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 March 31, ~~2018~~2019

[ ]	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)~~

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)~~

~~(855) 776-6419~~

~~(Registrant’s telephone number, including area code)~~

Morris Corporate Center 1, Building C

300 Interpace Parkway, Parsippany, NJ 07054

(Address of principal executive offices and zip 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, or an emerging growth company. See the definitions of “large accelerated ~~filer,”~~filer”, “accelerated ~~filer,”~~filer”, “smaller reporting ~~company,”~~company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer ~~[ ]~~[X]		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 [ ] No [X]

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	IDXG	The Nasdaq Stock Market LLC

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

May ~~7, 2018~~

10, 2019

Common ~~stock,~~Stock, par value $0.01 ~~par value~~per share

~~27,869,275~~

38,096,038

INTERPACE DIAGNOSTICS GROUP, INC.

FORM 10-Q FOR PERIOD ENDED MARCH 31, ~~2018~~2019

TABLE OF CONTENTS

			Page No.
	PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Interim Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets at March 31, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018		3

	Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2019 and 2018 ~~and 2017~~ (unaudited)		4

	Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity for the three-month ~~period~~periods ended March 31, 2019 and 2018 (unaudited)		5

	Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018 (unaudited)		6

	Notes to Unaudited Interim Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	21

Item 4.	Controls and Procedures	27	28

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	28	29

Item 1A.	Risk Factors	28	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	28	29

Item 6.	Exhibits	28	29

Signatures			2930

INTERPACE DIAGNOSTICS GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

March 31, 2018 December 31, 2017
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents $ 12,645 $ 15,199
Accounts receivable, net 6,403 3,437
Other current assets 1,092 1,172
Total current assets 20,140 19,808
Property and equipment, net 634 654
Other intangible assets, net 32,292 33,105
Other long-term assets 31 31
Total assets $ 53,097 $ 53,598

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 735 $ 391
Accrued salaries and bonus 997 1,394
Other accrued expenses 5,077 5,004
Current liabilities from discontinued operations 985 1,302
Total current liabilities 7,794 8,091
Contingent consideration 1,272 1,349
Other long-term liabilities 4,266 4,289
Total liabilities 13,332 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; 27,942,344 and 27,900,806 shares issued, respectively; 27,869,275 and 27,836,456 shares outstanding, respectively 279 278
Additional paid-in capital 173,659 173,062
Accumulated deficit (132,493 ) (131,800 )
Treasury stock, at cost (73,069 and 64,350 shares, respectively) (1,680 ) (1,671 )
Total stockholders’ equity 39,765 39,869
Total liabilities and stockholders’ equity $ 53,097 $ 53,598

March 31, December 31,
2019 2018
(unaudited)

ASSETS
Current assets:
Cash and cash equivalents $ 9,124 $ 6,068
Accounts receivable, net 11,221 9,483
Other current assets 1,888 2,170
Total current assets 22,233 17,721
Property and equipment, net 758 837
Other intangible assets, net 29,040 29,853
Operating lease assets 2,320 -
Other long-term assets 31 31
Total assets $ 54,382 $ 48,442

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,152 $ 1,059
Accrued salary and bonus 1,749 1,424
Other accrued expenses 6,013 5,091
Current liabilities from discontinued operations 918 918
Total current liabilities 9,832 8,492
Contingent consideration 2,627 2,693
Operating lease liabilities 1,899 -
Other long-term liabilities 4,253 4,319
Total liabilities 18,611 15,504

Commitments and contingencies (Note 7)

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;
38,195,006 and 28,767,344 shares issued, respectively; 38,096,038 and 28,694,275 shares outstanding, respectively
382 287
Additional paid-in capital 181,954 175,820
Accumulated deficit (144,853 ) (141,489 )
Treasury stock, at cost (98,868 and 73,069 shares, respectively) (1,712 ) (1,680 )
Total stockholders’ equity 35,771 32,938
Total liabilities and stockholders’ equity $ 54,382 $ 48,442

The accompanying notes are an integral part of these condensed consolidated financial statements.

INTERPACE DIAGNOSTICS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited, in thousands, except for per share data)

Three Months Ended
March 31,
2018 2017

Revenue, net $ 4,809 $ 3,470
Cost of revenue (excluding amortization of $813 and $813 for the three months, respectively) 2,580 1,771
Gross profit 2,229 1,699
Operating expenses:
Sales and marketing 1,991 1,136
Research and development 501 306
General and administrative 2,172 1,522
Acquisition related amortization expense 813 813
Change in fair value of contingent consideration - (5,776 )
Total operating expenses 5,477 (1,999 )

Operating (loss) income (3,248 ) 3,698
Interest expense - (254 )
Loss on extinguishment of debt - (1,547 )
Other income (expense), net 111 (36 )
(Loss) income from continuing operations before tax (3,137 ) 1,861
Provision for income taxes 6 3
(Loss) income from continuing operations (3,143 ) 1,858
(Loss) income from discontinued operations, net of tax (50 ) 556
Net (loss) income $ (3,193 ) $ 2,414

Basic (loss) income per share of common stock:
From continuing operations $ (0.11 ) $ 0.43
From discontinued operations (0.00 ) 0.13
Net (loss) income per basic share of common stock $ (0.11 ) $ 0.56

Diluted (loss) income per share of common stock:
From continuing operations $ (0.11 ) $ 0.42
From discontinued operations (0.00 ) 0.13
Net (loss) income per diluted share of common stock $ (0.11 ) $ 0.55
Weighted average number of common shares and common share equivalents outstanding:
Basic 27,855 4,294
Diluted 27,855 4,384

	Three Months Ended March 31,
	2019			2018

Revenue, net	$	6,010		$	4,809
Cost of revenue (excluding amortization of $813 and $813, respectively)		2,622			2,580
Gross profit		3,388			2,229
Operating expenses:
Sales and marketing		2,411			1,991
Research and development		528			501
General and administrative		2,912			2,172
Acquisition related amortization expense		813			813
Total operating expenses		6,664			5,477

Operating loss		(3,276	)		(3,248	)
Accretion expense		(129	)		-
Other income (expense), net		48			111
Loss from continuing operations before tax		(3,357	)		(3,137	)
Provision for income taxes		5			6
Loss from continuing operations		(3,362	)		(3,143	)

Loss from discontinued operations, net of tax		(57	)		(50	)

Net loss	$	(3,419	)	$	(3,193	)

Basic and diluted loss per share of common stock:
From continuing operations	$	(0.10	)	$	(0.11	)
From discontinued operations		(0.00	)		(0.00	)
Net loss per basic and diluted share of common stock	$	(0.10	)	$	(0.11	)
Weighted average number of common shares and common share equivalents outstanding:
Basic		35,147			27,855
Diluted		35,147			27,855

The accompanying notes are an integral part of these condensed consolidated financial statements.

INTERPACE DIAGNOSTICS GROUP, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

	For The Three Months Ended					For The Three Months Ended					For The Three Months Ended
	March 31, 2018					March 31, 2019					March 31, 2018
	Shares		Amount			Shares		Amount			Shares		Amount
Common stock:
Balance at January 1		27,901	$	278			28,767	$	287			27,901	$	278
Common stock issued		41		1			95		1			41		1
Common stock issued through offerings							9,333		94			-		-
Balance at March 31		27,942		279			38,195		382			27,942		279
Treasury stock:
Balance at January 1		64		(1,671	)		73		(1,680	)		64		(1,671	)
Treasury stock purchased		9		(9	)		26		(32	)		9		(9	)
Balance at March 31		73		(1,680	)		99		(1,712	)		73		(1,680	)
Additional paid-in capital:
Balance at January 1				173,062					175,820					173,062
Common stock issued through offerings, net of expenses									5,868					-
Stock-based compensation expense				597					266					597
Balance at March 31				173,659					181,954					173,659
Accumulated deficit:
Balance at January 1				(131,800	)				(141,489	)				(131,800	)
Net loss				(3,193	)				(3,419	)				(3,193	)
Adoption of ASC 606, see Note 3				2,500
Adoption of ASC 606									-					2,500
Adoption of ASC 842									55					-
Balance at March 31				(132,493	)				(144,853	)				(132,493	)

Total stockholders’ equity			$	39,765				$	35,771				$	39,765

The accompanying notes are an integral part of these condensed consolidated financial ~~statements~~

statements.

INTERPACE DIAGNOSTICS GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(~~unaudited,~~ in thousands)

	For The Three Months Ended March 31,
	2019			2018

Cash Flows From Operating Activities
Net loss	$	(3,419	)	$	(3,193	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		873			855
Interest accretion		129			-
Mark to market on warrants		(3	)		(71	)
Stock-based compensation		538			597
Other gains and expenses, net		18			-
Other changes in operating assets and liabilities:
Increase in accounts receivable		(1,738	)		(466	)
Decrease in other current assets		11			80
Increase in accounts payable		93			344
Increase (decrease) in accrued salaries and bonus		325			(397	)
Increase (decrease) in accrued liabilities		156			(292	)
Increase in long-term liabilities		57			49
Net cash used in operating activities		(2,960	)		(2,494	)

Cash Flows From Investing Activity
Purchase of property and equipment		(12	)		(60	)
Sale of property and equipment		13			-
Net cash provided by (used in) investing activity		1			(60	)

Cash Flows From Financing Activities
Issuance of common stock, net of expenses		6,015			-
Net cash provided by financing activities		6,015			-

Net increase (decrease) in cash and cash equivalents		3,056			(2,554	)
Cash and cash equivalents – beginning		6,068			15,199
Cash and cash equivalents – ending	$	9,124		$	12,645

Three Months Ended
March 31,
2018 2017

Cash Flows Used in Operating Activities
Net (loss) income $ (3,193 ) $ 2,414
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 855 972
Interest accretion - 231
Provision for bad debt - 34
Amortization of debt issuance costs - 21
Mark to market on derivatives - 42
Reversal of severance accrual - (2,034 )
Mark to market on warrants (71 ) -
Loss on extinguishment of debt - 1,547
Stock-based compensation 597 58
Change in fair value of contingent consideration - (5,776 )
Other changes in assets and liabilities:
Increase in accounts receivable (466 ) (90 )
Decrease in other current assets 80 161
Decrease in other long-term assets - 250
Increase in accounts payable 344 295
Decrease in accrued salaries and bonus (397 ) (1,639 )
Decrease in other accrued expenses (292 ) (648 )
Increase in other long-term liabilities 49 13
Net cash used in operating activities (2,494 ) (4,149 )

Cash Flows From Investing Activities
Purchase of property and equipment (60 ) -
Net cash used in investing activities (60 ) -

Cash Flows From Financing Activities
Issuance of common stock, net of expenses - 10,701
Cash paid for repurchase of restricted shares - (28 )
Net cash provided by financing activities - 10,673

Net (decrease) increase in cash and cash equivalents (2,554 ) 6,524
Cash and cash equivalents – beginning 15,199 602
Cash and cash equivalents – ending $ 12,645 $ 7,126

The accompanying notes are an integral part of these condensed consolidated financial statements.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular information in thousands, except per share amounts)

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 of Interpace Diagnostics Group, Inc. (the “Company” or “Interpace”), and its wholly-owned subsidiaries, Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation and Interpace Diagnostics, LLC, and related notes as included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, as filed with the U.S. Securities and Exchange Commission (“SEC”) on March ~~23, 2018.~~21, 2019. The condensed Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly owned subsidiaries: Group DCA, LLC, or Group DCA; InServe Support Solutions; and TVG, Inc. and its Commercial Services (“CSO”) business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three-month period ended March 31, ~~2018~~2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2018.~~2019.

LIQUIDITY

As of March 31, ~~2018,~~2019, the Company had cash and cash equivalents of ~~$12.6~~$9.1 million, net accounts receivable of ~~$6.4~~$11.2 million, total current assets of ~~$20.1~~$22.2 million and total current liabilities of ~~$7.8~~$9.8 million. For the quarter ended March 31, ~~2018,~~2019, the Company had a net loss of ~~$3.2~~$3.4 million and cash used in operating activities was ~~$2.5~~$3.0 million.

~~While the Company has significantly increased its cash balance and has eliminated all of its long-term debt, the~~The Company does not expect to generate positive cash flows from operations for the year ending December 31, ~~2018.~~2019. The Company believes however, that it has sufficient cash balances to meet near term obligations and further intends to meet its capital needs by revenue growth, containing costs, entering into strategic alliances as well as exploring other options, including the possibility of raising additional debt or equity capital as necessary. There is, however, no assurance the Company will be successful in meeting its capital requirements prior to becoming cash flow positive.

In November 2018, the Company entered into up to a $4.0 million secured Line of Credit facility including a 3-year term loan for $850,000 with Silicon Valley Bank (“SVB”). The proceeds of the term loan are expected to be used for laboratory capital expenditures and will be repaid monthly. The term loan draw date will be on or before June 30, 2019. The $3.15 million balance of the Line of Credit is available for working capital purposes as a revolving line of credit and has a three-year term, ending November 2021. As of April 2, 2019, $0.25 million of this amount has been reserved, but not drawn, for a letter of credit related to the security deposit for our Pittsburgh facility lease. The borrowing limit of the revolving line of credit is the lower of 80% of the Company’s eligible accounts receivable (as adjusted by SVB) and the aggregate amount of cash collections with respect to accounts receivable during the three prior calendar months. Term loan outstanding amounts incur interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the “Prime Rate”) and 5.00%. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

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

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Tabular information in thousands, except per share amounts)~~

Revenue Recognition

Our Services

We are a fully integrated commercial and bioinformatics company that develops and provides clinically useful molecular diagnostic tests and pathology services. We develop and commercialize ~~molecular diagnostic~~genomic tests and related first line assays principally focused on early detection of patients with indeterminate biopsies and at high risk of cancer ~~and leverage~~using the latest technology ~~and~~to help personalized medicine ~~for improved~~and improve patient diagnosis and management. Our tests and services provide mutational analysis of genomic material contained in suspicious cysts, nodules and lesions with the goal of better informing treatment decisions in patients at risk of thyroid, pancreatic, and other cancers. The molecular diagnostic tests we offer enable healthcare providers to better assess cancer risk, helping to avoid unnecessary surgical treatment in patients at low risk. We currently have four commercialized molecular diagnostic ~~assays~~tests in the marketplace for which we are receiving reimbursement: PancraGEN^®, which is a pancreatic cyst and pancreaticobiliary solid lesion ~~molecular~~genomic test that helps physicians better assess risk of pancreaticobiliary cancers using our proprietary PathFinderTG^®platform; ~~ThyGenX~~ThyGeNEXT^®, which is an expanded oncogenic mutation panel that helps identify malignant thyroid ~~nodules;~~nodules, and replaced ThyGenX^®; ThyraMIR^®, which assesses thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay; and ~~RespriDX™~~RespriDx^®, ~~launched in September 2017, for assessing~~which is a genomic test that helps physicians differentiate metastatic ~~versus~~or recurrent lung cancer from the presence of newly formed primary lung cancer ~~tumors. RespriDX™~~and which also utilizes our PathFinderTG^®platform ~~and compares~~to compare the ~~genetic~~genomic fingerprint of two or more sites of lung cancer. BarreGEN^®, an esophageal cancer risk classifier for Barrett’s Esophagus that also utilizes our PathFinder TG^® platform, is currently in a Clinical Evaluation Program or (“CEP”) whereby we gather information from physicians using BarreGEN^®to ~~determine whether the neoplastic deposits are representative of a recurrence of cancer or a new primary (independent) cancer.~~

~~Adoption of ASC Topic 606, “Revenue from Contracts~~assist us in positioning our product for full launch, partnering and potentially supporting reimbursement with ~~Customers”~~payers.

On January 1, 2018, the Company adopted ASC Topic 606 that amends the guidance for the recognition of revenue from contracts with customers to transfer goods and services by 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. Based on our analysis, we recorded a cumulative adjustment to opening accumulated deficit and increase of accounts receivable of approximately $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 $1.6 million as of March 31, 2018. The impact on our revenue for the three months ended March 31, 2018 was an increase of approximately 9%.

~~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 three months ended March 31, 2018:~~

Consolidated Balance Sheet:
March 31, 2018
(unaudited)
As reported Balances without Adoption of ASC 606 Effect of Change
Higher/(Lower)
Accounts receivable, net $ 6,403 $ 4,828 $ 1,575
Accumulated deficit (132,493 ) (134,993 ) (2,500 )

Revenue:
For the three months ended March 31, 2018
(unaudited)
As reported Balances without Adoption of ASC 606 Effect of Change
Higher/(Lower)
Revenue, net $ 4,809 $ 4,409 $ 400

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 hospitals, the Company previously recognized revenues when the fee 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 Topic 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 for certain payer categories, the adoption of this new standard will not have a significant impact on our reported total revenues and operating results as compared to amounts that would have been reported under the prior revenue recognition standard over our typical revenue cycle. Our accounting policies under the new standard were applied prospectively and are discussed further below.

Revenue ~~Recognition~~from Contracts with Customers (ASC 606)

Upon adoption of ASC 606, the Company recognizes revenue when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.

The Company 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 ~~hospitals~~direct-bill payers for the proprietary tests performed. Revenue is recognized based on the estimated transaction price or net realizable value (“NRV”), which is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. To the extent the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.

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

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

Disaggregated Revenues

We operate in a single operating segment and, therefore, the results of our operations are reported on a consolidated basis for purposes of segment reporting, which is consistent with internal management reporting. For the three-month periods ~~ending~~ended March 31, 2019 and 2018, ~~and March 31, 2017, the majority~~substantially all of the Company’s revenues were derived from its Gastrointestinal and Endocrine molecular diagnostic tests.

Financing and Payment

~~Our~~For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers are typically thirty days. Commercial third-party-payers are required to respond to a claim within a time period established by their respective state regulations, generally between thirty to sixty days. However, payment for commercial third-party ~~payers~~claims may be subject to a denial and ~~type of proprietary testing services performed.~~appeal process, which could take up to two years in some instances where multiple appeals are submitted. The ~~term between invoicing and when payment is due is not significant.~~Company generally appeals all denials from commercial third-party payers.

Costs to Obtain or Fulfill a Customer Contract

Sales commissions are expensed when incurred because the amortization period would have been one year or less. These costs are recorded in sales and marketing expense in the condensed consolidated statements of operations.

Accounts Receivable

The Company’s accounts receivable represent unconditional rights to consideration and are generated using its proprietary molecular diagnostic tests. The Company’s services are fulfilled upon completion of the test, review and release of the test results. In conjunction with fulfilling these services, the Company bills the third-party payer or ~~hospital. Prior to~~directly bills the ~~adoption of ASC 606 on January 1, 2018, the Company recognized accounts~~hospital or service provider. Accounts receivable ~~related to billings for Medicare, Medicare Advantage, and hospitals (direct-bill clients) on an accrual basis, net of contractual adjustment, when collectability~~ is ~~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 rate set by third party payers, including Medicare, commercial payers, or amounts billed directly to ~~hospitals.~~hospitals and service providers. Specific accounts may be written off after several appeals, which in some cases may take longer than twelve months.

Leases

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

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability.See Note 6, Leases.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

Other Current Assets

Other current assets consisted of the following as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

March 31, 2018 December 31, 2017
(unaudited)

Indemnification asset $ 875 $ 875
Prepaids 177 266
Other 40 31
$ 1,092 $ 1,172

	March 31, 2019		December 31, 2018
		(unaudited)
Indemnification assets	$	875	$	875
Prepaid expenses		941		1,230
Other		72		65
Total other current assets	$	1,888	$	2,170

Long-Lived Assets, including Finite-Lived Intangible Assets

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

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Tabular information in thousands, except per share amounts)~~

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,~~12,Discontinued Operations for further information.

Basic and Diluted Net ~~Income (Loss)~~Loss per Share

A reconciliation of the number of shares of common stock used in the calculation of basic and diluted ~~income (loss)~~loss per share for the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018 is as follows:

Three Months Ended
March 31,
2018 2017
(unaudited)
Basic weighted average number of common shares 27,855 4,294
Potential dilutive effect of stock-based awards - 90

Diluted weighted average number of common shares 27,855 4,384

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
March 31,
2018 2017
(unaudited)
Options 2,256 -
Stock-settled stock appreciation rights (SARs) 84 85
Restricted stock and restricted stock units (RSUs) 220 -
Warrants 13,542 955
16,102 1,040

	Three Months Ended
	March 31,
	2019		2018
	(unaudited)
Basic weighted average number of common shares		35,147		27,855
Potential dilutive effect of stock-based awards		-		-
Diluted weighted average number of common shares		35,147		27,855

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

The following outstanding stock-based awards were excluded from the computation of the effect of dilutive securities on loss per share for the following periods because they would have been anti-dilutive:

	Three Months Ended
	March 31,
	2019		2018
	(unaudited)
Options		3,936		2,256
Stock-settled stock appreciation rights (SARs)		25		84
Restricted stock units (RSUs)		607		220
Warrants		14,196		13,542
		18,764		16,102

4.	OTHER INTANGIBLE ASSETS

The net carrying value of the identifiable intangible assets as of March 31, ~~2018~~2019 and December 31, ~~2017~~2018 are as follows:

			As of March 31, 2018			As of December 31, 2017					As of March 31, 2019			As of December 31, 2018
			(unaudited)								(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
RedPath acquisition:
Pancreas test		7		16,141			16,141			7		16,141			16,141
Barrett’s test		9		18,351			18,351			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			$	(11,328	)	$	(10,515	)			$	(14,580	)	$	(13,767	)

Net Carrying Value			$	32,292		$	33,105				$	29,040		$	29,853

Amortization expense was approximately $0.8 million for the three-month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively. Amortization of our diagnostic assets begins upon launch of the product. Estimated amortization expense for the next five years is as follows, based on current assumptions of future product launches:

2018		2019		2020		2021		2022
2019										2019	2020		2021		2022		2023
$	3,252	$	5,292	$	5,292	$	4,908	$	2,987	3,252	$	4,272	$	4,908	$	2,987	$	2,987

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

5.	FAIR VALUE MEASUREMENTS

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

	Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

	Level 2:	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

	Level 3:	Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

~~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, is set forth in the tables below:

	As of March 31, 2018				Fair Value Measurements						As of March 31, 2019				Fair Value Measurements
	Carrying		Fair		As of March 31, 2018						Carrying		Fair		As of March 31, 2019
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
	(unaudited)										(unaudited)
Liabilities:
Contingent consideration:
Asuragen⁽¹⁾	$	1,504	$	1,504	$	-	$	-	$	1,504	$	3,136	$	3,136	$	-	$	-	$	3,136
Other long-term liabilities:
Warrant liability⁽²⁾	$	402	$	402	$	-	$	-	$	402		358		358		-		-		358
	$	1,906	$	1,906	$	-	$	-	$	1,906	$	3,494	$	3,494	$	-	$	-	$	3,494

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

	As of December 31, 2017				Fair Value Measurements						As of December 31, 2018				Fair Value Measurements
	Carrying		Fair		As of December 31, 2017						Carrying		Fair		As of December 31, 2018
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Liabilities:
Contingent consideration:
Asuragen⁽¹⁾	$	1,581	$	1,581	$	-	$	-	$	1,581	$	3,127	$	3,127	$	-	$	-	$	3,127
Other long-term liabilities:
Warrant liability⁽²⁾		473		473		-		-		473		361		361		-		-		361
	$	2,054	$	2,054	$	-	$	-	$	2,054	$	3,488	$	3,488	$	-	$	-	$	3,488

⁽¹⁾⁽²⁾See Note 7,8,Accrued Expenses and Long-Term Liabilities.

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

On June 21, 2017, the Company ~~closed on~~issued 575,000 Underwriters Warrants, related to a public offering ~~issuing both Pre-Funded Warrants and Underwriters Warrants to purchase 2,600,000 shares and 575,000 shares of~~on the ~~Company’s common stock, respectively. Both the Pre-Funded and Underwriters Warrants include~~same date that included 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 include exercise price of the respective warrants, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the ~~Exchange Agreement.~~underlying exchange agreement. Changes to the fair value of the warrant liabilities were recorded in Other income (expense), net. ~~The Pre-Funded Warrants were 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)~~

A roll forward of the carrying value of the Contingent Consideration Liability and the Underwriters’ ~~Warrant from January 1, 2018~~Warrants to March 31, ~~2018~~2019 is as follows:

	2018																					Cancellation		Adjustment
	January 1,		Payments			Accretion		Cancellation of Obligation/ Conversions		Mark to Market			March 31,									of Obligation/		to Fair Value/
	(unaudited)														December 31, 2018		Payments			Accretion		Conversions Exercises		Mark to Market			March 31, 2019
															(unaudited)
Asuragen	$	1,581	$	(77	)	$	-	$	-	$	-		$	1,504	$	3,127	$	(120	)	$	129	$	-	$	-		$	3,136

Underwriters Warrant		473		-					-		(71	)		402
Underwriters Warrants																361		-			-		-		(3	)		358
	$	2,054	$	(77	)	$	-	$	-	$	(71	)	$	1,906	$	3,488	$	(120	)	$	129	$	-	$	(3	)	$	3,494

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

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

LEASES

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. Effective January 1, 2019, the Company adopted the provisions of Topic 842 using the alternative modified transition method, with a cumulative effect adjustment to the opening balance of retained earnings on the date of adoption, and prior periods not restated, as allowed under the provisions of Topic 842. The Company also elected to use the practical expedients permitted under the transition guidance of Topic 842, which provides for the following: the carryforward of the Company’s historical lease classification, no requirement for reassessment of whether an expired or existing contract contains an embedded lease, no reassessment of initial direct costs for any leases that exist prior to the adoption of the new standard, and the election to consolidate lease and non-lease components. The Company also elected to keep all leases with an initial term of 12 months or less off the balance sheet.

The Company recorded $2.4 million of right-of-use lease assets and $2.5 million of lease liabilities upon adoption, primarily relating to rentals of space for our corporate headquarters and laboratories, as well as equipment leases, all under operating leases. In addition, the Company recorded a cumulative adjustment to opening accumulated deficit of $0.1 million.

The table below presents the lease-related assets and liabilities recorded in the Condensed Consolidated Balance Sheet:

	Classification on the Balance Sheet	March 31, 2019
			(unaudited)
Assets
Operating lease assets	Operating lease assets	$	2,320
Total lease assets		$	2,320

Liabilities
Current
Operating lease liabilities	Other accrued expenses	$	526
Noncurrent
Operating lease liabilities	Operating lease liabilities		1,899
Total lease liabilities		$	2,425

The weighted average remaining lease term for the Company’s operating leases was 4.1 years as of March 31, 2019 and the weighted average discount rate for those leases was 6.0%. The Company’s operating lease expenses are recorded within cost of revenue and general and administrative expenses.

The table below reconciles the undiscounted cash flows to the operating lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as of March 31, 2019:

	Operating Leases
		(unaudited)
2019	$	495
2020		675
2021		671
2022		629
2023		250
Total minimum lease payments		2,720
Less: amount of lease payments representing effects of discounting		295
Present value of future minimum lease payments		2,425
Less: current obligations under leases		526
Long-term lease obligations	$	1,899

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

As of December 31, 2018, contractual obligations with terms exceeding one year and estimated minimum future rental payments required by non-cancelable operating leases with initial or remaining lease terms exceeding one year were as follows:

			Less than		1 to 3		3 to 5		After
	Total		1 Year		Years		Years		5 Years
Operating lease obligations	$	2,814	$	613	$	1,322	$	879	$	-
Contractual obligation		-		-		-		-		-
Total	$	2,814	$	613	$	1,322	$	879	$	-

7.	COMMITMENTS AND CONTINGENCIES

Litigation

Due to the nature of the businesses in which the Company is engaged it is subject to certain risks. Such risks include, among others, risk of liability for personal injury or death to persons using products the Company promotes or commercializes. There can be no assurance that substantial claims or liabilities will not arise in the future due to the nature of the Company’s business activities and recent increases in litigation related to healthcare ~~products.~~products and related intellectual property.

The Company could also be held liable for errors and omissions of its employees in connection with the services it performs that are outside the scope of any indemnity or insurance policy. The Company could be materially adversely affected if it were required to pay damages or incur defense costs in connection with a claim that is outside the scope of an indemnification agreement; if the indemnity, although applicable, is not performed in accordance with its terms; or if the Company’s liability exceeds the amount of applicable insurance or indemnity.

As of March 31, ~~2018,~~2019, the Company’s accrual for litigation and threatened litigation was not material to the condensed consolidated financial statements.

8.	ACCRUED EXPENSES AND LONG-TERM LIABILITIES

~~RedPath – DOJ Settlement~~

Other accrued expenses consisted of the following as of March 31, 2019 and December 31, 2018:

	March 31, 2019		December 31, 2018
		(unaudited)
Accrued royalties	$	1,670	$	1,399
Indemnification liability		875		875
Contingent consideration		510		434
Accrued professional fees		648		701
Operating lease liability		526		-
Taxes payable		306		285
Unclaimed property		565		565
All others		913		832
Total other accrued expenses	$	6,013	$	5,091

Long-term liabilities consisted of the following as of March 31, 2019 and December 31, 2018:

In connection with the October 31, 2014 acquisition of RedPath Integrated Technologies Inc., (or “RedPath”), the Company assumed a liability for the Settlement Agreement entered into by the former owners of RedPath with the DOJ. Under the terms of the Settlement Agreement, the Company is obligated to make payments to the DOJ for the calendar years ended December 31, 2014 through 2017, up to a maximum of $3.0 million. Payments are due on March 31st following the calendar year in which the revenue milestones are achieved. The Company made payments totaling $0.5 million in the year ended December 31, 2017 related to fiscal 2016 and has accrued $0.5 million for its potential liability for the final year of the Settlement Agreement, fiscal 2017.

~~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 Agreement and a First Amendment thereto (collectively, the “Agreement”) whereby Prolias and the Company agreed to work in good faith to commercialize a diagnostic test known as “Thymira.” On March 9, 2017, the Court 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 3, 2017, the final judgment against Prolias was recorded as a statewide lien. No assurance, however, can be given that the Company will ever be able to recover on the judgment against Prolias.

~~Pittsburgh Lease~~

On March 15, 2018, the Company amended the lease for its Pittsburgh laboratory to extend it through June 30, 2023. The lease is for 20,000 square feet of laboratory and office space, with monthly base rent of $33,333 beginning July 1, 2018, escalating by twenty-five percent (25%) on July 1, 2019 to $41,667 per month. The Company may, at its option, extend the term of the Lease for two consecutive terms of five years each, with the monthly based rent escalating by ten percent (10%) for each of the additional five year terms.

	March 31, 2019		December 31, 2018
		(unaudited)
Warrant liability	$	358	$	361
Uncertain tax positions		3,895		3,838
Other		-		120
Total other long-term liabilities	$	4,253	$	4,319

1415

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

7.	~~ACCRUED EXPENSES AND LONG-TERM LIABILITIES~~

~~Other accrued expenses consisted of the following as of March 31, 2018 and December 31, 2017:~~

March 31, 2018 December 31, 2017
(unaudited)
Accrued royalties $ 476 $ 296
Indemnification liability 875 875
Contingent consideration 232 232
DOJ settlement 500 500
Accrued professional fees 823 700
Taxes payable 519 515
Unclaimed property 565 565
All others 1,087 1,321
$ 5,077 $ 5,004

~~Long-term liabilities consisted of the following as of March 31, 2018 and December 31, 2017:~~

March 31, 2018 December 31, 2017
(unaudited)

Warrant liability $ 402 $ 473
Uncertain tax positions 3,786 3,734
Other 78 82
$ 4,266 $ 4,289

8.9.	STOCK-BASED COMPENSATION

Stock Incentive Plan

The Company’s stock-incentive program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. Currently, the Company is able to grant options, SARs and restricted shares from the Interpace Diagnostics Group, Inc. Amended and Restated 2004 Stock Award and Incentive Plan, (the “Amended 2004 Plan”). Unless earlier terminated by action of ~~the~~its Board of Directors, the Amended 2004 Plan will remain in effect until such time as no stock remains available for delivery and the Company has no further rights or obligations under the Amended 2004 Plan with respect to outstanding awards thereunder.

Historically, stock options have been granted with an exercise price equal to the market value of the common stock on the date of grant, expire 10 years from the date they are granted, and generally vested over a one to three-year period for employees and members of the Board of ~~Directors and a one to three-year period for employees.~~Directors. Upon exercise, new shares ~~can~~will be issued by the Company. The Company granted stock options in ~~2018 and~~ 2017 which vest monthly over a one-year period. SARs are generally granted with a grant price equal to the market value of the common stock on the date of grant, vest one-third each year on the anniversary of the date of grant and expire five years from the date of grant. The restricted shares and restricted stock units granted to employees generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances. Restricted shares and restricted stock units granted to board members generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Tabular information in thousands, except per share amounts)~~

During March ~~2018,~~2019, the Company’s Chief Executive Officer, Chief Financial Officer, ~~senior~~and other executives ~~and members of the Board~~ were granted incentive stock options to purchase an aggregate of ~~745,600~~1,105,440 shares of common stock with an exercise price of ~~$1.01~~$0.98 per share and ~~186,400~~276,360 RSUs, subject generally to the executive’s or board member’s, as applicable, continued service with the Company, which vest one-third each year over a period of three years.

The following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted during the three month periods ended March 31, ~~2018~~2019 and ~~2017.~~2018.

	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017			March 31, 2019		March 31, 2018
	(unaudited)							(unaudited)		(unaudited)
Risk-free interest rate		2.65	%		1.96	%		2.51%		2.65%
Expected life		6.00			4.91			6.0 years		6.0 years
Expected volatility		126.93	%		138.71	%		127.81%		126.93%
Dividend yield		-			-			-		-

The Company recognized approximately ~~$0.6~~$0.5 million and ~~$0.1~~$0.6 million of stock-based compensation expense during the three month periods ended March 31, ~~2018~~2019 and ~~2017,~~2018, respectively.

9.10.

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 income tax expense on (loss) income from continuing operations and the effective tax rate for the three-month periods ended March 31, ~~2018~~2019 and ~~2017:~~2018:

	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2018			2017			2019			2018
	(unaudited)						(unaudited)
Provision from income tax	$	6		$	3

Provision (benefit) from income tax							$	5		$	6
Effective income tax rate		(0.2	%)		(0.2	%)		(0.1	%)		(0.2	%)

Income tax expense for the three-month periods ended March 31, ~~2018~~2019 and ~~2017~~2018 was primarily due to minimum state and local taxes.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

~~10.~~11.

SEGMENT INFORMATION

Since December 22, 2015, the Company reports its operations as one segment, molecular diagnostics and bioinformatics. The Company’s reporting segment structure is reflective of the way both the Company’s management and chief operating decision maker view the business, make operating decisions and assess performance. This structure allows investors to better understand Company performance, better assess prospects for future cash flows, and make more informed decisions about the Company.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~(Tabular information in thousands, except per share amounts)~~

The Company’s molecular diagnostics and bioinformatics business focuses on developing and commercializing molecular diagnostic tests, leveraging the latest technology and personalized medicine for better patient diagnosis and management. Through the Company’s business, the Company aims to provide physicians and patients with diagnostic options for detecting genetic and other molecular alterations that are associated with gastrointestinal, endocrine and lung cancers, which are principally focused on early detection of patients at high risk of cancer. Customers in the Company’s segment consist primarily of physicians, hospitals and clinics. The service offerings throughout the segment have similar long-term average gross margins, contract terms, types of customers and regulatory environments. They are promoted through one centrally managed marketing group and the chief operating decision maker views their results on a combined basis.

~~11.~~12.

DISCONTINUED OPERATIONS

The components of liabilities classified as discontinued operations relate to Commercial Services and consist of the following as of March 31, ~~2018~~2019 and December 31, ~~2017:~~2018:

	March 31, 2018		December 31, 2017		March 31, 2019		December 31, 2018
	(unaudited)				(unaudited)

Accounts payable	$	192	$	192	$	192	$	192
Other		793		1,110		726		726
Current liabilities from discontinued operations		985		1,302		918		918
Total liabilities	$	985	$	1,302	$	918	$	918

~~12.~~

~~LONG-TERM DEBT~~

As more fully described in our Form 10-K filed on March 23, 2018, during the first six months of fiscal 2017 the Company entered into an Exchange Agreement related to its debt with an investor. The Company exchanged (the “RedPath Debt Exchange”) such then-existing debt for senior convertible notes (“Senior Convertible Notes”) of the Company on March 22, 2017. Subsequently between March 23, 2017 and April 18, 2017, the Senior Convertible Notes were converted into 3,795,429 shares of the Company’s common stock. The Company recorded a loss of $4.3 million in 2017 as a result of the exchange.

13.	~~SUPPLEMENTAL CASH FLOW INFORMATION~~LINE OF CREDIT

~~The following table represents cash flows (used in) provided by the Company’s discontinued operations for the three months ended~~As of March 31, ~~2018~~2019, the Company had no borrowings on its Silicon Valley Bank Loan and ~~2017:~~

Three Months Ended
March 31,
2018 2017
(unaudited)
Net cash used in operating activities of discontinued operations $ (315 ) $ (758 )

Security Agreement (“SVB Loan Agreement”) and was in compliance with all covenants. The SVB Loan Agreement provides for up to $4.0 million of debt financing and consists of a term loan (the “Term Loan”) of up to $850,000 and a revolving line of credit based on its outstanding accounts receivable (the “Revolving Line”) of up to $4.0 million. The Company intends to use the proceeds of the Term Loan for capital expenditures in connection with its laboratory expansion and the proceeds of the Revolving Line for working capital purposes. According to the Term Loan provisions, the Company intends to draw the full $850,000 by June 30, 2019.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

Three Months Ended
March 31,
2018 2017
(unaudited)
Operating
Adoption of ASC 606 $ 2,500 $ -

Investing
Acquisition of property and equipment in other accrued expenses $ 16 $ -

Financing
Settlement of the RedPath Note $ - $ (8,098 )
Issuance of the Exchange Notes $ - $ 11,375
Non-cash equity conversion costs $ - $ (137 )
Debt issuance costs $ - $ (459 )
Warrants issued through Termination Agreement* $ - $ 193
Common shares issued in debt exchange $ - $ 4,222

*See Note 14, Equity for more detailsTerm Loan outstanding amounts will bear interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the “Prime Rate”) and 5.00%. The amount that may be borrowed under the Revolving Line is the lower of (i) $4.0 million or (ii) 80% of the Company’s eligible accounts receivable (as adjusted by SVB) minus any outstanding amounts under the Term Loan. Revolving Line outstanding amounts incur interest at a rate per annum equal to the Prime Rate plus 0.5%. The Company is also required to pay an unused Revolving Line facility fee monthly in arrears in an amount equal to 0.35% per annum of the average unused but available portion of the Revolving Line.

14.	SUPPLEMENTAL CASH FLOW INFORMATION

The following table represents cash flows used in the Company’s discontinued operations for the three months ended March 31, 2019 and 2018:

	Three Months Ended
	March 31,
	2019		2018
	(unaudited)

Net cash used in operating activities of discontinued operations	$	-	$	(315	)

Supplemental Disclosures of Non Cash Activities

(in thousands)

	Three Months Ended
	March 31,
	2019			2018
	(unaudited)
Operating
Adoption of ASC 606	$	-		$	2,500
Adoption of ASC 842 - right of use asset	$	2,449		$	-
Adoption of ASC 842 - operating lease liability	$	(2,536	)	$	-
Taxes accrued for repurchase of restricted shares	$	32		$	-
Investing
Acquisition of property and equipment	$	-		$	16
Stock offering costs in other accrued expenses	$	53		$	-

15.

EQUITY

As more fully described in our Form 10-K filed on March 23, 2018, during the first quarter of fiscal 2017 the Company issued 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 Senior Convertible Notes. As part of the Debt Exchange,~~On January 25, 2019, the Company entered into ~~a Termination Agreement~~an underwriting agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC (“Wainwright”) with respect to the ~~RedPath equityholder representative terminating milestone~~issuance and ~~royalty payments and issued 5 year warrants to acquire~~sale of an aggregate of ~~100,000~~9,333,334 shares (the “Firm Shares”) of the Company’s common stock, par value $0.01 per share (the “Common Stock”), in an underwritten public offering. Pursuant to the Underwriting Agreement, the Company also granted Wainwright an option, exercisable for 30 days, to purchase an additional 1,400,000 shares of Common Stock. The option expired unexercised. The Firm Shares were offered to the public at a ~~fixed~~ price of ~~$4.69~~$0.75 per Share. Wainwright purchased the Firm Shares from the Company pursuant to the Underwriting Agreement at an effective price of $0.6975 per share.

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

The Company received net proceeds, after deducting underwriter discounts and commissions and other expenses related to the offering, in the amount of approximately $6.1 million. The Company intends to use the net proceeds from the offering for working capital, capital expenditures, business development and research and development expenditures, and acquisition of new technologies and businesses.

~~15.~~16.

WARRANTS

In connection with the Wainwright underwritten public offering, the Company issued to Wainwright’s designees warrants (the “Underwriter Warrants”) to purchase up to 654,334 shares of Common Stock (representing 7% of the aggregate number of Firm Shares), at an exercise price of $0.9375 per share (representing 125% of the public offering price). The Underwriter Warrants are exercisable immediately and expire three years from the date of issuance.

There was no warrant exercise activity for the three months ended March 31, ~~2018.~~2019. Warrants outstanding for the period ended March 31, ~~2018~~2019 are as follows:

Description	Classification	Exercise Price		Expiration Date	Warrants Issued		Warrants Exercised			Warrants Cancelled/ Expired			Balance December 31,2018		Balance March 31,2019

Private Placement Warrants, issued January 25, 2017	Equity	$	4.69	June 2022		855,000		-			-			855,000		855,000
RedPath Warrants,issued March 22, 2017	Equity	$	4.69	September 2022		100,000		-			-			100,000		100,000
Underwriters Warrants,issued June 21, 2017	Liability	$	1.32	December 2022		575,000		-			(40,000	)		535,000		535,000
Base & Overallotment Warrants,issued June 21, 2017	Equity	$	1.25	June 2022		14,375,000		(5,672,852	)		-			8,702,148		8,702,148
Vendor Warrants,issued August 6, 2017	Equity	$	1.25	August 2020		150,000		-			-			150,000		150,000
Warrants issued October 12, 2017	Equity	$	1.80	April 2022		3,200,000		-			-			3,200,000		3,200,000
Underwriters Warrants,issued January 25, 2019	Equity	$	0.9375	January 2022		654,334		-			-			-		654,334

						19,909,334		(5,672,852	)		(40,000	)		13,542,148		14,196,482

INTERPACE DIAGNOSTICS GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Tabular information in thousands, except per share amounts)

Description Classification Exercise Price Expiration Date Warrants Issued Warrants Exercised Warrants Cancelled/ Expired
Balance
December 31, 2017

Balance
March 31,
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 (2,600,000 ) - - -
Underwriters Warrants, issued June 21, 2017 Liability $ 1.32 December 2022 575,000 - (40,000 ) 535,000 535,000
Base & Overallotment Warrants, issued June 21, 2017 Equity $ 1.25 June 2022 14,375,000 (5,672,852 ) - 8,702,148 8,702,148
Vendor Warrants, issued August 6, 2017 Equity $ 1.25 August 2020 150,000 - - 150,000 150,000
Warrants issued October 12, 2017 Equity $ 1.80 April 2022 3,200,000 - - 3,200,000 3,200,000

21,855,000 (8,272,852 ) (40,000 ) 13,542,148 13,542,148

~~16.~~17.

RECENT ACCOUNTING PRONOUNCEMENTS

Recently adopted standards

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASC Topic 606). The standard, including subsequently issued amendments, replaces most existing revenue recognition guidance in U.S. GAAP. The key focus of the new standard is 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. To achieve this key focus, there is a five-step approach outlined in the standard. We adopted this new standard as of January 1, 2018, by using the modified-retrospective method. See Note 3,~~Summary of Significant Accounting Policies~~~~, for further details.~~

~~New standards not 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 public companies for annual reporting periods beginning after December 15, 2018, ~~and~~including interim periods within those ~~annual periods. Early adoption is permitted. The Company is currently evaluating~~fiscal years. Topic 842 establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability, measured on a discounted basis, on the ~~impact~~balance sheet for all leases with terms longer than 12 months. Leases are to be classified as either finance or operating leases, with such classification affecting the pattern or expense recognition in the statement of operations. We adopted this new standard ~~on its consolidated financial position and results~~as of ~~operations.~~January 1, 2019, by using the alternative modified transition method. See Note 3,Significant Accounting Policies, for more details.

~~17.~~18.

SUBSEQUENT ~~EVENTS~~EVENT

~~On May 4, 2018,~~As previously disclosed on the ~~Company was~~Company’s Current Report on Form 8-K, filed with the SEC on April 18, 2019, we were notified by NASDAQ on April 16, 2019 that we were no longer in compliance with the minimum bid price ~~requirements~~requirement of ~~NASDAQ~~NASDAQ. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of at least $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of our common stock for the thirty (30) consecutive business days from March 5, 2019 to April 15, 2019, we no longer meet the minimum bid price requirement. The Notification Letter does not impact our listing on The Nasdaq Capital Market at this time. We have 180 calendar days or until October ~~31, 2018~~14, 2019 to regain compliance with this requirement or face delisting. ~~The Company~~To regain compliance, the bid price of our common stock must have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. We may be eligible for an additional 180 calendar day compliance period if ~~it does~~we do not regain compliance by October ~~31, 2018.~~14, 2019. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The ~~Company is~~Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice of our intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. However, if it appears to the staff of Nasdaq (the “Staff”) that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq would notify us that our securities would be subject to delisting. In the event of such a notification, we may appeal the Staff’s determination to delist its securities, but there can be no assurance the Staff would grant our request for continued listing. We are currently considering available options to regain compliance.

1920

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, as amended (the “Exchange Act”). Statements that are not historical facts, including statements about our plans, objectives, beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words “believes,” “expects,” “anticipates,” “plans,” “estimates,” “intends,” “projects,” “should,” “could,” “may,” “will” or similar words and expressions. These forward-looking statements are contained throughout this Form 10-Q.

Forward-looking statements are only predictions and are not guarantees of future performance. These statements are based on current expectations and assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. These predictions are also affected by known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those expressed or implied by any forward-looking statement. Many of these factors are beyond our ability to control or predict. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the following:

	●	the limited revenue generated from our business thus far and our ability to ~~profitably grow~~commercially leverage our ~~business, including~~bioinformatics data and develop our ~~ability~~pipeline products;
	●	our obligations to make royalty and milestone payments to our licensors;
	●	our inability to finance our business on acceptable terms ~~and successfully compete~~ in the ~~market;~~future may limit our ability to develop and commercialize new molecular diagnostic solutions and technologies and grow our business;
	●	our ability to comply with financial covenants under our current line of credit facility and comply with our debt obligations;
	●	whether we are able to successfully utilize our commercial and operating experience to sell our molecular diagnostic tests;
	●	our products continuing to perform as expected;
	●	our limited operating history;
	●	our ability to attract and retain key personnel;
	●	our dependence on a concentrated selection of third-party payers including the lack of timeliness of their payments;
	●	our ability to obtain broad adoption of and ability to grow or continue to secure sufficient levels of reimbursement ~~for our molecular diagnostic tests~~ in a changing reimbursement ~~environment;~~

	●	~~whether we are able~~environment, including obtaining clinical data 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~~support sufficient levels of ~~payers for our molecular diagnostic tests;~~
		reimbursement;
	●	the demand for our molecular diagnostic tests from physicians and patients;
	●	our relationships with leading thought leaders and biopharmaceutical companies;
	●	demonstration of clinical relevance and value in utility studies;
	●	our ability to continue to expand our sales and marketing forces;
	●	our reliance on our ~~internal~~commercial sales forces for continued business expansion;
	●	fluctuating quarterly operating results;
	●	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 ~~grow~~support demand for our molecular diagnostic tests and any of our future tests or ~~continue to secure sufficient levels of reimbursement to continue to serve our business;~~
		solutions;
	●	our ability to compete successfully with physicians and members of the medical community who use traditional methods to diagnose gastrointestinal and endocrine cancers, competitors offering broader product lines outside of the molecular diagnostic testing market and having greater brand recognition than we do, and companies with greater financial resources;

	●	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 ability to license rights to use technologies in order to commercialize new products;
	●	our involvement in current and future litigation against us or our ability to collect on judgements found in our favor;
	●	our ability to continuously develop our technology and to work to develop new solutions to keep pace with evolving standards of care;
	●	our ability to enter into additional clinical study collaborations with highly regarded institutions;

INTERPACE DIAGNOSTICS GROUP, INC.

	●	the effect of seasonal results and adverse weather conditions, such as hurricanes and floods, on our business;
	●	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 diagnosis;

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

	●	~~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 customers and third-party payers;~~

	●	~~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 funding when necessary, in order to implement our business models and strategies;~~

	●	~~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 (“NASDAQ”);~~

	●	~~the effect of adverse weather conditions such as hurricanes on our business;~~

	●	~~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 earnings;~~

	●	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 aClinical Laboratory Improvement Amendments (“CLIA”) and the College of American Pathologists (“CAP”) certified ~~CLIA laboratory and be CAP certified;~~or accredited;
	●	legislative reform of the U.S. healthcare system, including the effect of pricing provisions of the Protecting Access to Medicare Act of 2014 (“PAMA”) on our Advanced Diagnostic Laboratory Tests (ADLTs), adjustments or reductions in reimbursement rates of our molecular diagnostic tests by the Center for Medicare and Medicaid Services (“CMS”) and changes or reductions in reimbursement rates or coverage of our tests by third party payers;
	●	compliance with numerous statutes and regulations pertaining to our business;
	●	the effect of potential adverse findings resulting from regulatory audits of our billing and payment practices and the impact such results could have on our business;
	●	business, regulatory, political, operational, financial, and economic risks associated with doing business outside of the United States, including our ability to comply with international laws and regulations;
	●	compliance with the FCPA and anti-bribery laws;
	●	tax reform legislation;
	●	changes in financial accounting standards or practices;
	●	our use of hazardous materials;
	●	the susceptibility of our information systems to security breaches, loss of data and other disruptions;
	●	product liability claims against us;
	●	our ability to ~~commercially leverage our bioinformatics data with pharmaceutical~~attract and retain qualified commercial representatives and other ~~potential partners in new revenue lines;~~key employees and management personnel;
	●	our billing practices and our ability to collect on claims for the sale of our tests;
	●	our dependence on third-party medical billing providers to operate effectively without delays, data loss, or other disruptions;
	●	cost increases resulting from enacted healthcare reform legislation;
	●	changes in governmental regulations mandating price controls and limitations on patient access to our products;
	●	our ability to increase revenue and manage the size of our operations;
	●	our ability to successfully identify, complete and integrate any future acquisitions of companies and/or products that we believe meet our strategic goals and needs, and the effects of any such acquisitions on our revenues, profitability and ongoing business;
	●	our ability, and the ability of our third-party billing providers, to effectively maintain, upgrade and integrate the information systems on which we depend, including our partially customized Laboratory Information Management System (LIMS);
	●	the ~~ability to obtain or maintain supportive “guidelines” from trade and/or therapeutic related organizations focused on the clinical efficacy and utility~~results of ~~molecular diagnostics in our areas of focus; and~~
		any future impairment testing for intangible assets as required under GAAP;
	●	~~determination that~~the impact of contingent liabilities on our ~~Advanced Diagnostic Laboratory Tests (ADLTs) have become affected~~financial condition;
	●	our compliance with our license agreements and our ability to protect and defend our intellectual property rights;
	●	changes in U.S. patent law;
	●	patent infringement claims against us;
	●	our ability to maintain our listing with The Nasdaq Capital Market (“NASDAQ”);
	●	compliance with public company reporting requirements;
	●	the impact of future issuances of debt, common and preferred shares on stockholders’ interest and stock price;
	●	our ability to report financial results on a timely and accurate basis;
	●	the impact of anti-takeover defenses on an acquisition or stock price;
	●	the volatility of our stock price and fluctuations in our quarterly and annual revenues and earnings;
	●	publications, or the lack thereof, by equity research analysts about us, our business and our competitors;
	●	securities class action litigation;
	●	cost of settlement or damage awards against our directors and officers; and
	●	the ~~pricing provisions~~effect of ~~the Processing Access to Medicare~~The Eliminating Kickbacks in Recovery Act of ~~2014~~2018 (“~~PAMA”~~EKRA”) ~~which could result in an across the board reduction in~~as it potentially impacts our ~~reimbursement rates.~~ability to incentive our sales personnel appropriately.

Please see Part I – Item 1A – “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2018, filed March ~~23, 2018,~~21, 2019, as well as other documents we file with the U.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.

2122

INTERPACE DIAGNOSTICS GROUP, INC.

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~~genomic tests and related first line assays principally focused on early detection of patients with indeterminate biopsies and at high risk of cancer ~~and leverage~~using the latest technology ~~and~~to help personalized medicine ~~for improved~~and improve patient diagnosis and management. Our tests and services provide mutational analysis of genomic material contained in suspicious cysts, nodules and lesions with the goal of better informing treatment decisions in patients at risk of thyroid, pancreatic, and other cancers. The molecular diagnostic tests we offer enable healthcare providers to better assess cancer risk, helping to avoid unnecessary surgical treatment in patients at low risk. We currently have four commercialized molecular diagnostic ~~assays~~tests in the marketplace for which we are receiving reimbursement: PancraGEN^®, which is a pancreatic cyst and pancreaticobiliary solid lesion ~~molecular~~genomic test that helps physicians better assess risk of pancreaticobiliary cancers using our proprietary PathFinderTG^®platform; ~~ThyGenX~~ThyGeNEXT^®, which is an expanded oncogenic mutation panel that helps identify malignant thyroid ~~nodules;~~nodules and replaced ThyGenX^®; ThyraMIR^®, which assesses thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay; and ~~RespriDX™~~RespriDx^®, ~~launched in September 2017, for assessing~~which is a genomic test that helps physicians differentiate metastatic ~~versus~~or recurrent lung cancer from the presence of newly formed primary lung cancer ~~tumors. RespriDX™~~and which also utilizes our PathFinderTG^®platform ~~and compares~~to compare the ~~genetic~~genomic 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 are also in the process of “soft launching” while we gather additional market data,~~ BarreGEN^®, an esophageal cancer risk classifier for Barrett’s Esophagus that also utilizes our ~~PathFinderTG~~PathFinder TG^® ~~platform.~~platform, is currently in a Clinical Evaluation Program or (“CEP”) whereby we gather information from physicians using BarreGEN^® to assist us in positioning our product for full launch, partnering and potentially supporting reimbursement with payers.

Our mission is to provide personalized ~~information~~medicine through ~~molecular~~genomics-based diagnostics and innovation to advance patient care based on rigorous science. Our laboratories are licensed pursuant to federal law under CLIA and are accredited by CAP and New York State. In August 2018, we acquired a majority of the Philadelphia laboratory equipment of Rosetta Genomics Ltd., a molecular diagnostics company, in order to further support our CLIA and CAP certified lab expansion in our New Haven, Connecticut and Pittsburgh, Pennsylvania laboratories.

We are leveraging our ~~Clinical Laboratory Improvement Amendments (“CLIA”)~~licensed and ~~College of American Pathologists (“CAP”),~~ accredited laboratories to develop and commercialize our assays and products. We aim to provide physicians and patients with diagnostic options for detecting ~~genetic~~genomic and other molecular ~~mutations~~alterations 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 approximately $6.5 billion and is a segment within the approximately $60 billion in vitro diagnostics market according to statistics from Kalorama Information, publisher ofthe Worldwide Market for In Vitro Diagnostic ~~Tests.~~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 insurance coverage and reimbursement, maintaining and growing our current reimbursement and supporting revenue growth for our ~~four commercialized innovative~~molecular diagnostic tests, introducing related first line product and service extensions, as well as expanding our business by developing ~~acquiring~~ and promoting synergistic products in our markets. ~~BarreGEN®~~We also believe that BarreGen^® is a ~~major~~potentially significant pipeline product, ~~built on the PathFinderTGÒ platform which~~and we are providing necessary resources to accelerate our development process. Further, we believe BarreGEN^®is synergistic towith our capabilities ~~and potentially is a significant product opportunity~~ in the gastrointestinal market, which is one of the sectors in which we operate. Additionally, we are focused on either acquiring or licensing products that either leverage our commercial capabilities and/or diversify our revenue base away from the risks associated with reimbursement by leveraging our molecular data and capabilities.

Additional Reimbursement Coverage During ~~2018~~2019

Reimbursement progress is key for any molecular diagnostic company. We ~~were~~have been successful to date in expanding the reimbursement of our products in ~~2017 and that has continued into 2018.~~2019. Specifically, the most significant progress we have made ~~the following progress with payors~~regarding payers to date in ~~2018:~~2019 is as follows:

●

In February 2018, we announced that Horizon Blue Cross Blue Shield of New Jersey, the oldest and largest health plan in New Jersey, covering 3.8 million patients living in the Northeastern United States, has agreed to cover ThyGenX^® ~~and ThyraMIR~~^®~~for its members effective~~ January ~~9, 2018.~~

●

~~In March 2018, we announced coverage of ThyGenX~~^®~~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.

●

In March 2018, we presented five abstracts as posters and podium presentations at the United States and Canadian Academy of Pathology (USCAP) meeting being in Vancouver, British Columbia. The posters reflect a review of data from the Company’s extensive experience in molecular testing, including experience with over 5,000 analyses of indeterminate thyroid nodules using its combined mutational (ThyGenX(®) and microRNA classifier (ThyraMIR®) testing format, 30,000 tests of Pancreatic cyst fluid and solid lesions using PancraGen® as well as results from its recently launched product for lung cancer, RespriDx™.

●

In March 2018, we announced the execution of a new agreement with LabCorp to further expand the Company’s national network of cytology providers in support of its Thyroid molecular business unit. The arrangement builds on the parties’ 2016 agreement, which established electronic ordering and result reporting through LabCorp for our proprietary ThyGenX^® ~~and ThyraMIR~~^®. Under the parties’ new agreement, physicians will be able to order both thyroid biopsy analysis and molecular testing from us. Dianon Pathology, a member of the LabCorp Specialty Testing Group, will be available to the biopsy analysis, and in the event of an indeterminate result, we will then perform our molecular tests.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

●

~~In April 2018,~~2019, we announced that we had entered into an Agreement with ~~BJC Healthcare~~the University of ~~St. Louis, Missouri,~~Maryland Medical System (“UMMS”) to provide physicians’ access to ThyGeNEXT^®, ThyraMIR^®, and PancraGEN^®across the UMMS network, which includes 4,000 affiliated physicians who provide primary and specialty care in more than 150 locations and at 14 hospitals.

INTERPACE DIAGNOSTICS GROUP, INC.

●

In April 2019, we announced that Medica, one of the largest ~~non-profit, integrated healthcare systems~~health plans in the ~~United States. The Agreement enables all physicians across~~ the ~~BJC system to access~~Midwest, extended coverage of both ~~ThyGenX~~ThyGeNEXT^®and ThyraMIR^® ~~for patients with indeterminate~~to its 1.3 million covered lives. Physicians across Medica’s entire network will now be able to utilize Interpace’s thyroid ~~nodules.~~products.

●

~~On May 10~~^th,In April 2019, we announced that ~~since the beginning of 2018, fourteen Blue Cross Blue Shield plans across the country (including the five noted above) have published favorable coverage policies for ThyGenX~~we had received approval to launch ThyraMIR^® ~~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. As a result of these new policies, over 75 million members participating in these plans now have coverage for ThyGenX^® ~~and ThyraMIR~~^®.

●

~~On May 14~~^th~~, we announced that the Company will launch a proprietary new mutational panel for indeterminate~~diagnostic testing on formalin-fixed, paraffin-embedded (“FFPE”) tissue samples from thyroid nodules ~~ThyGeNEXT~~^®~~, at~~from the ~~American Association~~State of ~~Clinical Endocrinologists (AACE) Annual Meeting in Boston, MA being held May 16-19th.~~New York.

DESCRIPTION OF REPORTING SEGMENTS

~~Interpace Diagnostics~~Revenue

The Company’s revenue is generated from the performance of its proprietary molecular diagnostics tests. The Company’s performance obligation is fulfilled upon completion, review and release of test results and subsequent billing to the third-party payer or hospital. Historically, the Company recognized revenue related to billings for Medicare, Medicare Advantage, and hospitals on an accrual basis, net of contractual adjustment, when there was a predictable pattern of collectability. Contractual adjustments represent the difference between the list prices and the reimbursement rate set by Medicare and Medicare Advantage, or the amounts billed to hospitals, which approximates the Medicare rate. Upon ultimate collection, the amount received from Medicare, Medicare Advantage and hospitals with a predictable pattern of payment is compared to the previous estimates and the contractual allowance is adjusted, if necessary. Beginning January 1, 2018 under

Under ASC 606, the Company ~~began to recognize~~recognizes revenue for billings less contractual allowances and estimated uncollectable amounts for all payer ~~groups.~~groups on the accrual basis based upon a thorough analysis of historical receipts. The net amount derived and used for revenue recognition is referred to as the “net realizable value” or (“NRV”) for the particular test and payer group from which reimbursement is received. This derived ~~“net realizable value” will be~~NRV is evaluated quarterly or as needed and then applied to future periods until recalculated.

Through December 31, 2017, 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 hospitals, the Company believed 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 recognized revenue at that time.

The Company completed its analysis of the ASC 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 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 Company also finalized its analysis of modified internal controls over financial reporting and the disclosures required starting with this Form 10-Q for the first quarter of 2018.

Through December 2017, the Company recognized revenue from services rendered when the following four revenue recognition criteria are met: persuasive evidence of an arrangement exists; services have been rendered; the selling price is fixed or determinable; and collectability is reasonably assured.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

Until a contract has been negotiated with a commercial insurance carrier or governmental program, the services may or may not be covered by these entities existing reimbursement policies. In the absence of an agreement with the patient or other clearly enforceable legal right to demand payment, the related revenue was only recognized upon the earlier of payment notification or cash receipt. Accordingly, we recognize revenue from commercial insurance carriers, government programs, and direct-bill healthcare providers without contracts, when payment was received.

Persuasive evidence of an arrangement exists and delivery is deemed to have occurred upon completion, review, and release of the test results at which time we billed the third-party payor or hospital. The assessment of the fixed or determinable nature of the fees charged for diagnostic testing performed, and the collectability of those fees, ~~required~~requires significant judgment by our management. Our management ~~believed~~believes that these two criteria have been met when there is contracted reimbursement coverage or a predictable pattern of collectability with individual third-party payers or hospitals and accordingly, recognized revenue upon delivery of the test results. In the absence of contracted reimbursement coverage or a predictable pattern of collectability, we ~~believed~~believe that the fee was fixed or determinable and collectability was reasonably assured only upon request of third-party payor notification of payment or when cash was received, and we recognize revenue at that time.

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 March 31, ~~2018~~2019 Compared to the Quarter Ended March 31, ~~2017~~2018 (in thousands)

Three Months Ended
March 31,
2018 2018 2017 2017

Revenue, net $ 4,809 100.0 % $ 3,470 100.0 %
Cost of revenue 2,580 53.6 % 1,771 51.0 %
Gross profit 2,229 46.4 % 1,699 49.0 %
Operating expenses:
Sales and marketing 1,991 41.4 % 1,136 32.7 %
Research and development 501 10.4 % 306 8.8 %
General and administrative 2,172 45.2 % 1,522 43.9 %
Acquisition related amortization expense 813 16.9 % 813 23.4 %
Change in fair value of contingent consideration - 0.0 % (5,776 ) -166.5 %
Total operating expenses 5,477 113.9 % (1,999 ) -57.6 %

Operating (loss) income (3,248 ) -67.5 % 3,698 106.6 %
Interest expense - 0.0 % (254 ) -7.3 %
Loss on extinguishment of debt - 0.0 % (1,547 ) -44.6 %
Other income (expense), net 111 2.3 % (36 ) -1.0 %
(Loss) income from continuing operations before tax (3,137 ) -65.2 % 1,861 53.6 %
Provision for income tax 6 0.1 % 3 0.1 %
(Loss) income from continuing operations (3,143 ) -65.4 % 1,858 53.5 %
(Loss) income from discontinued operations, net of tax (50 ) -1.0 % 556 16.0 %
Net (loss) income $ (3,193 ) -66.4 % $ 2,414 69.6 %

	Three Months Ended March 31,
	2019			2019			2018			2018

Revenue, net	$	6,010			100.0	%	$	4,809			100.0	%
Cost of revenue		2,622			43.6	%		2,580			53.6	%
Gross profit		3,388			56.4	%		2,229			46.4	%
Operating expenses:
Sales and marketing		2,411			40.1	%		1,991			41.4	%
Research and development		528			8.8	%		501			10.4	%
General and administrative		2,912			48.5	%		2,172			45.2	%
Acquisition related amortization expense		813			13.5	%		813			16.9	%
Total operating expenses		6,664			110.9	%		5,477			113.9	%

Operating loss		(3,276	)		-54.5	%		(3,248	)		-67.5	%
Accretion expense		(129	)		-2.1	%		-			0.0	%
Other income (expense), net		48			0.8	%		111			2.3	%
Loss from continuing operations before tax		(3,357	)		-55.9	%		(3,137	)		-65.2	%
Provision for income taxes		5			0.1	%		6			0.1	%
Loss from continuing operations		(3,362	)		-55.9	%		(3,143	)		-65.4	%

Loss from discontinued operations, net of tax		(57	)		-0.9	%		(50	)		-1.0	%

Net loss	$	(3,419	)		-56.9	%	$	(3,193	)		-66.4	%

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

Revenue, net

Consolidated revenue, net for the three months ended March 31, ~~2018~~2019 increased by ~~$1.3~~$1.2 million, or ~~38.6%~~25%, to ~~$4.8~~$6.0 million, compared to ~~$3.5~~$4.8 million for the three months ended March 31, ~~2017.~~2018. This increase was principally attributable to increased test ~~and collection~~ volume for our thyroid tests, the improvement of reimbursement rates including Medicare rates and the impact of the adoption of the new ASC 606 revenue standard requiring revenue to be recognized on an accrual basis. As a result of the adoption, we experienced a one-time acceleration of certain payers resulting in an increase in revenue of approximately 9%.tests.

Cost of revenue

Consolidated cost of revenue for the three months ended March 31, 2019 and March 31, 2018 ~~increased by $0.8 million, or 45.7%, from the~~were comparable ~~prior year period. This increase was primarily driven by an increase~~ in ~~the current year period in lab supplies expense of $0.5 million and compensation expense of $0.2~~both periods at approximately $2.6 million.

Gross profit

Consolidated gross profit for the three months ended March 31, ~~2018~~2019 increased ~~$0.5~~$1.2 million, or ~~31.2%~~52%, to ~~$2.2~~$3.4 million, as compared to ~~$1.7~~$2.2 million for the three months ended March 31, ~~2017. This increase was primarily related~~2018. The gross profit percentage increased from 46% for the first quarter of 2018 to 56% for the first quarter of 2019 due to the ~~increase in~~leveraging of fixed costs over the higher revenue ~~discussed above.~~base as well as the timing of lab supply purchases for the quarter ended March 31, 2018.

Sales and marketing expense

Sales and marketing expense was ~~$2.0~~$2.4 million for the three months ended March 31, ~~2018 and for~~2019, or 40% as a percentage of net revenue. For the three months ended March 31, ~~2017,~~2018, sales and marketing expense was ~~$1.1 million.~~$2.0 million, or 41% as a percentage of net revenue. The increase in sales and marketing expense primarily reflects an increase in employee and consulting costs of ~~$0.5, due to higher compensation costs, principally stock-based compensation,~~$0.4 million, as ~~well as an increase in~~we are expanding the size of ~~the~~our salesforce and increasing our marketing ~~costs of $0.2 million.~~activities which are supporting our growth.

INTERPACE DIAGNOSTICS GROUP, INC.

Research and development

Research and development expense totaled approximately $0.5 million for both the three months ended March 31, 2019 and March 31, 2018. As a percentage of revenue research and development expense decreased to 9% for the three months ended March 31, 2019 as compared to 10% for the three months ended March 31, 2018. ~~For~~This decrease as a percentage of revenue was due to the ~~three months ended March 31, 2017, research and development expense was $0.3 million. This~~ increase in ~~research and development expense was primarily due to higher employee costs.~~revenue discussed above.

General and administrative

General and administrative expense for the three months ended March 31, ~~2018~~2019 was ~~$2.2~~$2.9 million as compared to ~~$1.5~~$2.2 million for the three months ended March 31, ~~2017.~~2018. This increase was primarily attributable to ~~decreased legal~~increases in professional fees of approximately $0.4 million in connection with evaluating strategic initiatives and ~~accruals~~non-cash compensation for ~~contingencies for~~professional services of $0.3 million when compared to the ~~current year period, offset by the reversal of severance accruals of $1.5 million that benefited the period~~quarter ended March 31, ~~2017 and did not recur in the current year period.~~2018.

Acquisition related amortization expense

During the three months ended March 31, ~~2018~~2019 and March 31, ~~2017,~~2018, we recorded amortization expense of approximately $0.8 million, respectively in both ~~periods. This amortization expense~~periods which is ~~being recorded in connection~~related to intangible assets associated with ~~our RedPath and Asuragen acquired intangible assets.~~prior acquisitions.

~~Change in fair value of contingent consideration~~Operating loss

~~During~~Operating loss from continuing operations was $3.3 million for the three months ended March 31, 2017, all royalty and milestone rights under the RedPath contingent consideration agreement were terminated and the Company reversed $6.0 million of contingent consideration liabilities, of which $5.8 million was a reversal within operating expenses in the Condensed Consolidated Statement of Operations. There were no similar transactions during the three months ended March 31, 2018.

~~Operating (loss) income~~

~~There was an operating loss from continuing operations of~~2019 as compared to $3.2 million for the three months ended March 31, ~~2018 and operating income during the three months ended March 31, 2017 of $3.7 million.~~2018. The ~~decrease in operating income for the three months ended March 31, 2018 was primarily attributable~~increase can be attributed to the ~~reversal of our RedPath contingent consideration liability of $5.8 million which benefited the three months ended March 31, 2017.~~

~~INTERPACE DIAGNOSTICS GROUP, INC.~~increase in general and administrative expense discussed above.

Provision for income taxes

The Company’s income tax expense was approximately $5,000 for the three months ended March 31, 2019 and $6,000 for the three months ended March 31, ~~2018 and $3,000 for the three months ended March 31, 2017.~~2018. Income tax expense for both periods was primarily driven by minimum state and local taxes.

(Loss) income from discontinued operations, net of tax

We had a loss from discontinued operations of ~~$0.1~~$0.06 million for the three months ended March 31, ~~2018~~2019 and ~~income~~a loss from discontinued operations of $0.05 million for the three months ended March 31, ~~2017 of $0.6 million. The prior year period income from discontinued operations was primarily related to a reversal of severance expense of $0.5 million.~~2018.

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, ~~2018,~~2019, we had an operating loss of ~~$3.2~~$3.3 million. As of March 31, ~~2018,~~2019, we had cash and cash equivalents of ~~$12.6~~$9.1 million, net accounts receivable of ~~$6.4~~$11.2 million, total current assets of ~~$20.1~~$22.2 million and current liabilities of ~~$7.8~~$9.8 million.

~~We intend to meet our capital needs by driving revenue growth, containing costs as well as exploring other options. Management believes that~~During the ~~Company has sufficient~~three months ended March 31, 2019, net cash ~~on hand to sustain operations through at least May~~used in operating activities was $3.0 million, all of which was used in continuing operations. The main component of cash used in operating activities during the three months ended March 31, ~~2019. There is no guarantee that additional capital can be raised to fund our future operations.~~

2019 was the net loss of $3.4 million. During the three months ended March 31, 2018, net cash used in operating activities was $2.5 million, of which $2.2 million was used in continuing operations and $0.3 million was used in discontinued operations. The main component of cash used in operating activities during the three months ended March 31, 2018 was the net loss of $3.2 million. ~~During~~

INTERPACE DIAGNOSTICS GROUP, INC.

Our accounts receivable increased to $11.0 million from $6.4 million at the ~~three months ended~~end of Q1 of 2018, principally due to our growing revenues and partially due to the impact of the adoption of ASC 606. We began recognizing all of our revenue on an accrual basis effective January 1, 2018. Prior to that date, revenue from certain payer groups was being recognized on a cash basis. Therefore as of March 31, ~~2017, net cash used in operating activities was $4.1 million,~~2019, we have been using the full accrual basis for 15 months, as compared to only 3 months as of ~~which $3.3 million was used in continuing operations and $0.8 million was used in discontinued operations. The main component of cash used in operating activities during the three months ended~~ March 31, ~~2017 was a decrease in accrued payroll of $1.6 million~~2018. Additionally we changed our billing and ~~accrued liabilities of $0.7 million. For the three months ended March 31, 2018, there was $0.1 million of net cash used in investing activities~~collections contractor and we are still in the ~~purchase~~process of ~~lab equipment. There was no cash used in investing activities for the three months ended March 31, 2017.~~finalizing transition.

For the three months ended March 31, ~~2018,~~2019, there was ~~no cash from financing activities. For the three months ended March 31, 2017, there was net~~ cash provided from financing activities of ~~$10.7~~$6.0 million which resulted from the issuance of common stock in our ~~three direct offerings~~underwritten public offering completed in ~~the first quarter of 2017.~~January 2019.

We intend to meet our capital needs by driving revenue growth, containing costs as well as exploring other options. Management believes that the Company has sufficient cash on hand to sustain operations through at least May 31, 2020. There is no guarantee that additional capital can be raised to fund our future operations.

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.

2627

INTERPACE DIAGNOSTICS GROUP, INC.

Item 3. — Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

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 the evaluation of the Company’s disclosure controls and procedures, as 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 as of March 31, ~~2018.~~2019.

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.

2728

INTERPACE DIAGNOSTICS GROUP, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

“Item 3- Legal Proceedings” and Note 10,Commitments and Contingencies, to the Consolidated Financial Statements of our most recent Annual Report on Form 10-K, filed with the SEC on March ~~23, 2018 includes~~21, 2019 (the “Form 10-K”),include a discussion of our legal proceedings, as does Note 6,7,Commitments and Contingencies, to the ~~accompanying~~ condensed consolidated financial ~~statements.~~statements furnished herewith. During the fiscal quarter ended March 31, ~~2018,~~2019, there have been no material changes from the proceedings disclosed in our Form 10-K.

Item 1A. Risk Factors.

Not applicable as we are a smaller reporting company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Not applicable~~None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures

~~Not applicable~~None.

Item 5. Other Information.

None.

Item 6. Exhibits

Exhibit No.		Description

~~4.1~~		Amended and Restated 2004 Stock Award and Incentive Plan (incorporated by reference to the Registrant’s Definitive Proxy Statement (File No. 000-24249), filed on August 14, 2017).*

~~10.1~~		~~Form of Restricted Stock Unit Agreement for Employees, filed herewith.~~

~~10.2~~		~~Form of Restricted Stock Unit Agreement for Directors, filed herewith.~~

~~10.3~~		~~Form of Non-Qualified Stock Option Agreement, filed herewith.~~

~~10.4~~		~~Form of Incentive Option Agreement, filed herewith.~~

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 March 31, ~~2018~~2019 formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated ~~Statement~~Statements of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.


+		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~~

SIGNATURES

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: May ~~15, 2018~~14, 2019	Interpace Diagnostics Group, Inc.
	(Registrant)

	/s/ Jack E. Stover
	Jack E. Stover
	President and Chief Executive Officer
	(Principal Executive Officer)

Date: May 14, 2019	/s/ James Early
	James Early
	Chief Financial Officer
	(Principal Financial Officer)

Date: May 14, 2019	/s/ Thomas Freeburg
	Thomas Freeburg
	Chief Accounting Officer
	(Principal Accounting Officer)

2930

	March 31,			December 31,
	2019			2018
	(unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$	9,124		$	6,068
Accounts receivable, net		11,221			9,483
Other current assets		1,888			2,170
Total current assets		22,233			17,721
Property and equipment, net		758			837
Other intangible assets, net		29,040			29,853
Operating lease assets		2,320			-
Other long-term assets		31			31
Total assets	$	54,382		$	48,442

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,152		$	1,059
Accrued salary and bonus		1,749			1,424
Other accrued expenses		6,013			5,091
Current liabilities from discontinued operations		918			918
Total current liabilities		9,832			8,492
Contingent consideration		2,627			2,693
Operating lease liabilities		1,899			-
Other long-term liabilities		4,253			4,319
Total liabilities		18,611			15,504

Commitments and contingencies (Note 7)

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; 38,195,006 and 28,767,344 shares issued, respectively; 38,096,038 and 28,694,275 shares outstanding, respectively		382			287
Additional paid-in capital		181,954			175,820
Accumulated deficit		(144,853	)		(141,489	)
Treasury stock, at cost (98,868 and 73,069 shares, respectively)		(1,712	)		(1,680	)
Total stockholders’ equity		35,771			32,938
Total liabilities and stockholders’ equity	$	54,382		$	48,442

Consolidated Balance Sheet:
	March 31, 2018
				(unaudited)
	As reported			Balances without Adoption of ASC 606			Effect of Change Higher/(Lower)
Accounts receivable, net	$	6,403		$	4,828		$	1,575
Accumulated deficit		(132,493	)		(134,993	)		(2,500	)

Revenue:
	For the three months ended March 31, 2018
			(unaudited)
	As reported		Balances without Adoption of ASC 606		Effect of Change Higher/(Lower)
Revenue, net	$	4,809	$	4,409	$	400