UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 20172018
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number: 000-24249
Interpace Diagnostics Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 22-2919486 | |
(State or other jurisdiction of Incorporation or organization) | (I.R.S. Employer Identification No.) |
Morris Corporate Center 1, Building C
300 Interpace Parkway, Parsippany, NJ 07054
(Address of principal executive offices and zip code)
Morris Corporate Center 1, Building C |
300 Interpace Parkway, Parsippany, NJ 07054 |
(Address of principal executive offices and zip code) |
(844) 405-9655
(Registrant’s telephone number, including area code)
(855) 776-6419 |
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] | Non-accelerated filer [ ] | Smaller reporting company [X] |
(Do not check if a smaller reporting company) | |||
Emerging Growth Company [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes[Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Class | Shares Outstanding August | |||
Common stock, $0.01 par value |
INTERPACE DIAGNOSTICS GROUP, INC.
FORM 10-Q FOR PERIOD ENDED JUNE 30, 20172018
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Interim Condensed Consolidated Financial Statements
INTERPACE DIAGNOSTICS GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 30, 2018 | December 31, 2017 | |||||||||||||||
June 30, 2017 | December 31, 2016 | (unaudited) | ||||||||||||||
(unaudited) | ||||||||||||||||
ASSETS | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | 14,265 | $ | 602 | $ | 10,084 | $ | 15,199 | ||||||||
Accounts receivable, net | 2,696 | 2,209 | 7,647 | 3,437 | ||||||||||||
Other current assets | 1,376 | 1,415 | 1,474 | 1,172 | ||||||||||||
Current assets from discontinued operations | - | 14 | ||||||||||||||
Total current assets | 18,337 | 4,240 | 19,205 | 19,808 | ||||||||||||
Property and equipment, net | 644 | 929 | 640 | 654 | ||||||||||||
Other intangible assets, net | 34,732 | 36,358 | 31,480 | 33,105 | ||||||||||||
Other long-term assets | 31 | 251 | 31 | 31 | ||||||||||||
Total assets | $ | 53,744 | $ | 41,778 | $ | 51,356 | $ | 53,598 | ||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 1,032 | $ | 2,326 | $ | 1,173 | $ | 391 | ||||||||
Accrued salary and bonus | 1,240 | 3,551 | ||||||||||||||
Accrued salaries and bonus | 938 | 1,394 | ||||||||||||||
Other accrued expenses | 6,212 | 6,236 | 4,304 | 5,004 | ||||||||||||
Current liabilities from discontinued operations | 2,371 | 4,128 | 939 | 1,302 | ||||||||||||
Total current liabilities | 10,855 | 16,241 | 7,354 | 8,091 | ||||||||||||
Contingent consideration | 1,366 | 7,254 | 1,111 | 1,349 | ||||||||||||
Long-term debt, net of debt discount | - | 7,908 | ||||||||||||||
Other long-term liabilities | 5,181 | 3,844 | 4,339 | 4,289 | ||||||||||||
Total liabilities | 17,402 | 35,247 | 12,804 | 13,729 | ||||||||||||
Commitments and contingencies (Note 6) | ||||||||||||||||
Stockholders’ equity: | ||||||||||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued and outstanding | - | - | - | - | ||||||||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 20,152,954 and 2,230,506 shares issued, respectively; 20,088,604 and 2,176,252 shares outstanding, respectively | 201 | 22 | ||||||||||||||
Common stock, $.01 par value; 100,000,000 shares authorized; 28,267,344 and 27,900,806 shares issued, respectively; 28,194,275 and 27,836,456 shares outstanding, respectively | 282 | 278 | ||||||||||||||
Additional paid-in capital | 161,288 | 127,736 | 174,360 | 173,062 | ||||||||||||
Accumulated deficit | (123,476 | ) | (119,584 | ) | (134,410 | ) | (131,800 | ) | ||||||||
Accumulated other comprehensive income | - | - | ||||||||||||||
Treasury stock, at cost (64,350 and 54,254 shares, respectively) | (1,671 | ) | (1,643 | ) | ||||||||||||
Total stockholders' equity | 36,342 | 6,531 | ||||||||||||||
Total liabilities and stockholders' equity | $ | 53,744 | $ | 41,778 | ||||||||||||
Treasury stock, at cost (73,069 and 64,350 shares, respectively) | (1,680 | ) | (1,671 | ) | ||||||||||||
Total stockholders’ equity | 38,552 | 39,869 | ||||||||||||||
Total liabilities and stockholders’ equity | $ | 51,356 | $ | 53,598 |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
3 |
INTERPACE DIAGNOSTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSOPERATIONS
(unaudited, in thousands, except for per share data)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
Three Months Ended | Six Months Ended | June 30, | June 30, | |||||||||||||||||||||||||||||
June 30, | June 30, | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||||
Revenue, net | $ | 3,855 | $ | 3,612 | $ | 7,325 | $ | 6,647 | $ | 5,501 | $ | 3,855 | $ | 10,310 | $ | 7,325 | ||||||||||||||||
Cost of revenue (excluding amortization of $813 and $970 for the three months and $1,626 and $1,939 for the six months, respectively) | 1,879 | 1,842 | 3,651 | 3,020 | ||||||||||||||||||||||||||||
Cost of revenue (excluding amortization of $813 and $813 for the three months and $1,626 and $1,626 for the six months, respectively) | 2,247 | 1,879 | 4,827 | 3,651 | ||||||||||||||||||||||||||||
Gross profit | 1,976 | 1,770 | 3,674 | 3,627 | 3,254 | 1,976 | 5,483 | 3,674 | ||||||||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||||||||||
Sales and marketing | 1,555 | 1,322 | 2,691 | 2,904 | 2,095 | 1,555 | 4,086 | 2,691 | ||||||||||||||||||||||||
Research and development | 413 | 357 | 719 | 680 | 518 | 413 | 1,019 | 719 | ||||||||||||||||||||||||
General and administrative | 2,793 | 2,015 | 4,315 | 4,797 | 1,726 | 2,793 | 3,897 | 4,315 | ||||||||||||||||||||||||
Acquisition related amortization expense | 813 | 970 | 1,626 | 1,939 | 813 | 813 | 1,626 | 1,626 | ||||||||||||||||||||||||
Change in fair value of contingent consideration | - | - | (5,776 | ) | - | - | - | - | (5,776 | ) | ||||||||||||||||||||||
Total operating expenses | 5,574 | 4,664 | 3,575 | 10,320 | 5,152 | 5,574 | 10,628 | 3,575 | ||||||||||||||||||||||||
Operating (loss) income | (3,598 | ) | (2,894 | ) | 99 | (6,693 | ) | (1,898 | ) | (3,598 | ) | (5,145 | ) | 99 | ||||||||||||||||||
Interest expense | (216 | ) | (858 | ) | (469 | ) | (1,062 | ) | - | (216 | ) | - | (469 | ) | ||||||||||||||||||
Loss on extinguishment of debt | (2,731 | ) | - | (4,278 | ) | - | - | (2,731 | ) | - | (4,278 | ) | ||||||||||||||||||||
Other (loss) income , net | (8 | ) | 3 | (44 | ) | 10 | ||||||||||||||||||||||||||
Other income (expense), net | 33 | (8 | ) | 144 | (44 | ) | ||||||||||||||||||||||||||
Loss from continuing operations before tax | (6,553 | ) | (3,749 | ) | (4,692 | ) | (7,745 | ) | (1,865 | ) | (6,553 | ) | (5,001 | ) | (4,692 | ) | ||||||||||||||||
Benefit for income taxes | (301 | ) | (236 | ) | (298 | ) | (227 | ) | ||||||||||||||||||||||||
Provision (benefit) for income taxes | 8 | (301 | ) | 14 | (298 | ) | ||||||||||||||||||||||||||
Loss from continuing operations | (6,252 | ) | (3,513 | ) | (4,394 | ) | (7,518 | ) | (1,873 | ) | (6,252 | ) | (5,015 | ) | (4,394 | ) | ||||||||||||||||
(Loss) income from discontinued operations, net of tax | (54 | ) | 1,179 | 502 | 398 | (44 | ) | (54 | ) | (95 | ) | 502 | ||||||||||||||||||||
Net loss | $ | (6,306 | ) | $ | (2,334 | ) | $ | (3,892 | ) | $ | (7,120 | ) | $ | (1,917 | ) | $ | (6,306 | ) | $ | (5,110 | ) | $ | (3,892 | ) | ||||||||
Net Loss and Comprehensive Loss | $ | (6,306 | ) | $ | (2,334 | ) | $ | (3,892 | ) | $ | (7,120 | ) | ||||||||||||||||||||
Basic (loss) income per share of common stock: | ||||||||||||||||||||||||||||||||
From continuing operations | $ | (0.65 | ) | $ | (1.93 | ) | $ | (0.64 | ) | $ | (4.19 | ) | $ | (0.07 | ) | $ | (0.65 | ) | $ | (0.18 | ) | $ | (0.64 | ) | ||||||||
From discontinued operations | (0.01 | ) | 0.65 | 0.07 | 0.22 | (0.00 | ) | (0.01 | ) | (0.00 | ) | 0.07 | ||||||||||||||||||||
Net (loss) income per basic share of common stock | $ | (0.65 | ) | $ | (1.29 | ) | $ | (0.57 | ) | $ | (3.96 | ) | ||||||||||||||||||||
Net loss per basic share of common stock | $ | (0.07 | ) | $ | (0.65 | ) | $ | (0.18 | ) | $ | (0.57 | ) | ||||||||||||||||||||
Diluted (loss) income per share of common stock: | ||||||||||||||||||||||||||||||||
From continuing operations | $ | (0.65 | ) | $ | (1.93 | ) | $ | (0.64 | ) | $ | (4.19 | ) | $ | (0.07 | ) | $ | (0.65 | ) | $ | (0.18 | ) | $ | (0.64 | ) | ||||||||
From discontinued operations | (0.01 | ) | 0.65 | 0.07 | 0.22 | (0.00 | ) | (0.01 | ) | (0.00 | ) | 0.07 | ||||||||||||||||||||
Net (loss) income per diluted share of common stock | $ | (0.65 | ) | $ | (1.29 | ) | $ | (0.57 | ) | $ | (3.96 | ) | ||||||||||||||||||||
Net loss per diluted share of common stock | $ | (0.07 | ) | $ | (0.65 | ) | $ | (0.18 | ) | $ | (0.57 | ) | ||||||||||||||||||||
Weighted average number of common shares and common share equivalents outstanding: | ||||||||||||||||||||||||||||||||
Basic | 9,657 | 1,816 | 6,877 | 1,796 | 27,933 | 9,657 | 27,894 | 6,877 | ||||||||||||||||||||||||
Diluted | 9,657 | 1,816 | 6,877 | 1,796 | 27,933 | 9,657 | 27,894 | 6,877 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4 |
INTERPACE DIAGNOSTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited, in thousands)
For The Six Months Ended | ||||||||
June 30, 2018 | ||||||||
Shares | Amount | |||||||
Common stock: | ||||||||
Balance at January 1 | 27,901 | $ | 278 | |||||
Common stock issued | 366 | 4 | ||||||
Balance at June 30 | 28,267 | 282 | ||||||
Treasury stock: | ||||||||
Balance at January 1 | 64 | (1,671 | ) | |||||
Treasury stock purchased | 9 | (9 | ) | |||||
Balance at June 30 | 73 | (1,680 | ) | |||||
Additional paid-in capital: | ||||||||
Balance at January 1 | 173,062 | |||||||
Stock-based compensation expense | 1,016 | |||||||
Common stock issued | 282 | |||||||
Balance at June 30 | 174,360 | |||||||
Accumulated deficit: | ||||||||
Balance at January 1 | (131,800 | ) | ||||||
Net loss | (5,110 | ) | ||||||
Adoption of ASC 606, see Note 3 | 2,500 | |||||||
Balance at June 30 | (134,410 | ) | ||||||
Total stockholders’ equity | $ | 38,552 |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
INTERPACE DIAGNOSTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF STOCKHOLDERS' EQUITYCASH FLOWS
(unaudited, in thousands)
For The Six Months Ended | ||||||||
June 30, 2017 | ||||||||
Shares | Amount | |||||||
Common stock: | ||||||||
Balance at January 1 | 2,230 | $ | 22 | |||||
Common stock issued | 34 | 1 | ||||||
Common stock issued through offerings | 12,693 | 126 | ||||||
Shares issued in debt exchange | 3,795 | 38 | ||||||
Exercise of warrants | 1,400 | 14 | ||||||
Balance at June 30 | 20,152 | 201 | ||||||
Treasury stock: | ||||||||
Balance at January 1 | 54 | (1,643 | ) | |||||
Treasury stock purchased | 10 | (28 | ) | |||||
Balance at June 30 | 64 | (1,671 | ) | |||||
Additional paid-in capital: | ||||||||
Balance at January 1 | 127,736 | |||||||
Common stock issued through offerings, net of expenses | 13,152 | |||||||
Issuance of warrants | 7,337 | |||||||
Shares issued in debt exchange | 11,605 | |||||||
Exercise of warrants | 1,252 | |||||||
Stock-based compensation expense | 206 | |||||||
Balance at June 30 | 161,288 | |||||||
Accumulated deficit: | ||||||||
Balance at January 1 | (119,584 | ) | ||||||
Net loss | (3,892 | ) | ||||||
Balance at June 30 | (123,476 | ) | ||||||
Total stockholders' equity | $ | 36,342 |
The accompanying notes are an integral part of these consolidated financial statements
Six Months Ended | ||||||||
June 30, | ||||||||
2018 | 2017 | |||||||
Cash Flows Used in Operating Activities | ||||||||
Net loss | $ | (5,110 | ) | $ | (3,892 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,710 | 1,937 | ||||||
Interest accretion | 1 | 271 | ||||||
Provision for bad debt | - | 25 | ||||||
Amortization of debt issuance costs | - | 117 | ||||||
Mark to market on derivatives | - | 61 | ||||||
Reversal of severance accrual | - | (2,034 | ) | |||||
Reversal of DOJ accrual | (350 | ) | - | |||||
Mark to market on warrants | (66 | ) | 76 | |||||
Loss on extinguishment of debt | - | 4,278 | ||||||
Stock-based compensation, consulting agreements | 24 | - | ||||||
Stock-based compensation | 1,016 | 206 | ||||||
Change in fair value of contingent consideration | - | (5,776 | ) | |||||
Other changes in assets and liabilities: | ||||||||
Increase in accounts receivable | (1,710 | ) | (512 | ) | ||||
(Increase) decrease in other current assets | (40 | ) | 53 | |||||
Decrease in other long-term assets | - | 220 | ||||||
Increase (decrease) in accounts payable | 782 | (1,358 | ) | |||||
Decrease in accrued salaries and bonus | (456 | ) | (1,549 | ) | ||||
Decrease in other accrued expenses | (944 | ) | (789 | ) | ||||
Increase in other long-term liabilities | 116 | 94 | ||||||
Net cash used in operating activities | (5,027 | ) | (8,572 | ) | ||||
Cash Flows Used in Investing Activities | ||||||||
Purchase of property and equipment | (79 | ) | - | |||||
Net cash used in investing activities | (79 | ) | - | |||||
Cash Flows Used in Financing Activities | ||||||||
Issuance of common stock, net of expenses | - | 22,263 | ||||||
Cash paid for repurchase of restricted shares | (9 | ) | (28 | ) | ||||
Net cash (used in) provided by financing activities | (9 | ) | 22,235 | |||||
Net (decrease) increase in cash and cash equivalents | (5,115 | ) | 13,663 | |||||
Cash and cash equivalents – beginning | 15,199 | 602 | ||||||
Cash and cash equivalents – ending | $ | 10,084 | $ | 14,265 |
INTERPACE DIAGNOSTICS GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended | ||||||||
June 30, | ||||||||
2017 | 2016 | |||||||
Cash Flows Used in Operating Activities | ||||||||
Net loss | $ | (3,892 | ) | $ | (7,120 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 1,937 | 2,390 | ||||||
Realignment accrual accretion | - | 23 | ||||||
Interest accretion | 271 | 1,062 | ||||||
Provision for bad debt | 25 | 169 | ||||||
Mark to market on warrants | 76 | - | ||||||
Amortization of debt issuance costs | 117 | - | ||||||
Mark to market on derivatives | 61 | - | ||||||
Loss on extinguishment of debt | 4,278 | - | ||||||
Reversal of severance accrual | (2,034 | ) | - | |||||
Stock-based compensation | 206 | 88 | ||||||
Change in fair value of contingent consideration | (5,776 | ) | - | |||||
Other (gains), losses and expenses, net | - | (4 | ) | |||||
Other changes in assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (512 | ) | 4,755 | |||||
Decrease in unbilled receivable | - | 16 | ||||||
Decrease (increase) in other current assets | 53 | (141 | ) | |||||
Decrease in other long-term assets | 220 | 627 | ||||||
Decrease in accounts payable | (1,358 | ) | (1,070 | ) | ||||
Decrease in unearned contract revenue | - | (11 | ) | |||||
Decrease in accrued salaries and bonus | (1,549 | ) | (633 | ) | ||||
Decrease in accrued liabilities | (789 | ) | (4,957 | ) | ||||
Increase (decrease) in long-term liabilities | 94 | (465 | ) | |||||
Net cash used in operating activities | (8,572 | ) | (5,271 | ) | ||||
Cash Flows From Investing Activities | ||||||||
Purchase of property and equipment | - | - | ||||||
Net cash used in investing activities | - | - | ||||||
Cash Flows From Financing Activities | ||||||||
Issuance of common stock, net of expenses | 22,263 | - | ||||||
Cash paid for repurchase of restricted shares | (28 | ) | - | |||||
Net cash provided by financing activities | 22,235 | - | ||||||
Net increase (decrease) in cash and cash equivalents | 13,663 | (5,271 | ) | |||||
Cash and cash equivalents – beginning | 602 | 8,310 | ||||||
Cash and cash equivalents – ending | $ | 14,265 | $ | 3,039 | ||||
Cash paid for interest | $ | - | $ | - |
The accompanying notes are an integral part of these condensed consolidated financial statementsstatements.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
1. | BASIS OF PRESENTATION |
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 ofInterpace Diagnostics Group, Inc.(the (the “Company” or “Interpace”), and its wholly-owned subsidiaries, Interpace Diagnostics Corporation,Lab Inc., Interpace Diagnostics Lab, Inc.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, 2016,2017, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March 31, 2017, as amended on April 28, 2017.23, 2018. 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'sCompany’s wholly owned subsidiaries: Group DCA, LLC, (“Group DCA”); InServe Support Solutions (“Pharmakon”);Solutions; and TVG, Inc. (“TVG”, dissolved December 31, 2014) and its Commercial Services Organization (“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 and six-month periodsperiod ended June 30, 20172018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2017.2018.
2. | LIQUIDITY |
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. As of June 30, 2017,2018, the Company had cash and cash equivalents of $14.3$10.1 million, net accounts receivable of $2.7$7.6 million, total current assets of $18.3$19.2 million and total current liabilities of $10.9$7.4 million. For the six months ended June 30, 2017,2018, the Company had a net loss of $3.9$5.1 million and cash used in operating activities was $8.6$5.0 million.
During the six months ended June 30, 2017, the Company closed on four equity offerings raising gross proceeds of $25.9 million. The details are as follows:
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
As part of our acquisition of RedPath Integrated Pathology, Inc., we issued a non-negotiable subordinated secured, non-interest bearing, promissory note, dated as of October 31, 2014, with an aggregate principal amount of $10.7 million outstanding (the “RedPath Note”). In December 2016 we repaid $1.33 million in principal of the RedPath Note resulting in an outstanding balance of $9.34 million. The RedPath Note was subsequently acquired by an institutional investor for $8.87 million on March 22, 2017. Also on that date we and the investor exchanged the RedPath Note for a senior secured convertible note in the aggregate principal amount of $5.32 million and a senior secured non-convertible note in the aggregate principal amount of $3.55 million. On April 18, 2017, we and the investor exchanged the senior secured non-convertible note for $3.55 million of our senior secured convertible note. Between March 23, 2017 and April 18, 2017, the senior secured convertible notes were converted in full for 3,795,429 shares of our common stock. We no longer have any outstanding secured debt, and any security interests and liens related to our former secured debt have been fully released.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
The Company entered into a Credit Agreement with SCM Specialty Finance Opportunities Fund, L.P. (the “Credit Agreement”) on September 28, 2016does not expect to generate positive cash flows from operations for $1.2 million.the year ending December 31, 2018. The Credit Agreement contains customary representationsCompany believes however, that it has sufficient cash balances to meet near term obligations and warranties in favor of the Lender and certain covenants, including, among other things, financial covenants relating to loan turnover rates, liquidity and revenue targets. As of June 30, 2017 the Company is renegotiating terms of the Credit Agreement and has not borrowed any funds under the Credit Agreement.
While the Company has increased its cash balance and has made significant reductions in indebtedness, the Company is not cash flow positive from operations. The Companyfurther intends to meet its capital needs by driving revenue growth, containing costs, entering into strategic alliances as well as exploring other options, including the possibility of raising additional debt or equity capital.capital as necessary. There is, however, no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive.
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 best estimate of selling price in multiple element arrangements,accounting for valuation allowances related to deferred income taxes, self-insurance loss accruals,contingent consideration, allowances for doubtful accounts, and notes, incomerevenue recognition, unrecognized tax accruals, acquisition accounting,benefits, and asset impairments and facilities realignment accruals.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.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
Revenue Recognition
Our Services
Through the Company's
We are a fully integrated commercial and bioinformatics company that develops and provides clinically useful molecular diagnostics business, the Company aims to provide physiciansdiagnostic tests and patients withpathology services. We develop and commercialize molecular diagnostic options for detecting genetictests and other molecular alterations that are associated with gastrointestinal and endocrine cancers, which arerelated first line assays principally focused on early detection of patients at high risk of cancer. Customerscancer and leverage the latest technology and personalized medicine for improved patient diagnosis and management. We currently have four commercialized molecular diagnostic assays in the Company'smarketplace for which we are receiving reimbursement: PancraGEN®, which is a pancreatic cyst and pancreaticobiliary solid lesion molecular diagnostics business consist primarilytest that helps physicians better assess risk of physicians, hospitalspancreaticobiliary cancers using our proprietary PathFinderTG®platform; ThyGenX®(now known as ThyGeNEXT™), which is an oncogenic mutation panel that helps identify malignant thyroid nodules; ThyraMIR®, which assesses thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay; and clinics.RespriDX™, launched in September 2017, for assessing metastatic versus primary lung cancer tumors. RespriDX™ also utilizes our PathFinderTG® platform and compares the genetic fingerprint of two or more sites of lung cancer to determine whether the neoplastic deposits are representative of a recurrence of cancer or a new primary (independent) cancer. We recognizeare also “soft launching” BarreGEN®, an esophageal cancer risk classifier for Barrett’s Esophagus that also utilizes our PathFinder TG®platform.
Adoption of Accounting Standards Codification Topic 606 (“ASC 606”), “Revenue from Contracts with Customers”
Effective January 1, 2018, the Company adopted ASC 606 which amends the guidance for the recognition of revenue from contracts with customers for the transfer of goods and services, renderedby using the modified-retrospective method applied to any contracts that were not completed as of January 1, 2018. The results for the reporting period beginning after January 1, 2018, are presented in accordance with the new standard, although comparative information has not been restated and continues to be reported under the accounting standards and policies in effect for those periods.
Upon adoption, the Company performed a comprehensive analysis of existing revenue arrangements as of January 1, 2018 following the five-step model outlined in ASC 606. Based on our analysis, we recorded a cumulative adjustment to opening accumulated deficit and increase of accounts receivable of $2.5 million as of January 1, 2018. The cumulative impact was driven by a change in the timing of revenue recognition for certain payer categories and the related proprietary tests performed. The balance of accounts receivable related to the adjustment is approximately $0.9 million as of June 30, 2018.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
The following tables present the effect of the adoption of ASC Topic 606 on our condensed consolidated balance sheet and revenue as of and for the six months ended June 30, 2018:
Consolidated Balance Sheet:
June 30, 2018 | ||||||||||||
(unaudited) | ||||||||||||
As reported | Balances without Adoption of ASC 606 | Effect of Change Higher/(Lower) | ||||||||||
Accounts receivable, net | $ | 7,647 | $ | 6,731 | $ | 916 | ||||||
Accumulated deficit | (134,410 | ) | (136,910 | ) | (2,500 | ) |
Revenue:
For the six months ended June 30, 2018 | ||||||||||||
(unaudited) | ||||||||||||
As reported | Balances without Adoption of ASC 606 | Effect of Change Higher/(Lower) | ||||||||||
Revenue, net | $ | 10,310 | $ | 9,580 | $ | 730 |
Historically, for certain third-party payers that did not have established contractual reimbursement rates or a predictable pattern of collectability, including commercial insurance carriers, Medicaid and certain direct-bill payers (primarily hospitals, but also laboratories), the Company previously recognized revenues when the following fourfee was fixed or determinable and collectability was reasonably assured, which was upon request of third-party payer notification of payment or when cash was received. Under the new standard, the Company estimates the variable consideration within the transaction price for all third-party payers and proprietary tests and recognizes revenue as the Company satisfies its performance obligations.
In addition, the Company updated its estimates of the expected transaction price and related reimbursement rates for its payer categories and related proprietary tests based on the variable consideration guidance in ASC 606. This consisted of updating the reimbursement rates realized by the Company’s proprietary tests based on historical amounts received by each payer category for the corresponding tests performed.
Overall, other than an initial acceleration in the timing of our revenue recognition criteria are met: persuasive evidencefor certain payer categories, the adoption of an arrangement or contract exists; servicesthis new standard will not have a significant impact on our reported total revenues and operating results as compared to amounts that would have been rendered;reported under the selling price is fixed or determinable;prior revenue recognition standard over our typical revenue cycle. Our accounting policies under the new standard were applied prospectively and collectability is reasonably assured. The Company’s services are generally fulfilled upon completiondiscussed further below.
Revenue Recognition after adoption of the test and after the review and releaseASC 606
Upon adoption of the test results. In conjunction with fulfilling these services,ASC 606, the Company billsrecognizes revenue when a customer obtains control of promised goods or services in an amount that reflects the third-party payerconsideration which the entity expects to receive in exchange for those goods or hospital. We recognize revenue on an accrual basis when we are able to make a reasonable estimate of reimbursement atservices. To the time delivery is complete. Inextent the first period in which revenue is accrued for a particular payer or test, there generally is a one-time increase in revenue. Until we have contracts with payers or can reasonably estimatetransaction price includes variable consideration, the Company estimates the amount of variable consideration that will ultimatelyshould be received, we recognizeincluded in the related revenuetransaction price using the expected value method based on the cash basis. Because the timing and amount of cash payments received from payers as well as one-time increases in revenue from newly accrued payers are difficult to predict, we expect that our revenue may fluctuate significantly in any given quarter.historical experience.
9 |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
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. The Company regularly reviews the ultimate amounts received from the third-party payers and related estimated reimbursement rates and adjusts the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary from our estimates, we will adjust the estimates of contractual allowances, which would affect net revenue in the period such variances become known.
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 six-month periods ended June 30, 2018 and June 30, 2017, the majority of the Company’s revenues were derived from its molecular diagnostic tests.
Financing and Payment
Our payment terms vary by third-party payers and type of proprietary testing services performed. The term between invoicing and when payment is due is not significant.
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 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 currently recognizes revenue andbills the third-party payer or direct-bill payer. Prior to the adoption of ASC 606 on January 1, 2018, the Company recognized accounts receivable related to billings for Medicare, and Medicare Advantage, and direct-bill payers on an accrual basis, net of contractual adjustment, as well as for hospitals (direct-bill clients), when collectability iswas reasonably assured. Under ASC 606 accounts receivable is now 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 raterates set by third party payers, including Medicare, commercial payers, and Medicare Advantage, or the amounts billed to hospitals.
Specifically by test, Pancragen revenues have been recorded on the accrual basis in each of these categories since its acquisition in 2014. ThyGenX® has been recorded on an accrual basis since its Medicare approval in 2015 in two of the payer categories, Medicare and Medicare Advantage, and ThyraMIR, a newer test, approved for Medicare in 2016, has been moved from cash basis to accrual basis in the same categories as ThyGenX®, Medicare and Medicare Advantage in 2017, effective in the current quarter. The change to the accrual basis for ThyraMIR in these categories in 2017 has resulted in $301,000 of additional revenue recognized in the current quarter, of which $179,000 relates to the current quarter and $122,000 of this amount relates to the quarter ended March 31, 2017.
The Company also provides services by way of commercial insurance carriers or governmental programs thatdirect-bill payers. Specific accounts may or may not have a contract or coverage in place for its proprietary tests. As contracts and coverage progress for payers in these categories, the Company will evaluate their collection history to determine the appropriate time to begin to recognized specific payers on the accrual basis as well. Currently, all are recognized on the cash basis. The Company does not enter into direct agreements with patients that commit them to pay any portion of the cost of the tests in the event that their commercial insurance carrier or governmental program does not pay the Company for its services; however, the Company does offer patients that do not have adequate insurance coverage the opportunity to pay cash for our services at a reduced rate.
Accounts Receivable
The Company recognizes Accounts Receivable as revenue is accrued, based upon its criteria for revenue recognition. The Company also records an Allowance for Doubtful Accounts based on the collection history for its accrual basis payers. For non-paying roster accounts, balances are generallybe written off after twelve months. Medicare and Medicare Advantage accounts are currently written off after eighteen months to allow for the appeal process,several appeals, which in some cases requires several appeals prior to collection.may take longer than twelve months.
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 June 30, 20172018 and December 31, 2016:2017:
June 30, 2017 | December 31, 2016 | |||||||
Indemnification assets | $ | 875 | $ | 875 | ||||
Other receivables | 303 | 325 | ||||||
Other | 198 | 215 | ||||||
$ | 1,376 | $ | 1,415 |
June 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Indemnification asset | $ | 875 | $ | 875 | ||||
Prepaid assets | 556 | 266 | ||||||
Other | 43 | 31 | ||||||
$ | 1,474 | $ | 1,172 |
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 comprehensive loss.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)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.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 11,Discontinued Operations for further information.
Basic and Diluted Net (Loss) Income per Share
A reconciliation of the number of shares of common stock used in the calculation of basic and diluted (loss) income per share for the three- and six-month periods ended June 30, 2017 and 2016 is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Basic weighted average number of common shares | 9,657 | 1,816 | 6,877 | 1,796 | ||||||||||||
Potential dilutive effect of stock-based awards | - | - | - | - | ||||||||||||
Diluted weighted average number of common shares | 9,657 | 1,816 | 6,877 | 1,796 |
The following outstanding stock-based awards were excluded from the computation of the effect of dilutive securities on (loss) income per share for the following periods because they would have been anti-dilutive:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Options | 323 | - | 323 | - | ||||||||||||
Stock-settled stock appreciation rights (SARs) | 85 | 103 | 85 | 103 | ||||||||||||
Restricted stock and restricted stock units (RSUs) | 68 | 123 | 68 | 123 | ||||||||||||
Warrants | 17,105 | - | 17,105 | - | ||||||||||||
17,581 | 226 | 17,581 | 226 |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)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- and six-month periods ended June 30, 2018 and 2017 is as follows:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(unaudited) | ||||||||||||||||
Basic weighted average number of common shares | 27,933 | 9,657 | 27,894 | 6,877 | ||||||||||||
Potential dilutive effect of stock-based awards | - | - | - | - | ||||||||||||
Diluted weighted average number of common shares | 27,933 | 9,657 | 27,894 | 6,877 |
The following outstanding stock-based instruments 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 | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
(unaudited) | ||||||||||||||||
Options | 2,256 | 323 | 2,256 | 323 | ||||||||||||
Stock-settled stock appreciation rights (SARs) | 59 | 85 | 59 | 85 | ||||||||||||
Restricted stock units (RSUs) | 220 | 68 | 220 | 68 | ||||||||||||
Warrants | 13,542 | 17,105 | 13,542 | 17,105 | ||||||||||||
16,077 | 17,581 | 16,077 | 17,581 |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
4. | OTHER INTANGIBLE ASSETS |
The net carrying value of the identifiable intangible assets as of June 30, 20172018 and December 31, 20162017 are as follows:
As of June 30, 2018 | As of December 31, 2017 | |||||||||||||||||||||
As of June 30, 2017 | As of December 31, 2016 | (unaudited) | ||||||||||||||||||||
Life | Carrying | Carrying | Life | Carrying | Carrying | |||||||||||||||||
(Years) | Amount | Amount | (Years) | Amount | Amount | |||||||||||||||||
Diagnostic assets: | ||||||||||||||||||||||
Asuragen acquisition: | ||||||||||||||||||||||
Thyroid | 9 | $ | 8,519 | $ | 8,519 | 9 | $ | 8,519 | $ | 8,519 | ||||||||||||
Pancreas | - | - | - | |||||||||||||||||||
Biobank | - | - | - | |||||||||||||||||||
RedPath acquisition: | ||||||||||||||||||||||
Pancreas test | 7 | 16,141 | 16,141 | 7 | 16,141 | 16,141 | ||||||||||||||||
Barrett's test | 9 | 18,351 | 18,351 | |||||||||||||||||||
Barrett’s test | 9 | 18,351 | 18,351 | |||||||||||||||||||
Total | $ | 43,011 | $ | 43,011 | $ | 43,011 | $ | 43,011 | ||||||||||||||
Diagnostic lab: | ||||||||||||||||||||||
CLIA Lab | 2.3 | $ | 609 | $ | 609 | 2.3 | $ | 609 | $ | 609 | ||||||||||||
Accumulated Amortization | $ | (8,888 | ) | $ | (7,262 | ) | $ | (12,140 | ) | $ | (10,515 | ) | ||||||||||
Net Carrying Value | $ | 34,732 | $ | 36,358 | $ | 31,480 | $ | 33,105 |
Amortization expense was approximately $0.8 million and $1.0 million for the three-month periods ended June 30, 20172018 and 2016,2017, respectively, and approximately $1.6 million and $1.9 million for the six-month periods ended June 30, 20172018 and 2016,2017, 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:
2017 | 2018 | 2019 | 2020 | 2021 | ||||||||||||||
$ | 3,252 | $ | 3,252 | $ | 5,292 | $ | 5,292 | $ | 4,908 |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
2018 | 2019 | 2020 | 2021 | 2022 | ||||||||||||||
$ | 3,252 | $ | 5,292 | $ | 5,292 | $ | 4,908 | $ | 2,987 |
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 assets and liabilities reflected at fair value in the condensed consolidated financial statements include: cashinclude contingent consideration and cash equivalents; short-term investments; accounts receivable; other current assets; accounts payable; and contingent consideration.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 the 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. |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
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, isare set forth in the tables below:
As of June 30, 2017 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of June 30, 2017 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||
Cash | $ | 14,265 | $ | 14,265 | $ | 14,265 | $ | - | $ | - | ||||||||||
$ | 14,265 | $ | 14,265 | $ | 14,265 | $ | - | $ | - | |||||||||||
Liabilities: | ||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen | $ | 1,601 | $ | 1,601 | $ | - | $ | - | $ | 1,601 | ||||||||||
Warrant liability: | ||||||||||||||||||||
Pre-Funded | $ | 1,061 | $ | 1,061 | $ | - | $ | - | $ | 1,061 | ||||||||||
Underwriters | 432 | 432 | - | - | 432 | |||||||||||||||
$ | 3,094 | $ | 3,094 | $ | - | $ | - | $ | 3,094 |
As of June 30, 2018 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of June 30, 2018 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
Liabilities: | ||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen(1) | $ | 1,427 | $ | 1,427 | $ | - | $ | - | $ | 1,427 | ||||||||||
Other long-term liabilities: | ||||||||||||||||||||
Warrant liability(2) | 407 | 407 | - | - | 407 | |||||||||||||||
$ | 1,834 | $ | 1,834 | $ | - | $ | - | $ | 1,834 |
As of December 31, 2017 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of December 31, 2017 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Liabilities: | ||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen(1) | $ | 1,581 | $ | 1,581 | $ | - | $ | - | $ | 1,581 | ||||||||||
Other long-term liabilities: | ||||||||||||||||||||
Warrant liability(2) | 473 | 473 | - | - | 473 | |||||||||||||||
$ | 2,054 | $ | 2,054 | $ | - | $ | - | $ | 2,054 |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
As of December 31, 2016 | Fair Value Measurements | |||||||||||||||||||
Carrying | Fair | As of December 31, 2016 | ||||||||||||||||||
Amount | Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||
Assets: | ||||||||||||||||||||
Cash and cash equivalents: | ||||||||||||||||||||
Cash | $ | 602 | $ | 602 | $ | 602 | $ | - | $ | - | ||||||||||
$ | 602 | $ | 602 | $ | 602 | $ | - | $ | - | |||||||||||
Liabilities: | ||||||||||||||||||||
Contingent consideration: | ||||||||||||||||||||
Asuragen | $ | 1,545 | $ | 1,545 | $ | - | $ | - | $ | 1,545 | ||||||||||
RedPath | 5,969 | 5,969 | - | - | 5,969 | |||||||||||||||
$ | 7,514 | $ | 7,514 | $ | - | $ | - | $ | 7,514 |
The fair value of cash(1)(2)See Note 7,Accrued Expenses and cash equivalents and marketable securities is valued using market prices in active markets (level 1). As of June 30, 2017, the Company did not have any marketable securities in less active markets (level 2) or without observable market values that would require a high level of judgment to determine fair value (level 3).Long-Term Liabilities
In connection with the acquisition of certain assets from Asuragen, and the acquisition of RedPath, the Company recorded contingent consideration related to contingent payments and other revenue basedrevenue-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 March 22, 2017, the Company entered into a Termination Agreement with the RedPath Equityholder Representative. Under the terms of the Termination Agreement, the RedPath Equityholder Representative agreed to terminate all royalty and milestone rights under the contingent consideration agreement. As a result the Company reversed approximately $6.0 million in Redpath contingent consideration liabilities in the first quarter of 2017, of which $5.8 million was a reversal within operating expenses in the Condensed Consolidated Statement of Comprehensive Income (Loss).
On March 23, 2017, in connection with the Company entering into the Exchange Agreement, related to the RedPath Note (See Note 2 and Note 12) with the Investor, an embedded conversion option derivative liability was recorded due to a certain embedded conversion feature. The embedded conversion option is considered a liability and valued using the Black-Scholes Option-Pricing Model, the inputs for which include exercise price of the conversion feature, 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 Exchange Agreement. Any changes to the estimated fair value of this liability were recorded in Interest Expense. Between March 23, 2017 and April 18, 2017, the Investor had fully converted all outstanding debt, and as a result there are no liabilities remaining as of June 30, 2017.
On June 21, 2017, the Company closed on an Offering (See Note 2),a public offering issuing both Pre-Funded Warrants and Underwriters Warrants to purchase 2,600,000 shares and 575,000 shares of the Company’s common stock, respectively. Both the Pre-Funded and Underwriters Warrants include a cash settlement feature in the event of certain circumstances. Accordingly, both the Pre-Funded and Underwriters Warrants are classified as liabilities and were fair valued using the Black Scholes Option-Pricing Model, the inputs for which includeincluded 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 Exchange Agreement. Any changesunderlying agreement. Changes to the fair value of the warrant liabilities are recorded in Other income (expense), net. The Pre-Funded Warrants were recorded to Interest Expense.fully exercised in 2017 and therefore the Company has no remaining liability associated with those warrants.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the Pre-Funded Warrant liability as of June 30, 2017:
June 30, 2017 | ||||
Market Price | $ | 0.89 | ||
Exercise Price | $ | 0.01 | ||
Risk-free interest rate | 1.75 | % | ||
Expected volatility | 134.21 | % | ||
Expected life in years | 5.0 | |||
Expected dividend yield | 0.00 | % |
The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the Underwriters Warrant liability as of June 30, 2017:
June 30, 2017 | ||||
Market Price | $ | 0.89 | ||
Exercise Price | $ | 1.32 | ||
Risk-free interest rate | 1.75 | % | ||
Expected volatility | 134.21 | % | ||
Expected life in years | 5.0 | |||
Expected dividend yield | 0.00 | % |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
A roll forward of the carrying value of the contingentContingent consideration embedded conversion optionliability and warrant liabilities from continuing operations from January 1, 2017the Underwriters’ Warrant to June 30, 20172018 is as follows:
2017 | ||||||||||||||||||||||||||||
January 1, | Initial Liability | Payments | Accretion | Cancellation of Obligation/ Conversions Exercises | Mark to Market | June 30, | ||||||||||||||||||||||
Asuragen | $ | 1,545 | $ | (25 | ) | $ | 81 | $ | - | $ | - | $ | 1,601 | |||||||||||||||
Redpath | 5,969 | - | - | (5,969 | ) | - | - | |||||||||||||||||||||
Embedded conversion option | - | 208 | - | - | (269 | ) | 61 | - | ||||||||||||||||||||
Pre-Funded Warrants | - | 2,247 | - | - | (1,252 | ) | 66 | 1,061 | ||||||||||||||||||||
Underwriters Warrants | - | 422 | - | - | - | 10 | 432 | |||||||||||||||||||||
$ | 7,514 | $ | 2,877 | $ | (25 | ) | $ | 81 | $ | (7,490 | ) | $ | 137 | $ | 3,094 |
Market Price | $ | 2.63 | ||
Exercise Price | $ | 2.44 | ||
Risk-free interest rate | 0.99 | % | ||
Expected volatility | 234.05 | % | ||
Expected life in years | 1.25 | |||
Expected dividend yield | 0.00 | % |
Cancellation | Mark to | |||||||||||||||||||||||
December 31, | of Obligation/ | Market | June 30, | |||||||||||||||||||||
2017 | Payments | Accretion | Conversions | Adjustment | 2018 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
Asuragen | $ | 1,581 | $ | (155 | ) | $ | 1 | $ | - | $ | - | $ | 1,427 | |||||||||||
Underwriters Warrant | 473 | - | - | (66 | ) | 407 | ||||||||||||||||||
$ | 2,054 | $ | (155 | ) | $ | 1 | $ | - | $ | (66 | ) | $ | 1,834 |
The Company considers carrying amounts of accounts receivable, accounts payable and accrued expenses to approximate fair value due to the short-term nature of these financial instruments.
Certain of the Company’s non-financial assets, such as other intangible assets, are measuredre-measured at fair value on a nonrecurring basis, if and when there is an indicator of impairment and recorded at fair value only when an impairment charge is recognized.
6. | 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. As part of the closeout of its CSO business, the Company seeks to reduce its potential liability under its service agreements through measures such as contractual indemnification provisions with customers (the scope of which may vary from customer to customer, and the performance of which is not secured) and insurance.
The Company could however, 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.
The Company routinely assesses its litigation and threatened litigation as to the probability of ultimately incurring a liability, and records its best estimate of the ultimate loss in situations where the Company assesses the likelihood of loss as probable. The Company accrues for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In addition, in the event the Company determines that a loss is not probable, but is reasonably possible, and it becomes possible to develop what the Company believes to be a reasonable range of possible loss, then the Company will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, the Company will, as applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made.
As of June 30,, 2017, 2018, the Company’s accrual for litigation and threatened litigation was not material to the condensed consolidated financial statements.
15 |
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
RedPath – DOJ Settlement
In connection with the October 31, 2014 acquisition of RedPath Integrated Pathology, Inc., (“RedPath”), the Company assumed a liability for the Settlement Agreementsettlement agreement entered into by the former owners of RedPath with the DOJ.Department of Justice (“DOJ”). Under the terms of the Settlement Agreement,settlement agreement, the Company iswas obligated to make payments to the Department of Justice (“DOJ”)DOJ for the calendar years ended December 31, 2014 through 2017, up to a cumulative maximum amount of $3.0 million.
Payments arewere due on March 31st following the calendar year thatin which the revenue milestones arewere achieved. In MayThe Company made payments totaling $0.5 million during the year ended December 31, 2017 related to fiscal 2016 and had accrued $0.5 million for its potential liability for fiscal 2017, the final year of the settlement agreement. During the second quarter of 2018, the Company renegotiated payment termsentered into an agreement with the DOJ related to a $500,000settle in full the outstanding fiscal 2017 liability at approximately $0.15 million and paid this amount as the final settlement payment due associated with performance in fiscal 2016. The negotiations resulted in an agreement that the Company pay $83,335 on July 3, 2017, and $83,333 for the five remaining months of 2017. For the six months ended June 30, 2017, the Company has accrued $0.8 million for these payments and its estimate of the potential liability for 2017, based upon the terms of the Settlement Agreement.2018.
Prolias Technologies, Inc. v. PDI, Inc.
On April 8, 2015, Prolias Technologies, Inc. (“Prolias”) filed a complaint (the “Complaint”) against the Company with the Superior Court of New Jersey (Morris County) (the “Court”) in a matter entitled Prolias Technologies, Inc. v. PDI, Inc. (Docket No. MRS-L-899-15). In the Complaint, Prolias alleged that it and the Company entered into an August 19, 2013 Collaboration Agreementcollaboration agreement and a First Amendmentan amendment thereto (collectively, the “Agreement”) whereby Prolias and the Company agreed to work in good faith to commercialize a diagnostic test known as “Thymira.” Thymira is a minimally invasive diagnostic test that is being developed to detect thyroid cancer. Prolias alleged in the Complaint that the Company wrongfully terminated the Agreement, breached obligations owed to it and committed torts. After various motions on October 13, 2016, the Company filed an application to enter final judgment and taxing of costs against Prolias. The Company requested that the Court enter final judgment against Prolias and for the Company in the amount of $621,236, plus ten percent interest continuing to accrue on the principal balance of $500,000 unless and until paid, attorneys’ fees and costs of $390,769, and a declaratory judgment that Prolias is deemed to have executed and delivered to the Company a promissory note in the amount of $1,000,000 under Article 10.2(a) of the Collaboration Agreement. On November 17, 2016, the Court denied the Company’s application without prejudice and with leave to refile.
On February 16, 2017, the Company refiled its application for final judgment, and on March 9, 2017, the Superior Court of New Jersey entered a final judgment in the Company’s favor against Prolias for the sum of $636,053 plus ten percent interest continuing to accrue on the principal balance of $500,000 (per diem $136.99) unless and until paid. Final judgment was also entered in the Company’s favor and against Prolias, declaring Prolias is deemed to have executed and delivered to the Company a promissory note in the amount of $1,000,000 and Prolias is obligated to repay the Company the principal amount and all interest in accordance with the terms of the promissory note and Article 10.2(a) of the Collaboration Agreement by and between Prolias and the Company.Agreement. On April 3, 2017, the final judgment against Prolias was recorded as a statewide lien. NoThe Company has not recovered on the judgment against Prolias and no assurance can be given that the Company will ever be able to recover on the judgment against Prolias.in the future.
Severance
In 2015, in connection with the sale of the majority of the CSO business and the implementation of a broad-based program to maximize efficiencies and cut costs, the Company reduced headcount and incurred severance obligations to terminated employees that amounted to approximately $3.7 million. During the first quarter ended March 31, 2016 the Company recorded additional severance obligations as it continued to right-size the organization and wind down its CSO business. The Company recorded obligations of $1.1 million, $0.5 million of which was recorded in continuing operations.
The severance liability as of December 31, 2016 was approximately $3.1 million, of which $2.2 million resides in continuing operations and $0.9 million is in discontinued operations. In January 2017, five former executives agreed to a settlement of their severance obligations agreeing to 35% of the total amount due them. These remaining obligations were paid out in February 2017 in payments totaling approximately $1.0 million. As a result of the settlement, the Company recorded a reversal of expense of approximately $2.0 million in the first quarter of 2017. Within continuing operations, $1.5 million of expense was reversed and was recorded in general and administrative expenses in the Condensed Consolidated Statements of Comprehensive Loss and $0.5 million was recorded in discontinued operations. The Company has no currently payable severance obligations as of June 30, 2017.
Parsippany Lease
On May 24, 2017 we entered into a new lease with our Parsippany landlord. The lease is for a space of approximately 5,900 square feet and is for a period of sixty-three months commencing July 1, 2017 at an initial monthly obligation of approximately $13,000 per month subject to annual increases of fifty cents per square foot. The initial year of the lease has a two-month rent abatement period. The lease has an early termination date of June 30, 2020, provided we provide at least 12 months’ notice in advance.
Pittsburgh Lease
On March 31, 2017 we renewed our15, 2018, the Company amended the lease for ourits Pittsburgh laboratory for one year.to extend it through June 30, 2023. The lease is for 20,000 square feet of laboratory and office space, and endswith monthly base rent of $33,333 beginning July 1, 2018, escalating by twenty-five percent (25%) on March 31, 2018.July 1, 2019 to $41,667 per month. The lease obligation is $32,500Company may, at its option, extend the term of the Lease for two consecutive terms of five years each, with the monthly base rent escalating by ten percent (10%) for each of the additional five year terms.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per month for twelve months.share amounts)
7. | ACCRUED EXPENSES AND LONG-TERM LIABILITIES |
Other accrued expenses consisted of the following as of June 30, 20172018 and December 31, 2016:2017:
June 30, 2017 | December 31, 2016 | |||||||
Accrued royalties | $ | 983 | $ | 711 | ||||
Indemnification liability | 875 | 875 | ||||||
Contingent consideration | 235 | 260 | ||||||
Rent payable | 147 | 110 | ||||||
DOJ settlement | 750 | 80 | ||||||
Accrued professional fees | 759 | 1,746 | ||||||
Taxes payable | 477 | 526 | ||||||
Unclaimed property | 565 | 565 | ||||||
All others | 1,421 | 1,363 | ||||||
$ | 6,212 | $ | 6,236 |
June 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Accrued royalties | $ | 573 | $ | 296 | ||||
Indemnification liability | 875 | 875 | ||||||
Contingent consideration | 316 | 232 | ||||||
DOJ settlement | 150 | 500 | ||||||
Accrued professional fees | 690 | 700 | ||||||
Taxes payable | 471 | 515 | ||||||
Unclaimed property | 565 | 565 | ||||||
All others | 664 | 1,321 | ||||||
$ | 4,304 | $ | 5,004 |
Long-term liabilities consisted of the following as of June 30, 20172018 and December 31, 2016:2017:
June 30, 2017 | December 31, 2016 | |||||||
Uncertain tax positions | $ | 3,688 | $ | 3,594 | ||||
DOJ settlement (indemnified by RedPath) | - | 250 | ||||||
Warrant liability | 1,493 | - | ||||||
$ | 5,181 | $ | 3,844 |
June 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Warrant liability | $ | 407 | $ | 473 | ||||
Uncertain tax positions | 3,838 | 3,734 | ||||||
Other | 94 | 82 | ||||||
$ | 4,339 | $ | 4,289 |
8. | STOCK-BASED COMPENSATION |
Stock Incentive Plan
In 2015,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 board of directors (the “Board”)Company is able to grant options, SARs and stockholders approvedrestricted shares from the Company’sInterpace Diagnostics Group, Inc. Amended and Restated 2004 Stock Award and Incentive Plan, or the Amended and Restated Plan. The Amended and Restated Plan amends the Company’s pre-existing Amended and Restated(the “Amended 2004 Stock Award and Incentive Plan, which had replaced the 1998 Stock Option Plan, or the 1998 Plan, and the 2000 Omnibus Incentive Compensation Plan, or the 2000 Plan. The Amended and Restated Plan authorized an additional 245,000 shares for new awards and also included the remaining shares available under the prior Amended and Restated Plan. Eligible participants under the Amended and Restated Plan include officers and other employees of the Company, members of the Board and outside consultants, as specified under the Amended and Restated Plan and designated by the Compensation and Management Development Committee of the Board (the “Compensation Committee”Plan”). Unless earlier terminated by action of theits Board of Directors, the Amended and Restated2004 Plan will remain in effect until such time as no stock remains available for delivery under the Amended and Restated Plan and the Company has no further rights or obligations under the Amended and Restated2004 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 two-yearone to three-year period for employees and members of the Board and a three-year period for employees.of Directors. Upon exercise, new shares canwill be issued by the Company. The Company granted stock options in 2016,2017 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 (“RSU’s”) granted to employees historicallygenerally have had a three year cliffthree-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances. RSU’sRestricted shares and restricted stock units granted to board members generally have had a three yearthree-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.
InINTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
During March of 2017,2018, the Company’s Chief Executive Officer, Chief Financial Officer, senior executives and members of the Board were granted incentive stock options to purchase an aggregate of 172,077745,600 shares of common stock with a weighted averagean exercise price of $2.13$1.01 per share and subject186,400 RSUs, (subject generally to the executive’s or board member’s, as applicable, continued service with the Company,Company), which vest in equal monthly installmentsone-third each year over a period of one year.three years.
The following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted during the six month periodsix-month periods ended June 30, 2018 and 2017. There were no options granted during the six month period ended June 30, 2016.
Six Months Ended | ||||||||
June 30, 2018 | June 30, 2017 | |||||||
(unaudited) | ||||||||
Risk-free interest rate | 2.65 | % | 1.96 | % | ||||
Expected life | 6.00 | 4.91 | ||||||
Expected volatility | 126.93 | % | 138.71 | % | ||||
Dividend yield | - | - |
The Company recognized approximately $0.1$0.4 million and $0.02$0.1 million of stock-based compensation expense during the three monththree-month periods ended June 30, 20172018 and 2016,2017, respectively, and approximately $1.0 million and $0.2 million and $0.1 million duringfor the six month periods ended June 30, 2018 and 2017, and 2016, respectively.
As of June 30, 2017 the Company does not have any shares available for issuance under the current Amended and Restated Plan. In 2017, the Company inadvertently granted 184,647 share options to six employees in excess of the number available for grant under the Amended and Restated Plan. These grants were cancelled and replaced with new awards that are contingent upon shareholder approval. The replacement option grants were made on May 11, 2017, with a strike price of $2.39 and will vest in equal monthly installments over one year subject generally to the continued service of the grantees.
9. | INCOME TAXES |
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 the income tax benefitexpense on the loss(loss) income from continuing operations and the effective tax rate for the three- and six-month periods ended June 30, 20172018 and 2016:2017:
Three Months Ended | Six Months Ended | Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||
June 30, | June 30, | June 30, | June 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||||||||
Benefit for income tax | $ | (301 | ) | $ | (236 | ) | $ | (298 | ) | $ | (227 | ) | ||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||||
Provision (benefit) from income tax | $ | 8 | $ | (301 | ) | $ | 14 | $ | (298 | ) | ||||||||||||||||||||||
Effective income tax rate | 4.6 | % | (6.3 | %) | 6.4 | % | 2.9 | % | (0.4 | )% | 4.6 | % | (0.3 | )% | 6.4 | % |
Income tax benefitexpense for the three- and six-month periods ended June 30, 2017 and 20162018 was primarily due to an allocation of tax expense between continuingminimum state and discontinued operations.local taxes.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
10. | SEGMENT INFORMATION |
Upon the divestiture of its CSO business onSince December 22, 2015, the Company hasreports its operations as one reporting segment:segment, molecular diagnostics.diagnostics and bioinformatics. The Company realigned its reporting segments due to the integration of RedPath and acquiring certain assets from Asuragen, to reflect the Company’s current and going forward business strategy. The Company’s current reporting segment structure is reflective of the way both the Company’s management viewsand chief operating decision maker view the business, makesmake operating decisions and assessesassess 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 molecular diagnostics 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 endocrinelung cancers, which are principally focused on early detection of patients at high risk of cancer. Customers in the Company’s molecular diagnostics 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.
11. | DISCONTINUED OPERATIONS |
The table below presents the significant components of CSO, Group DCA’s, Pharmakon’s and TVG’s results included Income (Loss) from Discontinued Operations, Net of Tax in the consolidated statements of comprehensive loss for the three- and six-months ended June 30, 2017 and 2016.
Three Months Ending June 30, | Six Months Ending June 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Revenue, net | $ | - | $ | - | $ | - | $ | 1,644 | ||||||||
Income (loss) from discontinued operations | 304 | 144 | 914 | (592 | ) | |||||||||||
Gain (loss) on sale of assets | - | 1,326 | - | 1,326 | ||||||||||||
Income from discontinued operations, before tax | 304 | 1,470 | 914 | 734 | ||||||||||||
Income tax expense | 358 | 291 | 412 | 336 | ||||||||||||
(Loss) income from discontinued operations, net of tax | $ | (54 | ) | $ | 1,179 | $ | 502 | $ | 398 |
The assets and liabilities classified as discontinued operations relate to CSO, Group DCA, Pharmakon,Commercial Services and TVG. Asconsist of the following as of June 30, 20172018 and December 31, 2016, these assets and liabilities are in the accompanying balance sheets as follows:2017:
For the Six Months Ended June 30, 2017 | For the Year Ended December 31, 2016 | |||||||||||||||||||||||
CSO | DCA/TVG | Total | CSO | DCA/TVG | Total | |||||||||||||||||||
Accounts receivable, net | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||
Unbilled receivable, net | - | - | - | - | - | - | ||||||||||||||||||
Other | - | - | - | - | 14 | 14 | ||||||||||||||||||
Current assets from discontinued operations | - | - | - | - | 14 | 14 | ||||||||||||||||||
Property and equipment, net | - | - | - | - | - | - | ||||||||||||||||||
Other | - | - | - | - | - | - | ||||||||||||||||||
Long-term assets from discontinued operations | - | - | - | - | - | - | ||||||||||||||||||
Total assets | $ | - | $ | - | $ | - | $ | - | $ | 14 | $ | 14 | ||||||||||||
Accounts payable | $ | 826 | $ | - | $ | 826 | $ | 890 | $ | - | $ | 890 | ||||||||||||
Accrued salary and bonus | - | - | - | 1,272 | - | 1,272 | ||||||||||||||||||
Other | 1,545 | - | 1,545 | 1,966 | - | 1,966 | ||||||||||||||||||
Current liabilities from discontinued operations | 2,371 | - | 2,371 | 4,128 | - | 4,128 | ||||||||||||||||||
Total liabilities | $ | 2,371 | $ | - | $ | 2,371 | $ | 4,128 | $ | - | $ | 4,128 |
June 30, 2018 | December 31, 2017 | |||||||
(unaudited) | ||||||||
Accounts payable | $ | 192 | $ | 192 | ||||
Other | 747 | 1,110 | ||||||
Current liabilities from discontinued operations | 939 | 1,302 | ||||||
Total liabilities | $ | 939 | $ | 1,302 |
12. | LONG-TERM DEBT |
On October 31, 2014,
As more fully described in our Form 10-K filed on March 23, 2018, during the Company and its subsidiary, Interpace LLC, entered into an agreement to acquire RedPath (the “Transaction”). In connection with the Transaction,first six months of fiscal 2017 the Company entered into the RedPath Note payable in eight equal consecutive quarterly installments beginning October 1, 2016.
an Exchange Agreement related to its debt with an investor. The obligationsCompany exchanged (the “RedPath Debt Exchange”) such then-existing debt for senior convertible notes (“Senior Convertible Notes”) of the Company under the RedPath Note were guaranteed by the Company and its subsidiaries pursuant to a Guarantee and Collateral Agreement (the “Subordinated Guarantee”) in favor of the RedPath Equityholder Representative. Pursuant to the Subordinated Guarantee, the Company and its subsidiaries also granted a security interest in substantially all of their assets, including intellectual property, to secure their obligations to the RedPath Equityholder Representative. Based on the Company's incremental borrowing rate under its Credit Agreement, the fair value of the RedPath Note at the date of issuance was $7.5 million. During the three months ended June 30, 2017 and 2016, the Company accreted zero and approximately $0.2 million into interest expense, respectively, for each period. During the six months ended June 30, 2017 and 2016, the Company accreted approximately $0.2 million and $0.4 million into interest expense, respectively, for each period. At December 31, 2016, the fair value balance of the $9.3 million Note was approximately $7.9 million and the unamortized discount was $1.4 million. As of June 30, 2017, the Note was fully converted into the Company’s common stock (see below).
Debt Exchange for RedPath Note
In December 2016 we repaid $1.33 million in principal of the RedPath Note resulting in an outstanding balance of $9.34 million. The RedPath Note was subsequently acquired by an institutional investor for $8.87 million on March 22, 2017. Also on that date we and the investor exchanged the RedPath Note for a senior secured convertible note (the “Exchanged Convertible Note”) in the aggregate principal amount of $5.32 million and a senior secured non-convertible note in the aggregate principal amount of $3.55 million. On April 18, 2017, we and the investor exchanged the senior secured non-convertible note for $3.55 million of our senior secured convertible note (the “Senior Secured Convertible Note”). BetweenSubsequently between March 23, 2017 and April 18, 2017, the senior secured convertible notesSenior Convertible Notes were converted in full forinto 3,795,429 shares of ourthe Company’s common stock. We no longer have any outstanding secured debt, and any security interests and liens related to our former secured debt have been fully released.
In connection with the conversion of the Exchanged Convertible Note, theThe Company recorded a loss of $4.3 million. Maxim Group LLC (“Maxim”) acted as agentmillion in connection with the exchanges into the Exchanged Convertible Note and the Senior Secured Convertible Note. Maxim was paid a cash fee of $0.6 million representing 6.5% of the balance of the $8.85 million exchanged RedPath Note. These costs are directly related to the issuance of the Company’s shares, and2017 as a result are recorded against equity.
In connection with the Exchanged Convertible Note and the Senior Secured Convertible Note, the Company determined there to be an embedded conversion option feature. Accordingly, the embedded conversion option contained in the Exchange Convertible Note was accounted for as a derivative liability at the date of issuance, and shall be adjusted to fair value through earnings at each reporting date.The fair value of the embedded conversion option derivative was determined using the Black- Scholes Option Pricing Model. On the initial measurement date, the fair value of the embedded conversion option derivative of $208,427 was recorded as a derivative liability and was allocated as a debt discount to the Exchanged Convertible Note. At each conversion date, subsequent to the issuance of the Exchanged Convertible Note, the embedded conversion option derivative liability would be revalued, with any changes to its fair value being recorded to earnings. At March 31, 2017, the Company also revalued the embedded conversion option derivative liability resulting in a loss from the change in fair value. In connection with these revaluations, the Company recorded derivative losses of approximately $19,000 and $61,000 for the three and six-month periods ended June 30, 2017. The value of the derivative liability as of June 30, 2017 was zero.exchange.
The Company incurred $0.5 million of debt issuance costs, for investment banking, legal and placement fee serviceshas no long-term debt.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in connection with the Exchange Agreement. These costs are treated as a debt discount and will be amortized to interest expense over the term of the Exchanged Notes.
In connection with the conversion of the Senior Secured Convertible Note on April 18, 2017, the Company recorded a loss of $2.3 million.thousands, except per share amounts)
13. | SUPPLEMENTAL CASH FLOW INFORMATION |
The following table representspresents cash flows (used in) provided byused in the Company'sCompany’s discontinued operations for the six months ended June 30, 20172018 and 2016:2017:
Six Months Ended June 30, | ||||||||
2017 | 2016 | |||||||
Net cash used in operating activities of discontinued operations | $ | (883 | ) | $ | (884 | ) | ||
Net cash (used in) provided by investing activities of discontinued operations | $ | - | $ | - |
Six Months Ended | ||||||||
June 30, | ||||||||
2018 | 2017 | |||||||
(unaudited) | ||||||||
Net cash used in operating activities of discontinued operations | $ | (354 | ) | $ | (883 | ) |
Supplemental Disclosures of Non Cash Financing ActivitiesFlow Information
(in thousands)
Six Months Ended June 30, | Six Months Ended | |||||||||||||||
2017 | 2016 | June 30, | ||||||||||||||
2018 | 2017 | |||||||||||||||
Write-off of the RedPath Note | $ | (8,098 | ) | $ | - | |||||||||||
(unaudited) | ||||||||||||||||
Operating | ||||||||||||||||
Adoption of ASC 606 | $ | 2,500 | $ | - | ||||||||||||
Prepaid stock grants issued to vendors | $ | 286 | $ | - | ||||||||||||
Investing | ||||||||||||||||
Acquisition of property and equipment in other accrued expenses | $ | 46 | $ | - | ||||||||||||
Financing | ||||||||||||||||
Settlement of the RedPath Note | $ | - | $ | (8,098 | ) | |||||||||||
Issuance of the Exchange Notes | $ | 11,375 | $ | - | $ | - | $ | 11,375 | ||||||||
Non-cash equity conversion costs | $ | (173 | ) | $ | - | $ | - | $ | (173 | ) | ||||||
Debt issuance costs | $ | (511 | ) | $ | - | $ | - | $ | (511 | ) | ||||||
Warrants issued through Termination Agreement* | $ | 193 | $ | - | $ | - | $ | 193 | ||||||||
Conversion of debt to equity | $ | 8,869 | $ | - | ||||||||||||
Common shares issued in debt exchange | $ | - | $ | 8,869 |
*See Note 14,Equity for more details
14. | EQUITY |
Public Equity Offerings
DuringAs more fully described in our Form 10-K filed on March 23, 2018, during the six months ended June 30,first quarter of fiscal 2017 the Company closed on four separate equity offerings raisingissued 2,793,000 common shares and 855,000 warrants for gross proceeds amounting to $12.2 million. In addition, as described in Note 12,Long-Term Debt, the Company issued 3,795,429 common shares in connection with the RedPath Debt Exchange and conversion of $25.9 million. The details are as follows:
Market Price | $ | 4.33 | ||
Exercise Price | $ | 4.69 | ||
Risk-free interest rate | 1.95 | % | ||
Expected volatility | 124.02 | % | ||
Expected life in years | 5.0 | |||
Expected dividend yield | 0.00 | % |
On March 22, 2017,Senior Convertible Notes. As part of the Debt Exchange, the Company entered into a Termination Agreement with the RedPath Equityholder Representative. Under the terms of the Termination Agreement, RedPath Equityholder Representative, agreed to terminate allLLC, terminating milestone and royalty payments and milestone rights under the contingent consideration agreement. In exchange for terminating the royalty and milestone right of RedPath, the Company agreed to issue to the RedPath Equityholder Representativeissued 5 year warrants to acquire an aggregate of 100,000 shares of the Company’s common stock at a fixed price of $4.69 per share. The fair value of the warrants issued was determined using the Black-Scholes Option Pricing Model and amounted to $193,037. The warrants do not include any cash settlement provisions and accordingly are not liability classified. As a result, the Company is not required to revalue the warrants at each reporting date. The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the warrants upon issuance:
Market Price | $ | 2.37 | ||
Exercise Price | $ | 4.69 | ||
Risk-free interest rate | 1.95 | % | ||
Expected volatility | 125.58 | % | ||
Expected life in years | 5.5 | |||
Expected dividend yield | 0.00 | % |
As part of our acquisition of RedPath Integrated Pathology, Inc., we issued the RedPath Note. In December 2016 we repaid $1.33 million in principal of the RedPath Note resulting in an outstanding balance of $9.34 million. The RedPath Note was subsequently acquired by an institutional investor for $8.87 million on March 22, 2017. Also on that date we and the investor exchanged the RedPath Note for a senior secured convertible note in the aggregate principal amount of $5.32 million and a senior secured non-convertible note in the aggregate principal amount of $3.55 million. On April 18, 2017, we and the investor exchanged the senior secured non-convertible note for $3.55 million of our senior secured convertible note. Between March 23, 2017 and April 18, 2017, the senior secured convertible notes were converted in full for 3,795,429 shares of our common stock. We no longer have any outstanding secured debt, and any security interests and liens related to our former secured debt have been or will be released and/or terminated upon the completion of applicable filings.
On June 16,
During the second quarter of 2017, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Maxim as the representative of several underwriters (the “Underwriters”) named therein with respect to the issuance and sale of an aggregatecompleted a public offering of (i) 9,900,000 shares (“Firm Shares”) of the Company’s common stock (the “Firm Shares”), (ii) Base Warrantswarrants to purchase 12,500,000 shares of common stockCommon Stock at an exercise price equal to $1.25 per share (the “Base Warrants”) and (iii) Pre-Funded Warrantswarrants to purchase 2,600,000 shares of Common Stock at an exercise price equal to $0.01 per share in an underwritten public offering (the “Offering”“Pre-Funded Warrants”) pursuant to the Underwriting Agreement.. Each Firm Share and accompanying Base Warrant was sold for a combined effective price of $1.10, and each Pre-Funded Warrant and accompanying Base Warrant was sold for a combined effective price of $1.09. The Underwriters were entitled to receive an underwriting discount equal to 7.5%issuance of the offer price of the aggregate number of Firm Shares and the Pre-Funded Warrants soldresulted in the Offering and Over-Allotment and out-of-pocket expenses of $.1 million. The Company also granted the Underwriters a 45-day option to purchase up to an additional 1,875,000 Firm Shares and/or 1,875,000 Base Warrants to cover over-allotments, if any (the “Over-Allotment”). Additionally, the Company agreed to issue to the Underwriters warrants (the “Underwriter Warrant”) to purchase a number of Firm Shares of common stock equal to an aggregate of 4% of the total number of shares of Common Stock and Pre-Funded Warrants sold in the Offering.
The Company offered to each purchaser whose purchase of shares of common stock in this offering would otherwise result in the purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99% of our outstanding common stock immediately following the consummation of this offering, the opportunity to purchase, if the purchaser so chooses, pre-funded warrants, in lieu of shares of common stock that would otherwise result in the purchaser’s beneficial ownership exceeding 4.99% of our outstanding common stock. Subject to limited exceptions, a holder of pre-funded warrants could not have the right to exercise any portion of its pre-funded warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to such exercise. Each pre-funded warrant was exercisable for one share of our common stock. The offering also related to the shares of common stock issuable upon exercise of any pre-funded warrants sold in the offering. Each pre-funded warrant was sold together with a common warrant with the same terms as the common warrant described above. The common warrants were exercisable immediately and will expire five years after the date of issuance, or June 22, 2022. The shares of common stock and pre-funded warrants could only be purchased with the accompanying common warrants, but were issued separately, and were immediately separable upon issuance.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
On June 21, 2017, the Company successfully closed its public offering for the Firm Shares, Base Warrants and Pre-Funded Warrants. A public trading market for the Base Warrants was established on July 5, 2017 on the OTC market under the trading symbol IDGGW. As part of the offering the Underwriters purchased the full over-allotment of 1,875,000 Base Warrants available to them for the specified $.01 per warrant, which are not exercisable for six months after the offering. 2,600,000 of Pre-Funded Warrants were also sold on at the price of $1.09 per warrant. The combined gross proceeds of the June 21st offering totaledtotaling $13.7 million, with approximately $12.3 million of net funds available to the companyCompany after deducting underwriting discounts and other stock issuance expenses.
In summary, the Company issued 9,900,000 shares of Common Stock as well as Base Warrants, Overallotment Warrants, Pre-Funded Warrants and Underwriters Warrants to purchase 12,500,000, 1,875,000, 2,600,000 and 575,000 shares of the Company’s Common Stock, respectively. The Pre-Funded and Underwriters Warrants are classified as liabilities because in certain circumstances they could require cash settlement. The Base and Overallotment Warrants do not contain such provisions. As a result, the Company is not required to revalue the Base and Overallotment warrants at each reporting date. The Base Warrants are traded on the OTC market, however, trading volume has been insufficient to determine fair value. The fair value of the Base and Overallotment Warrants was determined using the Black-Scholes Option Pricing Model and amounted to $5.3 million and $0.8 million, respectively.
The following table sets forth the assumptions used in the Black-Scholes Option Pricing Model to estimate the fair value of the Base Warrants and Overallotment Warrants upon issuance:
Market Price | $ | 0.87 | ||
Exercise Price | $ | 1.25 | ||
Risk-free interest rate | 1.75 | % | ||
Expected volatility | 134.21 | % | ||
Expected life in years | 5.0 | |||
Expected dividend yield | 0.00 | % |
As of July 7, 2017, all of the 2,600,000 Pre-Funded Warrants were exercised for $.01 per warrant exercise price and all 2,600,000 common shares related to the warrants have been issued. On July 31, the Underwriters exercised their right to purchase 875,000 Firm Shares for $0.960 million net of $0.072 million in underwriter discounts, or $0.882 million.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
15. | WARRANTS |
Warrants outstanding andThere was no warrant activity for the six months ended June 30, 20172018. Warrants outstanding for the period ended June 30, 2018 are as follows:
Description | Classification | Exercise Price | Expiration Date | Balance December 31, 2016 | Warrants Issued | Warrants Exercised | Balance June 30, 2017 | Classification | Exercise Price | Expiration Date | Warrants Issued | Warrants Exercised | Warrants Cancelled/ Expired | Balance December 31, 2017 | Balance June 30, 2018 | |||||||||||||||||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||||||||||||||||||
Pre-Funded Warrants, issued June 21, 2017 | Liability | $ | 0.01 | None | - | 2,600,000 | (1,400,000 | ) | 1,200,000 | Liability | $ | 0.01 | None | 2,600,000 | (2,600,000 | ) | - | - | - | |||||||||||||||||||||||||||||||||||
Underwriters Warrants, issued June 21, 2017 | Liability | $ | 1.32 | December 2022 | - | 575,000 | - | 575,000 | Liability | $ | 1.32 | December 2022 | 575,000 | - | (40,000 | ) | 535,000 | 535,000 | ||||||||||||||||||||||||||||||||||||
Private Placement Warrants, issued January 25, 2017 | Equity | $ | 4.69 | June 2022 | - | 855,000 | - | 855,000 | ||||||||||||||||||||||||||||||||||||||||||||||
RedPath Warrants, issued March 22, 2017 | Equity | $ | 4.69 | September 2022 | - | 100,000 | - | 100,000 | ||||||||||||||||||||||||||||||||||||||||||||||
Base & Overallotment Warrants, issued June 21, 2017 | Equity | $ | 1.25 | June 2022 | - | 14,375,000 | - | 14,375,000 | 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 | |||||||||||||||||||||||||||||||||||||||||||||
- | 18,505,000 | (1,400,000 | ) | 17,105,000 | 21,855,000 | (8,272,852 | ) | (40,000 | ) | 13,542,148 | 13,542,148 |
16. | RECENT ACCOUNTING PRONOUNCEMENTS |
Recently adopted standards
In March 2016,May 2014, the FASBFinancial Accounting Standards Board (“FASB”) issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify the accounting and reporting for employee share-based payment transactions.2014-09, “Revenue from Contracts with Customers,” previously defined in Note 3 as “ASC 606”. The pronouncement is effective for interim and annual periods beginning after December 31, 2016 with early adoption permitted.standard, including subsequently issued amendments, replaces most existing revenue recognition guidance in U.S. GAAP. The adoptionkey focus of the guidancenew standard is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in ASU No. 2016-09an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this key focus, there is a five-step approach outlined in the first quarterstandard. We adopted this new standard as of 2017 didJanuary 1, 2018, by using the modified-retrospective method. See Note 3,Summary of Significant Accounting Policies, for further details.
New standards not have a material impact on the Company’s consolidated financial statements.yet adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which when effective will require organizations that lease assets (e.g., through “leases”) to recognize assets and liabilities for the rights and obligations created by the leases on the balance sheet. A lessee will be required to recognize assets and liabilities for leases with terms that exceed twelve months. The standard will also require disclosures to help investors and financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases. The disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The guidance is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial position and results of operations.
INTERPACE DIAGNOSTICS GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Tabular information in thousands, except per share amounts)
(unaudited)
In May 2016, the FASB issued ASU 2016-12, “Revenue from Contract with Customers - Narrow-Scope Improvements and Practical Expedients”. In April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers - Identifying Performance Obligations and Licensing”. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contract with Customers - Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”. In August 2015, the FASB issued ASU 2015-14 deferring the effective date to annual and interim periods. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers”. The core principle of these ASUs are that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2016-12 affect only the narrow aspects of the guidance, such as assessing the collectability criterion and accounting for contracts that do not meet the criterion, presentation of sales and other similar taxes collected from customers, non-cash consideration, and contract modifications at transition. ASU 2016-10 clarifies two aspects of the guidance: identifying performance obligations and the licensing implementation. The intention of ASU 2016-08 is to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU 2015-14 defers the effective date to annual and interim periods beginning on or after December 15, 2017, and early adoption will be permitted, but not earlier than the original effective date of annual and interim periods beginning on or after December 15, 2016, for public entities.
ASU 2014-09 defines a five-step process to achieve this core principle of and revenue recognition, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The Company will adopt the new revenue standard as of January 1, 2018 using the modified retrospective method. The Company is currently allocating accounting resources including a third party consulting firm to assess its contracts in each of the five steps involved with the new standard and has not yet determined the impact from the adoption of this ASU on either its financial position or results of operations.
17. |
Additional Shares Issued
On July 3 and July 7, 2017 the remaining 1,200,000 of the 2,600,000 Pre-funded Warrants were exercised for the $.01 per warrant exercise price. Accordingly, all 2,600,000 common shares related to the warrants have been issued.
On July 31, 2017 the Underwriters exercised their right to purchase 875,000 common shares at $1.09 per share for $0.960 million net of $0.072 million in underwriter discounts, or $0.882 million. This was a partial exercise of their over-allotment option of 1,875,000 available shares. The right to purchase the remaining overallotment of 1,000,000 shares expired on July 31, 2017.
Nasdaq Correspondence
On July 31, 2017, (the “Company received written notice (the “Notification Letter”) from the Listing Qualifications Department of The NASDAQ Stock Market LLC (“Nasdaq”) notifyingMay 4, 2018, the Company was notified by NASDAQ that it is notwe were no longer in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2)of NASDAQ for continued listing on The Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of $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 the Company’s common stock for the thirty (30) consecutive business days prior to the date of the Notification Letter, the Company no longer meets the minimum bid price requirement.
The Notification Letter does not impact the Company's listing on The Nasdaq Capital Market at this time. The Notification Letter states that the Company has 180 calendar days, orwe had until January 29,October 31, 2018 to regain compliance with Nasdaq Listing Rule 5550(a)(2). To regain compliance, the bid price of the Company's common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. In the event thatthis requirement or face delisting. On July 30, 2018 NASDAQ notified the Company does not regain compliance by January 29,that effective July 27, 2018 the Company may be eligible for additional time to reachwas in compliance with the minimum bid price requirement.requirements of NASDAQ and the matter was determined to be closed.
In addition,Line of credit
Effective July 2018, the Company notes that it is not currently in compliancesigned a letter of intent with NASDAQ Listing Rule 5605(c)(2)(A), which requires the Audit CommitteeSilicon Valley Bank to be comprisedprovide up to a 3-year $4,000,000 line of at least three members. The Company intendscredit based on 80% of net available receivables, including a term portion of $850,000 to appoint an additional independent director to its Board and to the Audit Committee prior to the Company’s 2017 Annual Meeting of Stockholders.support capital expansions.
21 |
INTERPACE DIAGNOSTICS GROUP, INC.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q (“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 1934.1934, 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:
● | our ability to profitably grow our business, including our ability to finance our business on acceptable terms and successfully compete in the market; | |
● | our ability to | |
● | whether we are able to successfully utilize our operating experience to sell our molecular diagnostic tests; | |
● | our limited operating history as a molecular diagnostics company; | |
● | our dependence on a concentrated selection of payers for our molecular diagnostic tests; | |
● | the demand for our molecular diagnostic tests from physicians and patients; | |
● | our reliance on our internal sales forces for business expansion; | |
● | our dependence on third parties for the supply of some of the materials used in our molecular diagnostic tests; | |
● | our ability to scale our operations, testing capacity and processing technology; | |
● | our ability to | |
INTERPACE DIAGNOSTICS GROUP, INC.
● | our ability to obtain sufficient data and samples to cost effectively and timely perform sufficient clinical trials in order to support our current and future products; | |
● | product liability claims against us; | |
● | patent infringement claims against us; | |
● | our involvement in current and future litigation against | |
INTERPACE DIAGNOSTICS GROUP, INC.
● | the effect current and future laws, licensing requirements and regulation have on our business including the changing U.S. Food and Drug Administration, or the FDA, environment as it relates to molecular | |
● | the effect of potential adverse findings resulting from regulatory audits of our billing practices and the impact such results could have on our business; | |
● | our exposure to environmental liabilities as a result of our business; | |
● | the susceptibility of our information systems to security breaches, loss of data and other disruptions; | |
● | our ability to enter into effective electronic data interchange arrangements with our | |
�� | ||
● | our billing practices and our ability to collect on claims for the sale of our molecular diagnostic tests; | |
● | our dependence on a third-party medical billing provider to operate effectively without delays, data loss, or other disruptions; | |
● | our ability to attract and retain qualified sales representatives and other key employees and management personnel; | |
● | competition in the segment of the molecular diagnostics industry in which we operate or expect to operate; | |
● | our ability to obtain additional | |
● | the results of any future impairment testing for other intangible assets; | |
● | our ability to successfully identify, complete and integrate any future acquisitions and the effects of any such items on our revenues, profitability and ongoing business; | |
● | our compliance with our license agreements and our ability to protect and defend our intellectual property rights; | |
● | our ability to maintain our listing with The Nasdaq Capital Market | |
● | the effect of | |
● | failure of third-party service providers to perform their obligations to us; | |
● | the volatility of our stock price and fluctuations in our quarterly and annual revenues and | |
● | our ability to obtain and maintain sufficient laboratory space to meet our processing needs as well as our ability to pass regulatory inspections and continue to be certified CLIA laboratories and be CAP certified; | |
● | our ability to commercially leverage our bioinformatics data with pharmaceutical and other potential partners in new revenue lines; |
INTERPACE DIAGNOSTICS GROUP, INC.
● | the ability to obtain or maintain supportive “guidelines” from trade and/or therapeutic related organizations focused on the clinical efficacy and utility of molecular diagnostics in our areas of focus; and | |
● | determination that our Advanced Diagnostic Laboratory Tests (ADLTs) have become affected by the pricing provisions of the Processing Access to Medicare Act of 2014 (“PAMA”) which could result in an across the board reduction in our reimbursement rates; and | |
● | Our ability to continue to develop and support our partially customized Laboratory Information System(LIMS), which is our automated basis of managing operations, storing data and customer information. |
Please see Part I – Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2017, filed March 23, 2018, as well as other documents we file with the SECU.S. Securities and Exchange Commission (“SEC”) from time-to-time, for other important factors that could cause our actual results to differ materially from our current expectations as expressed in the forward-looking statements discussed in this Form 10-Q. Because of these and other risks, uncertainties and assumptions, you should not place undue reliance on these forward-looking statements. In addition, these statements speak only as of the date of the report in which they are set forth and, except as may be required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.
OVERVIEWINTERPACE DIAGNOSTICS GROUP, INC.
Company Overview
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 molecular diagnostic tests and related first line assays principally focused on early detection of patients at high risk of cancer and leverage the latest technology and personalized medicine for improved patient diagnosis and management. Our tests and services provide mutational analysis of genetic material contained in suspect cysts, nodules and lesions that helps physicians risk-stratify thyroid, pancreatic, and other cancers to better inform treatment decisions. The molecular diagnostic tests we offer enable healthcare providers to avoid unnecessary surgeries and better assess the risk of cancer progression in their patients. We currently have threefour commercialized molecular diagnostic assays in the marketplace for which we are reimbursed by Medicare and multiple private payers: PancraGEN®receiving reimbursement: PancraGEN®, which is a pancreatic cyst and pancreaticobiliary solid lesion molecular test that can aid in pancreatic cyst diagnosis and pancreatic cancerhelps physicians better assess risk assessment utilizingof pancreaticobiliary cancers using our proprietary PathFinder PathFinderTG®platform; ThyGenX®ThyGenX® (now ThyGeNEXT™) which is an oncogenic mutation panel that helps identify malignant thyroid nodules; and ThyraMIR®, which assesses thyroid nodules for risk of malignancy; and ThyraMIR®, which assessesassess thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay. We also launched in September 2017 RespriDX ™, which is a molecular test that helps physicians differentiate metastatic or recurrent lung cancer from the presence of a newly formed primary lung cancer. RespriDX™ also utilizes our PathFinderTG® platform to compare the genomic fingerprint of two or more sites of lung cancer. We are also in the process of “soft launching” while we gather additional market data, BarreGEN®BarreGen®, an esophageal cancer risk classifier for Barrett’s Esophagus that also utilizes our PathFinderPathFinderTG® platform.
Our mission is to provide personalized medicine through molecular diagnostics and innovation to advance patient care based on rigorous science. WeOur laboratories are leveraging ourlicensed pursuant to federal law under the Clinical Laboratory Improvement Amendments (“CLIA”), certified and are accredited by the College of American Pathologists(“Pathologists (“CAP”), and New York State (“NYS”). We are leveraging our licensed and accredited laboratories to develop and commercialize our assays and products. We aim to provide physicians and patients with diagnostic options for detecting geneticgenomic and other molecular mutationsalterations that are associated with gastrointestinal, endocrine, and endocrine cancer.lung cancers. Our customers consist primarily of physicians, hospitals and clinics.
The global molecular diagnostics market is estimated to be $6.45$6.5 billion and is a segment within the approximately $60 billion in vitro diagnostics market.market according to statistics from Kalorama Information, publisher of theWorldwide Market for In Vitro Diagnostic Tests. We believe that the molecular diagnostics market offers significant growth and strong patient value given the substantial opportunity it affords to lower healthcare costs by helping to reduce unnecessary surgeries and ensuring the appropriate frequency of monitoring. We are keenly focused on growing our test volumes, securing additional coverage and reimbursement, maintaining and growing our current reimbursement, and supporting revenue growth for our threefour commercialized innovative tests, introducing related first line product and service extensions, as well as expanding our business by developing and promoting synergistic products like BarreGEN®, in our market.markets. We believe that BarreGen® is a potentially important pipeline product, also built on the PathFinderTG®platform, which we believe is synergistic to our capabilities and potentially is a significant product opportunity in the gastrointestinal market, which is one of the sectors in which we operate.
Additional Reimbursement Coverage and Network Availability During 20172018 (to-date)
Reimbursement progress is key for any molecular diagnostic company. We werehave been successful to date in 2018 expanding the reimbursement of our products in 2016 and that has continued into 2017.products. Specifically, the most significant progress we have made regarding payers so farto date in 20172018 is as follows:
● | In | |
● | In March 2018, we announced coverage of ThyGenX®(now ThyGeNEXT™) and ThyraMIR®by four new Blue Cross Blue Shield Plans: Blue Cross Blue Shield of Arizona, Blue Cross Blue Shield of South Carolina, Wellmark Blue Cross Blue Shield of Iowa, and Wellmark Blue Cross Blue Shield of South Dakota. These four plans combined represent over 5 million members. |
INTERPACE DIAGNOSTICS GROUP, INC.
● | In March 2018 we announced that we had entered into a laboratory services agreement with Acupath Laboratories, Inc. based in | |
● | In April 2018, we announced that we had entered into an Agreement with BJC Healthcare of St. Louis, Missouri, one of the largest non-profit, integrated healthcare systems in the United States. The Agreement enables all physicians across the BJC system access to both ThyGenX® (now ThyGeNEXT™) and ThyraMIR® for patients with indeterminate thyroid | |
● | In May 2018, we announced that we had entered into an agreement with Vanderbilt University Medical Center (VUMC) based in Nashville, TN, one of the largest academic medical centers in the country. The agreement enables all physicians across the Vanderbilt system access to both ThyGenX® (now ThyGeNEXT™) | |
● | In May 2018, we announced that 14 Blue Cross Blue Shield plans across the country have published favorable coverage policies since the beginning of 2018 for ThyGenX® (now ThyGeNEXT™) and ThyraMIR®, the Company’s molecular tests for indeterminate thyroid nodules. The list of plans includes many of the largest Blue Cross Blue Shield plans in the country, including Blue Shield of California and Horizon Blue Cross Blue Shield of New Jersey, previously announced by us. As a result of these 14 new policies, over 75 million members participating in these plans now have coverage | |
● | In June | |
● | In July |
INTERPACE DIAGNOSTICS GROUP, INC.
Recent Equity Financings
From January 6, 2017 through June 30, 2017, we completed four public offerings of common stock and a private placement of warrants, which resulted in aggregate gross proceeds to us of approximately $25.9 million. A description of the financings is as follows:
● |
As of July 7, 2017 all of the 2,600,000 Pre-funded Warrants were exercised for the $.01 per warrant exercise price and all 2,600,000 common shares related to the warrants have been issued. On July 31, 2017, the Underwriters exercised their right to purchase 875,000 Firm Shares for $0.960 million net of $0.072 million in underwriter discounts, or $0.882 million.
INTERPACE DIAGNOSTICS GROUP, INC.
DESCRIPTION OF REPORTING SEGMENTS
We currently operate under one operating segment, which is our molecular diagnostic business. UntilSince December 22, 2015, priorthe 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. We believe this structure allows investors to better understand Company performance, better assess prospects for future cash flows, and make more informed decisions about the Company.
Revenue
The Company’s revenue is generated from the performance of its proprietary tests. The Company’s performance obligation is fulfilled upon completion, review and release of test results and subsequent billing to the salethird-party payer, hospital or service provider.
Revenue Recognition Prior to the Adoption of the CSO business, we operated under two reporting segments: Commercial Services and Interpace Diagnostics. The CSO business is reported as discontinued operations in all periods presented.ASC 606
Interpace Diagnostics
We recognizeHistorically, for the time periods through December 2017, the Company recognized revenue from services rendered when the following four revenue recognition criteria arewere met: persuasive evidence of an arrangement exists; services have been rendered; the selling price is fixed or determinable; and collectability is reasonably assured.
Our revenue is generated using our proprietary tests and related services. Our performance obligation is fulfilled upon the completion, review and release of test results. In conjunction with fulfilling these services, we bill the third-party payer or hospital. We recognize our The Company recognized revenue related to billings for Medicare, Medicare Advantage, and hospitalsdirect-bill payers on an accrual basis, net of contractual adjustment, when there was a contract is in place, a reliablepredictable pattern of collectability exists and collectability is reasonably assured.collectability. Contractual adjustments represent the difference between the list prices and the reimbursement rate set by Medicare and Medicare Advantage, the contractual rate or the amounts agreedbilled to with hospitals.direct-bill payers, which approximates the Medicare rate. For certain third-party payers that did not have established contractual reimbursement rates or a predictable pattern of collectability, including commercial insurance carriers and Medicaid, the Company believed that the fee was fixed or determinable and collectability was reasonably assured only upon request of third-party payer notification of payment or when cash is received, and recognized revenue at that time.
Until a contract hashad been negotiated with a commercial insurance carrier or governmental program, the services may or may not be covered by these entitiesentities’ existing reimbursement policies. In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment, the related revenue iswas only recognized upon the earlier of payment notification or cash receipt. Accordingly, we recognizerecognized revenue from commercial insurance carriers, government programs, and certain direct-bill healthcare providers without contracts when payment iswas received.
Persuasive evidenceRevenue Recognition after the Adoption of an arrangement existsASC 606
Beginning January 1, 2018 under ASC 606, the Company began to recognize revenue for billings less contractual allowances and deliveryestimated uncollectable amounts for all payer groups on the accrual basis based upon a thorough analysis of historical receipts. The net amount derived and used for revenue recognition is deemedreferred to have occurred upon completion, review,as the “net realizable value” or (“NRV”) for the particular test and releasepayer group from which reimbursement is received. This derived NRV will be evaluated quarterly or as needed and then applied to future periods until recalculated.
The Company completed its analysis of the test results at which time we will billASC 606 impact and incorporated further analysis of first quarter 2018 collections from its commercial payer base in finalizing its ASC 606 adjustments. The impact of recording the third-party payer or hospital.cumulative catch-up adjustment under the modified retrospective method was $2.5 million, recorded as an increase to opening retained earnings on January 1, 2018. Prior periods have not been retrospectively adjusted. The assessmentCompany also finalized its analysis of the fixed or determinable nature of the fees charged for diagnostic testing performed,modified internal controls over financial reporting and the collectabilitydisclosures required starting with Form 10-Q for the first quarter of those fees, requires significant judgment by our management. Our management believes that these two criteria have been met when there is contracted reimbursement coverage or a predictable pattern2018.
INTERPACE DIAGNOSTICS GROUP, INC.
Cost of collectability with individual third-party payers or hospitals and accordingly, recognizes revenue upon delivery of the test results. In the absence of contracted reimbursement coverage or a predictable pattern of collectability, we believe that the fee is fixed or determinable and collectability is reasonably assured only upon request of third-party payer notification of payment or when cash is received, and we recognize revenue at that time.services
Cost of services consists primarily of the costs associated with operating our laboratories 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, and facility expenses.
INTERPACE DIAGNOSTICS GROUP, INC.
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.
Condensed Consolidated Results of Continuing Operations for the Quarter Ended June 30, 20172018 Compared to the Quarter Ended June 30, 20162017 (in thousands)
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2017 | 2017 | 2016 | 2016 | |||||||||||||
Revenue, net | $ | 3,855 | 100.0 | % | $ | 3,612 | 100.0 | % | ||||||||
Cost of revenue | 1,879 | 48.7 | % | 1,842 | 51.0 | % | ||||||||||
Gross profit | 1,976 | 51.3 | % | 1,770 | 49.0 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 1,555 | 40.3 | % | 1,322 | 36.6 | % | ||||||||||
Research and development | 413 | 10.7 | % | 357 | 9.9 | % | ||||||||||
General and administrative | 2,793 | 72.5 | % | 2,015 | 55.8 | % | ||||||||||
Acquisition related amortization expense | 813 | 21.1 | % | 970 | 26.9 | % | ||||||||||
Total operating expenses | 5,574 | 144.6 | % | 4,664 | 129.1 | % | ||||||||||
Operating loss | (3,598 | ) | -93.3 | % | (2,894 | ) | -80.1 | % | ||||||||
Interest expense | (216 | ) | -5.6 | % | (858 | ) | -23.8 | % | ||||||||
Loss on extinguishment of debt | (2,731 | ) | -70.8 | % | - | - | ||||||||||
Other (loss) income, net | (8 | ) | -0.2 | % | 3 | 0.1 | % | |||||||||
Loss from continuing operations before tax | (6,553 | ) | -170.0 | % | (3,749 | ) | -103.8 | % | ||||||||
Benefit for income tax | (301 | ) | -7.8 | % | (236 | ) | -6.5 | % | ||||||||
Loss from continuing operations | (6,252 | ) | -162.2 | % | (3,513 | ) | -97.3 | % | ||||||||
(Loss) income from discontinued operations, net of tax | (54 | ) | -1.4 | % | 1,179 | 32.6 | % | |||||||||
Net loss | $ | (6,306 | ) | -163.6 | % | $ | (2,334 | ) | -64.6 | % |
Three Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2018 | 2018 | 2017 | 2017 | |||||||||||||
Revenue, net | $ | 5,501 | 100.0 | % | $ | 3,855 | 100.0 | % | ||||||||
Cost of revenue | 2,247 | 40.8 | % | 1,879 | 48.7 | % | ||||||||||
Gross profit | 3,254 | 59.2 | % | 1,976 | 51.3 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 2,095 | 38.1 | % | 1,555 | 40.3 | % | ||||||||||
Research and development | 518 | 9.4 | % | 413 | 10.7 | % | ||||||||||
General and administrative | 1,726 | 31.4 | % | 2,793 | 72.5 | % | ||||||||||
Acquisition related amortization expense | 813 | 14.8 | % | 813 | 21.1 | % | ||||||||||
Total operating expenses | 5,152 | 93.7 | % | 5,574 | 144.6 | % | ||||||||||
Operating loss | (1,898 | ) | -34.5 | % | (3,598 | ) | -93.3 | % | ||||||||
Interest expense | - | 0.0 | % | (216 | ) | -5.6 | % | |||||||||
Loss on extinguishment of debt | - | 0.0 | % | (2,731 | ) | -70.8 | % | |||||||||
Other income (expense), net | 33 | 0.6 | % | (8 | ) | -0.2 | % | |||||||||
Loss from continuing operations before tax | (1,865 | ) | -33.9 | % | (6,553 | ) | -170.0 | % | ||||||||
Provision (benefit) for income tax | 8 | 0.1 | % | (301 | ) | -7.8 | % | |||||||||
Loss from continuing operations | (1,873 | ) | -34.0 | % | (6,252 | ) | -162.2 | % | ||||||||
Loss from discontinued operations, net of tax | (44 | ) | -0.8 | % | (54 | ) | -1.4 | % | ||||||||
Net loss | $ | (1,917 | ) | -34.8 | % | $ | (6,306 | ) | -163.6 | % |
28 |
INTERPACE DIAGNOSTICS GROUP, INC.
Revenue, net
RevenueConsolidated revenue for the three months ended June 30, 20172018 increased by $0.3$1.6 million, or 6.7%42.7%, to $3.9$5.5 million, compared to $3.6$3.9 million for the three months ended June 30, 2016.2017. This increase was principally attributable to increased test volume and collection volumecommercial coverage for our thyroid tests and the change in revenue recognition under ASC 606 from cash basis to accrual of approximately $0.3 million for ThyraMIR for Medicare and Medicare Advantagecertain payer groups, as disclosed in the footnotes to the financial statements.
INTERPACE DIAGNOSTICS GROUP, INC.
Cost of revenue
CostConsolidated cost of revenue for the three months ended June 30, 2017 remained essentially flat, increasing by only 2% even though revenues2018 increased by over 6%$0.4 million, or 19.6%. As a percentage of revenue cost of revenue decreased to 48.7%40.8% as compared to 51.0%48.7% in the comparable prior year period.asperiod. The decrease as a percentage of revenue can be attributed to efficiencies in the Company became more efficient in its manufacturing process.process relative to higher test volumes as well as the timing of purchases.
Gross profit
Consolidated gross profit for the three months ended June 30, 20172018 increased $0.2$1.3 million, or 11.6%64.7%, to $2.0$3.3 million, compared to $1.8$2.0 million for the three months ended June 30, 2016.2017. This increase was primarily related to the increase in revenue and improved laboratory cost efficiencies in manufacturing processesrelated to higher test volumes, as discussed above.
Sales and marketing expense
Sales and marketing expense was $1.6$2.1 million for the three months ended June 30, 20172018 and as a percentage of revenue was 40.3%38.1%. For the three months ended June 30, 2016, the2017, sales and marketing expense was $1.3$1.6 million and 36.6%40.3% as a percentage of revenue. The increase in sales and marketing expense principally reflects a modest rebuilding ofan increase in salesforce costs as well as increased marketing and certain other costs that had been cut in 2015 and 2016 during the cost reduction initiatives.spending.
Research and development
Research and development expense reflects clinical and research costs for supplies, laboratory tests and evaluations, scientific and administrative staff involved in clinical research, statistical research and product development related to new tests, products and programs. These costs were approximately $0.4$0.5 million for both the three months ended June 30, 20172018 and approximately $0.4 million for the three months ended June 30, 2016, respectively.2017. As a percentage of revenue they were 9.4% for the three months ended June 30, 2018 and 10.7% for the three months ended June 30, 2017 and 9.9 % for the three months ended June 30, 2016.2017.
General and administrative
General and administrative expense for the three months ended June 30, 20172018 was $2.8$1.7 million as compared to $2.0$2.8 million for the three months ended June 30, 2016. This increase2017. The decrease was primarily attributable to an increasea net decrease in the reestablishmentDepartment of Justice (“DOJ”) accrual expense of approximately $0.5 million, $0.3 million in warrant issuance costs and $0.2 million in rent and moving expenses that occurred in the DOJ accrual, professional fees related to the multiple equity offerings and debt/equity exchanges that we successfully closed during the first halfsecond quarter of 2017, and a more appropriate internal allocation of certain Research & Development Costs to General and Administrative.with no similar cost in fiscal 2018.
29 |
INTERPACE DIAGNOSTICS GROUP, INC.
Acquisition related amortization expense
During both the three months ended June 30, 20172018 and June 30, 2016,2017, we recorded amortization expense of approximately $0.8 million and $1.0 million, respectively. This relates toin connection with the amortization for RedPath and Asuragen acquired intangible assets. The decrease relates to the impact of certain intangibles being fully written off in 2016, as a result the amortization expense is reduced going forward.
INTERPACE DIAGNOSTICS GROUP, INC.
Operating loss
There was an
We experienced operating losslosses of $1.9 million for the three months ended June 30, 2018 and $3.6 million for the three months ended June 30, 2017 and an operating loss during the three months ended June 30, 2016 of $2.9 million.2017. The increasedecrease in the operating loss for the three months ended June 30, 20172018 was primarily attributable to the increase in operatingrevenue and gross profit and the decrease in G&A expenses discussed above.
BenefitProvision (benefit) for income taxes
We had income tax expense of approximately $8,000 for the three months ended June 30, 2018 and an income tax benefit of approximately $0.3 million for the three months ended June 30, 2017. We had an incomeIncome tax benefit of approximately $0.2 millionexpense for the three months ended June 30, 2016.2018 was primarily due to required minimum state and local taxes. The income tax benefit for both periods2017 was primarily due to allocation of tax expense between continuing and discontinued operations.
(Loss)incomeLoss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately $44,000 for the three months ended June 30, 2018 and a loss from discontinued operations of $0.1 million for the three months ended June 30, 2017 and income from discontinued operations of $1.2 million for the three months ended June 30, 2016.2017. The loss from discontinued operations for the quarter ended June 30, 2017both periods was primarily related to the allocation of income tax expense. The income from discontinued operations for the three months ended June 30, 2016 was primarily related to the gain on sale of $1.3 million related to the final working capital adjustment regarding the sale of CSO in December of 2015.
INTERPACE DIAGNOSTICS GROUP, INC.
Condensed Consolidated Results of Continuing Operations for the Six Months Ended June 30, 20172018 Compared to the Six Months Ended June 30, 20162017 (in thousands)
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2018 | 2018 | 2017 | 2017 | |||||||||||||
Revenue, net | $ | 10,310 | 100.0 | % | $ | 7,325 | 100.0 | % | ||||||||
Cost of revenue | 4,827 | 46.8 | % | 3,651 | 49.8 | % | ||||||||||
Gross profit | 5,483 | 53.2 | % | 3,674 | 50.2 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 4,086 | 39.6 | % | 2,691 | 36.7 | % | ||||||||||
Research and development | 1,019 | 9.9 | % | 719 | 9.8 | % | ||||||||||
General and administrative | 3,897 | 37.8 | % | 4,315 | 58.9 | % | ||||||||||
Acquisition related amortization expense | 1,626 | 15.8 | % | 1,626 | 22.2 | % | ||||||||||
Change in fair value of contingent consideration | - | 0.0 | % | (5,776 | ) | -78.9 | % | |||||||||
Total operating expenses | 10,628 | 103.1 | % | 3,575 | 48.8 | % | ||||||||||
Operating (loss) income | (5,145 | ) | -49.9 | % | 99 | 1.4 | % | |||||||||
Interest expense | - | 0.0 | % | (469 | ) | -6.4 | % | |||||||||
Loss on extinguishment of debt | - | 0.0 | % | (4,278 | ) | -58.4 | % | |||||||||
Other income (expense), net | 144 | 1.4 | % | (44 | ) | -0.6 | % | |||||||||
Loss from continuing operations before tax | (5,001 | ) | -48.5 | % | (4,692 | ) | -64.1 | % | ||||||||
Provision (benefit) for income tax | 14 | 0.1 | % | (298 | ) | -4.1 | % | |||||||||
Loss from continuing operations | (5,015 | ) | -48.6 | % | (4,394 | ) | -60.0 | % | ||||||||
(Loss) income from discontinued operations, net of tax | (95 | ) | -0.9 | % | 502 | 6.9 | % | |||||||||
Net loss | $ | (5,110 | ) | -49.6 | % | $ | (3,892 | ) | -53.1 | % |
Six Months Ended | ||||||||||||||||
June 30, | ||||||||||||||||
2017 | 2017 | 2016 | 2016 | |||||||||||||
Revenue, net | $ | 7,325 | 100.0 | % | $ | 6,647 | 100.0 | % | ||||||||
Cost of revenue | 3,651 | 49.8 | % | 3,020 | 45.4 | % | ||||||||||
Gross profit | 3,674 | 50.2 | % | 3,627 | 54.6 | % | ||||||||||
Operating expenses: | ||||||||||||||||
Sales and marketing | 2,691 | 36.7 | % | 2,904 | 43.7 | % | ||||||||||
Research and development | 719 | 9.8 | % | 680 | 10.2 | % | ||||||||||
General and administrative | 4,315 | 58.9 | % | 4,797 | 72.2 | % | ||||||||||
Acquisition related amortization expense | 1,626 | 22.2 | % | 1,939 | 29.2 | % | ||||||||||
Change in fair value of contingent consideration | (5,776 | ) | -78.9 | % | - | - | ||||||||||
Total operating expenses | 3,575 | 48.8 | % | 10,320 | 155.3 | % | ||||||||||
Operating income (loss) | 99 | 1.4 | % | (6,693 | ) | -100.7 | % | |||||||||
Interest expense | (469 | ) | -6.4 | % | (1,062 | ) | -16.0 | % | ||||||||
Loss on extinguishment of debt | (4,278 | ) | -58.4 | % | - | 0.0 | % | |||||||||
Other (loss) income, net | (44 | ) | -0.6 | % | 10 | 0.2 | % | |||||||||
Loss from continuing operations before tax | (4,692 | ) | -64.1 | % | (7,745 | ) | -116.5 | % | ||||||||
Benefit for income tax | (298 | ) | -4.1 | % | (227 | ) | -3.4 | % | ||||||||
Loss from continuing operations | (4,394 | ) | -60.0 | % | (7,518 | ) | -113.1 | % | ||||||||
Income from discontinued operations, net of tax | 502 | 6.9 | % | 398 | 6.0 | % | ||||||||||
Net loss | $ | (3,892 | ) | -53.1 | % | $ | (7,120 | ) | -107.1 | % |
INTERPACE DIAGNOSTICS GROUP, INC.
Revenue, net
Revenue, NetConsolidated revenue for the six months ended June 30, 20172018 increased by $0.7$3.0 million, or 10.2%40.8%, to $7.3$10.3 million, compared to $6.6$7.3 million for the six months ended June 30, 2016. 2017.
This increase was principally attributable to increased test volume and collection volumecommercial coverage for our thyroid tests and the change in revenue recognition under ASC 606 from cash basis to accrual of approximately $0.7 million for ThyraMIR for Medicare and Medicare Advantagecertain payer groups, as disclosed in the footnotes to the financial statements.
Cost of revenue
CostConsolidated cost of Revenuerevenue for the six months ended June 30, 20172018 increased by $631$1.2 million or 20.9%32.2% as compared to the same period in 2016.2017. The primary reason for the changeincrease was the increase in revenue and an increase in lab supplies expense of $0.3 million, and employee costs of $0.2 million.test volumes over the prior year. As a percentage of Revenue, Net, Costrevenue, cost of Revenue increasedrevenue decreased to 49.8%46.8% as compared to 45.4%49.8% in the comparable prior year period.period due primarily to laboratory cost efficiencies relative to the increase in test volume and related revenues.
Gross profit
Gross Profitprofit, as a percentage of Revenue, Net decreasedrevenue, increased to 53.2% for the six months ended June 30, 2018 as compared to 50.2% for the six months ended June 30, 2017 as compared2017. This increase was also primarily due to 54.6% for the six months ended June 30, 2016. This decrease was primarily a result oflaboratory cost efficiencies relative to the increase in certain expenses discussed above.test volume and related revenues.
INTERPACE DIAGNOSTICS GROUP, INC.
Sales and marketing expense
Sales and Marketing Expense was $2.7marketing expenses were $4.1 million for the six months ended June 30, 20172018, and as a percentage of revenue was 36.7%39.6%. For the six months ended June 30, 2016, the2017, sales and marketing expenses were $2.7 million and 36.7% as a percentage of revenue. The increase in sales and marketing expense was $2.9 million and 43.7%principally reflect an increase in salesforce costs as a percentage of Revenue, Net. The decrease in Sales and Marketing Expense principally reflects a reduction in sales personnel and the consolidation ofwell as increased marketing activities and the decline as a percentage of revenue is also a function of the growth in revenues.spending.
Research and development
Research and Development Costsdevelopment costs totaled $0.7$1.0 million for the six months ended June 30, 20172018 and as a percentage of revenue were 9.8%9.9%. For the six months ended June 30, 20162017 the expense was $0.7 million and as a percentage of revenue was 10.2%9.8%. The decrease as a percentage of revenueincrease in research and development expenses was primarily due to increased revenuesan increase in certain costs that are internally allocated to Research and Development, as well as certainan increase in employee stock compensation costs that were internally reallocated to Generalaffiliated with research and Administrative Costs.development personnel.
General and administrative
General and administrative expense for the six months ended June 30, 20172018 was $4.3$3.9 million as compared to $4.8$4.3 million for the six months ended June 30, 2016.2017. This decrease was primarily attributable to reversal of severance accruals of $1.5a comparable reduction in DOJ settlement expense totaling $1.1 million, partially offset by an increase in DOJ settlement expenseemployee expenses of $0.8$0.6 million and certain additional costs that in prior years had been allocated to Research & Development Costs.the current year.
Acquisition related amortization expense
During both the six months ended June 30, 20172018 and June 30, 2016,2017, we recorded amortization expense of approximately $1.6 million and $1.9 million, respectively related to the amortization for RedPath and Asuragen acquired intangible assets. The decrease relates to the impact of certain intangibles being fully written off in 2016, as a result the amortization expense is reduced going forward.million.
Change in fair value of contingent consideration
During the six months ended June 30, 2017, there was a $5.8 million reduction in the contingent consideration liability related toas the result of the termination of the contingent consideration agreement with Redpath Equity Holders Representative, LLC, for amounts associated with future royalty payments for the assets acquired from Redpath. SeeRedpath, as disclosed in Note 514,Equity of the footnotes to the Consolidated Financial Statements for more details.financial statements.
INTERPACE DIAGNOSTICS GROUP, INC.
Operating (loss) income (loss)
There wasWe experienced an operating income from continuing operationsloss of $0.1$5.1 million for the six months ended June 30, 20172018, and an operating lossincome of $0.1 million during the six months ended June 30, 2016 of $6.7 million.2017. The increase in operating income for the six months ended June 30, 2017 was primarily attributable to the reversal of our RedpathRedPath contingent consideration liability of $5.8 million. Without the reversal of contingent consideration, the operating income from continuing operations for the six months ended June 30, 2017 would have been an operating loss of $5.7 million compared to the $6.7 million operating loss in 2016.million.
INTERPACE DIAGNOSTICS GROUP, INC.
BenefitProvision (benefit) for income taxes
We had income tax expense of approximately $14,000 for the six months ended June 30, 2018 and an income tax benefit of approximately $0.3 million for the six months ended June 30, 2017. We had an income tax benefit of approximately $0.2 million for the six months ended June 30, 2016. The income tax benefit for both periods2017 was primarily due to allocation of tax expense between continuing and discontinued operations.
Income(Loss) income from discontinued operations, net of tax
We had a loss from discontinued operations of $0.1 million for the six months ended June 30, 2018 and income from discontinued operations of $0.5 million for the six months ended June 30, 2017 and income from discontinued operations of $0.4 million for the six months ended June 30, 2016.2017. The income from discontinued operations for the six months ended June 30, 2017 was primarily related to reversals of severance accruals and for 2016 it was primarily related to the gain on sale of $1.3 million related to the final working capital adjustment regarding the sale of CSO in December of 2015.
INTERPACE DIAGNOSTICS GROUP, INC.accruals.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2017,2018, we had an operating incomeloss of $0.1$5.1 million. As of June 30, 2017,2018, we had cash and cash equivalents of $14.3$10.1 million, total current assets of $19.2 million and current liabilities of $10.9$7.4 million.
It is anticipated that we may require additional capital to fund our operations in the future. There is no guarantee that additional capital can be raised to fund our operations in 2017 and beyond. We intend to meet our capital needs by driving revenue growth, containing costs as well as exploring other options.
We completed four public offerings and a private placementoptions, including the possibility of warrants from January 6, 2017 through June 2017, which resulted in aggregate gross proceedsraising additional debt or equity capital as necessary. There is, however, no guarantee that additional capital can be raised to us of approximately $25.9 million. See “Recent Equity Financings”.
See Note 2 to the Interim Financial Statements for a discussion of the RedPath Note.
On September 28, 2016, the Company and its wholly owned direct and indirect subsidiaries, Interpace LLC and Interpace Diagnostics Corporation, entered into the Credit Agreement with SCM Specialty Finance Opportunities Fund, L.P., or the Lender. Pursuant to and subject to the terms of the Credit Agreement, the Lender agreed to provide a revolving loan, or the Loan, to us in the maximum principal amount of $1.2 million. The maturity date of the Loan is September 28, 2018. The Loan bears interest at an annual rate equal to the Prime Rate (as defined in the Credit Agreement) plus 2.75%, payable in cash monthly in arrears. The interest rate will be increased by 5.0% in the event of a default under the Credit Agreement. We have not yet drawn down on the credit facility. As of June 30, 2017, the Company is seeking to renegotiate the terms of the Credit Agreement and had not borrowed any funds under the Credit Agreement.fund our future operations.
During the six months ended June 30, 2018, net cash used in operating activities was $5.0 million, of which $4.6 million was used in continuing operations and $0.4 million was used in discontinued operations. The main component of cash used in operating activities during the six months ended June 30, 2018 was the net loss of $5.1 million. During the six months ended June 30, 2017, net cash used in operating activities was $8.6 million, of which $7.7 million was used in continuing operations and $0.9 million was used in discontinued operations. The main component of cash used in operating activities during the six months ended June 30, 2017 was a net loss of $3.9 million, a decrease in accrued payroll of $1.5 million and accounts payable of $1.4 million related to past due obligations from the prior year. DuringFor the six months ended June 30, 2016,2018, there was $0.1 million of net cash used in operatinginvesting activities for the purchase of lab and computer equipment. There was $5.3 million, of which $4.4 million was used in continuing operations and $0.9 million was used in discontinued operations. The main component ofno cash used in operatinginvesting activities duringfor the six months ended June 30, 2016 was our loss from continuing operations of $7.6 million.2017.
There was no net cash from investing activities for either period.
For the six months ended June 30, 2017, there was net cash provided from financing activities of $22.2 million, which resulted from the issuance of common stock in our four direct offerings completed in the first six months of 2017. For the six months ended June 30, 2016, there was no cash provided from financing activities.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. On an ongoing basis, we attempt to minimize any effects of inflation on our operating results by controlling operating costs and whenever possible, seeking to insure that billing rates reflect increases in costs due to inflation.
Off-Balance Sheet Arrangements
None.
INTERPACE DIAGNOSTICS GROUP, INC.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of the end of the period covered by this Form 10-Q. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives including that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In addition, management is required to apply its judgment in evaluating the benefits of possible disclosure controls and procedures relative to their costs to implement and maintain.
Based on theirthe evaluation our Chief Executive Officer and Chief Financial Officer concluded that ourof the Company’s disclosure controls and procedures, were notas that term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, the Chief Executive Officer of the Company and the Chief Financial Officer of the Company have concluded that the Company’s disclosure controls and procedures are effective at the reasonable assurance level as of June 30, 2017 as a result of material weaknesses. Specifically, as of June 30, 2017, the following material weaknesses existed:
Management believes that the material weaknesses noted are due in part to the small size of the staff resulting from staff downsizing and cost containment. As part of our remediation plan, we intend to take steps to improve our financial reporting and implement new policies, procedures and controls in addition to seeking external assistance with a review of transactions recorded and classified in the financial statements, as well as the accounting and related disclosures for complex accounting matters when necessary.2018.
Reference should be made to our most recent Annual Report on Form 10-K for additional information regarding discussion of the effectiveness of the Company’s controls and procedures.
Changes in internal controls
There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
INTERPACE DIAGNOSTICS GROUP, INC.
“Item 3- Legal Proceedings” of our most recent Annual Report on Form 10-K filed on June 30, 2017March 23, 2018 includes a discussion of our legal proceedings, as does Note 6,Commitments and Contingencies, to the accompanying condensed consolidated financial statements. ThereDuring the fiscal quarter ended June 30, 2018, there have been no material changes except as disclosed below, tofrom the legal proceedings disclosed withinin our 2016 Form 10-K, as supplemented and amended within our quarterly report on Form 10-Q for the quarter ended March 31, 2017.
Brookwood MC Investors, LLC & MCII v, PDI, Inc.10-K.
On March 30, 2017, we received a tenancy summons and verified complaint for nonpayment of our Parsippany, New Jersey office rent. The complaint alleged amounts owing of $203,734 covering unpaid base rent of $54,075 from January through March 2017, as well as late charges, attorney’s fees, and the redeposit of a security deposit of $136,975. The plaintiff landlord sought a judgement for possession of the premises. A hearing in the Superior Court of New Jersey, Morris County-Special Civil part, took place on April 21, 2017. We subsequently entered into a settlement agreement with the plaintiff landlord on May 9, 2017 whereas the landlord applied the security deposit against the unpaid rent and we agreed to a payment plan of $25,000 per month beginning in April 2017 and continuing through September 2017 when the balance of amounts due are payable in full for the remainder of its lease which expires June 30, 2017. The first payment was made on April 28, 2017. We entered into a new lease on May 24, 2017, and the amount of the final payment due September 30, 2017 will be reduced through application of the tenant credit provided for in the new lease agreement.
Prolias Technologies, Inc. v. PDI, Inc.
On February 16, 2017, the Company refiled its application for final judgment, and on March 9, 2017, the Superior Court of New Jersey entered a final judgment in the Company’s favor against Prolias for the sum of $636,053 plus ten percent interest continuing to accrue on the principal balance of $500,000 (per diem $136.99) unless and until paid. Final judgment was also entered in the Company’s favor, and against Prolias, declaring Prolias is deemed to have executed and delivered to the Company a promissory note in the amount of $1,000,000 and Prolias is obligated to repay the Company the principal amount and all interest in accordance with the terms of the promissory note and Article 10.2(a) of the Collaboration Agreement by and between Prolias and the Company. On April 30, 2017, the final judgment against Prolias was recorded as a statewide lien. No assurance can be given that the Company will be able to recover on the judgment against Prolias.
Not applicable as we are a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 21, 2017, we13th and 15th, 2018, the Company issued to Maxim 500,000 warrants to purchase our325,000 shares of common stock at a pricein consideration of $1.32 per share. Such issuance was compensation for ourservices to be rendered in respect of two consulting agreements it entered into during the quarter ended June 21, 2017 public offering and was made in reliance upon the exemption30, 2018. The issuances were exempt from registration provided bypursuant to the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act.thereof.
On July 31, 2017, we issued to Maxim 35,000 warrants to purchase our common stock at a price of $1.32 per share. Such issuance was compensation for our July 31, 2017 public offering and was made in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
None.
None.
Exhibit No. | Description | |
| ||
31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith. | |
32.1+ | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith. | |
32.2+ | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith. | |
101 | The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, | |
+ | Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference to any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in any such filing. |
+ Exhibits 32.1 and 32.2 are being furnished and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall such exhibits be deemed to be incorporated by reference to any registration statement or other document filed under the Securities Act or the Exchange Act, except as otherwise stated in any such filing.
* previously filed
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August | Interpace Diagnostics Group, Inc. | |
(Registrant) | ||
/s/ Jack E. Stover | ||
Jack E. Stover | ||
President and Chief Executive Officer | ||
(Principal Executive Officer) | ||
/s/ James Early | ||
James Early | ||
Chief Financial Officer | ||
(Principal Financial Officer) |
/s/ Thomas Freeburg | ||
Thomas Freeburg | ||
Chief Accounting Officer | ||
(Principal Accounting Officer) |