able to continue in our current structure, if at all. Under these circumstances, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations. With the proceeds received from the sale of the Pharma Solutions business, as well as the expected improvement in future operating cash flows associated with the disposition, as of the date of this filing, the Company anticipates that current cash and cash equivalents t and forecasted cash receipts would still be sufficient to meet its anticipated cash requirements through the next twelve months.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. However, inflation and supply chain disruptions, whether caused by restrictions or slowdowns in shipping or logistics, increases in demand for certain goods used in our operations, or otherwise, could impact our operations in the near term.
36 Critical Accounting Estimates
See Note 5, Summary of Significant Accounting Policies and Note 19, Recent
Accounting Standards to the Interim Financial Statements included elsewhere in
this Quarterly Report on Form 10-Q for information regarding newly adopted and
recent accounting pronouncements. See also Note 1, Nature of Business and
Significant Accounting Policies to our financial statements included in our
Annual Report on Form 10-K for the year ended
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