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, ~~2019~~2020

[ ]	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,~~Biosciences, 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)

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 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 every Interactive Data File required to be submitted 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 such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]		Accelerated filer [ ]
Non-accelerated filer [X]		Smaller reporting company [X]
		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 Exchange 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 10, 2019~~	June 12, 2020
Common Stock, par value $0.01 per share			~~38,096,038~~	4,036,595

INTERPACE ~~DIAGNOSTICS GROUP,~~BIOSICENCES, INC.

FORM 10-Q FOR PERIOD ENDED MARCH 31, ~~2019~~2020

TABLE OF CONTENTS

			Page No.
	~~PART I - FINANCIAL INFORMATION~~EXPLANATORY NOTE

	PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Interim Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets at March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019		34

	Condensed Consolidated Statements of Operations for the ~~three-month~~three- month periods ended March 31, 2020 and 2019 ~~and 2018~~ (unaudited)		45

	Condensed Consolidated Statements of Stockholders’ Equity for the ~~three-month~~three- month periods ended ~~March 31,~~March31, 2020 and 2019 ~~and 2018~~ (unaudited)		56

	Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited)		67

	Notes to Unaudited ~~Interim~~ Condensed Consolidated Financial Statements		78

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		2126

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36

Item 4.	Controls and Procedures		2836

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings		2936

Item 1A.	Risk Factors		2937

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		2937

Item 3.	Defaults Upon Senior Securities	37

Item 4.	Mine Safety Disclosures	37

Item 5.	Other Information	37

Item 6.	Exhibits		2938

Signatures		3039

EXPLANATORY NOTE

On March 25, 2020, the U.S. Securities and Exchange Commission (the “SEC”) issued an order Release No. 34-88465 (the “Order”) pursuant to its authority under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) granting exemptions from certain provisions of that Act and the rules thereunder related to the reporting and proxy delivery requirements for certain public companies. Interpace Biosciences, Inc. (the “Company”) is filing this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 in reliance on the Order, permitting a delay in filing due to circumstances related to COVID-19. The Company filed, on May 15, 2020, a Current Report on Form 8-K (the “May 15^th 8-K”) indicating its intention to rely on the Order. As stated in the May 15^th 8-K, the Company required additional time to finalize this report due to circumstances related to COVID-19, the disease caused by the coronavirus. The effects of COVID-19 have limited the abilities of the Company’s employees to conduct normal business activities. This, in turn, delayed the Company’s ability to prepare this report.

PART I. FINANCIAL INFORMATION

INTERPACE ~~DIAGNOSTICS GROUP,~~BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

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,
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 STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(unaudited, in thousands)~~

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

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

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

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(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

	March 31,			December 31,
	2020			2019
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	13,370		$	2,321
Accounts receivable, net of allowance for doubtful accounts of $275 and $25, respectively		9,799			10,197
Other current assets		4,976			3,851
Total current assets		28,145			16,369
Property and equipment, net		6,610			6,814
Other intangible assets, net		32,470			33,501
Goodwill		8,433			8,433
Operating lease right of use assets		2,811			3,892
Other long-term assets		42			42
Total assets	$	78,511		$	69,051

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,456		$	4,812
Accrued salary and bonus		1,865			2,341
Other accrued expenses		8,639			9,379
Current liabilities from discontinued operations		766			766
Total current liabilities		15,726			17,298
Contingent consideration		2,264			2,391
Operating lease liabilities, net of current portion		1,384			2,591
Line of credit		1,200			3,000
Other long-term liabilities		4,563			4,573
Total liabilities		25,137			29,853

Commitments and contingencies (Note 8)

Preferred stock, $.01 par value; 5,000,000 shares authorized,
270 Series A shares issued and outstanding		-			26,172
47,000 Series B shares issued and outstanding		46,536			-

Stockholders’ equity:
Common stock, $.01 par value; 100,000,000 shares authorized; 4,055,454 and 3,932,370 shares issued, respectively; 4,043,673 and 3,920,589 shares outstanding, respectively		402			393
Additional paid-in capital		182,580			182,514
Accumulated deficit		(174,423	)		(168,160	)
Treasury stock, at cost (11,781 and 11,781 shares, respectively)		(1,721	)		(1,721	)
Total stockholders’ equity		6,838			13,026
Total liabilities and stockholders’ equity	$	31,975		$	42,879

Total liabilities, preferred stock and stockholders’ equity	$	78,511		$	69,051

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

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

	Three Months Ended March 31,
	2020			2019

Revenue, net	$	9,200		$	6,010
Cost of revenue (excluding amortization of $1,031 and $813, respectively)		6,113			2,622
Gross profit		3,087			3,388
Operating expenses:
Sales and marketing		2,481			2,411
Research and development		809			528
General and administrative		4,887			2,912
Acquisition related amortization expense		1,031			813
Total operating expenses		9,208			6,664

Operating loss		(6,121	)		(3,276	)
Interest accretion		(109	)		(129	)
Other income (expense), net		47			48
Loss from continuing operations before tax		(6,183	)		(3,357	)
Provision for income taxes		15			5
Loss from continuing operations, net of tax		(6,198	)		(3,362	)
Less adjustment for preferred stock deemed dividend		(3,033	)		-
Loss from continuing operations attributable to common stockholders		(9,231	)		(3,362	)

Loss from discontinued operations, net of tax		(65	)		(57	)

Net loss attributable to common stockholders	$	(9,296	)	$	(3,419	)

Basic and diluted loss per share of common stock:
From continuing operations	$	(2.31	)	$	(0.96	)
From discontinued operations		(0.01	)		(0.01	)
Net loss per basic and diluted share of common stock	$	(2.32	)	$	(0.97	)
Weighted average number of common shares and common share equivalents outstanding:
Basic		4,004			3,515
Diluted		4,004			3,515

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

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited, in thousands)

	For The Three Months Ended					For The Three Months Ended
	March 31, 2020					March 31, 2019
	Shares		Amount			Shares		Amount
Common stock:
Balance at January 1		3,932	$	393			2,877	$	287
Common stock issued		37		1			9		1
Restricted stock issued		6		-			-		-
Common stock issued through market sales		80		8			-		-
Common stock issued through offerings		-		-			933		94
Balance at March 31		4,055		402			3,819		382
Treasury stock:
Balance at January 1		12		(1,721	)		7		(1,680	)
Treasury stock purchased		-		-			3		(32	)
Balance at March 31		12		(1,721	)		10		(1,712	)
Additional paid-in capital:
Balance at January 1				182,514					175,820
Common stock issued through offerings, net of expenses				-					5,868
Extinguishment of Series A Shares				(828	)				-
Beneficial Conversion Feature in connection with Series B Issuance				2,205					-
Amortization of Beneficial Conversion Feature				(2,205	)				-
Common stock issued through market sales				476					-
Stock-based compensation expense				418					266
Balance at March 31				182,580					181,954
Accumulated deficit:
Balance at January 1				(168,160	)				(141,489	)
Net loss				(6,263	)				(3,419	)
Adoption of ASC 842				-					55
Balance at March 31				(174,423	)				(144,853	)

Total stockholders’ equity			$	6,838				$	35,771

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

INTERPACE BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in thousands)

	For The Three Months Ended March 31,
	2020			2019

Cash Flows From Operating Activities
Net loss	$	(6,263	)	$	(3,419	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,235			873
Interest accretion		109			129
Mark to market on warrants		(26	)		(3	)
Stock-based compensation		418			538
Bad debt expense		250			-
Other gains and expenses, net		-			18
Other changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		148			(1,738	)
(Increase) decrease in other current assets		(1,125	)		11
(Decrease) increase in accounts payable		(356	)		93
(Decrease) increase in accrued salaries and bonus		(476	)		325
(Decrease) increase in accrued liabilities		(1,052	)		156
Increase in long-term liabilities		16			57
Net cash used in operating activities		(7,122	)		(2,960	)

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

Cash Flows From Financing Activities
Issuance of common stock, net of expenses		434			6,015
Payments on Line of Credit		(1,800	)		-
Issuance of Series B preferred stock, net of expenses		19,537			-
Net cash provided by financing activities		18,171			6,015

Net increase in cash and cash equivalents		11,049			3,056
Cash and cash equivalents – beginning		2,321			6,068
Cash and cash equivalents – ending	$	13,370		$	9,124

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

OVERVIEW

Nature of Business

TheCompany enables personalized medicine, offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications and pharma services. The Company provides molecular diagnostics, bioinformatics and pathology services for evaluation of risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. The Company also provides pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. The Company advances personalized medicine by partnering with pharmaceutical, academic, and technology leaders to effectively integrate pharmacogenomics into their drug development and clinical trial programs with the goals of delivering safer, more effective drugs to market more quickly, and improving patient care.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~Impact of COVID-19 pandemic

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Tabular information~~We have taken what we believe are all necessary precautions to safeguard our employees from the Coronavirus (COVID-19) pandemic. We are following the Centers for Disease Control and Prevention’s (“CDC”) guidance and local restrictions. The majority of our employees who do not work in ~~thousands, except per share amounts)~~a lab are currently on a telecommunication work arrangement and have generally been able to successfully work remotely. Our labs require in-person staffing and as of the date of this report, we have been able to successfully operate our labs through a combination of social distancing and protective equipment. Our employees in the lab are wearing what we believe is appropriate protective gear. There can be no assurance that key employees will not become ill or that we will able to continue to operate our labs. We have furloughed a number of employees as a result of reductions in customer demand.

The extent to which the COVID-19 pandemic impacts our operations is dependent on future developments, which are still highly uncertain and cannot be fully predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the spread of the coronavirus globally is adversely affecting global economies and financial markets which could materially and adversely impact our operations including, without limitation, the functioning of our laboratories, the availability of supplies including reagents, the progress and data collection of our pharma services, customer demand and travel and employee health and availability.

We believe that the COVID-19 pandemic will adversely impact our results of operations, cash flows and financial condition for the second quarter of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue was impacted by lower than expected clinical service volume throughout March 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. Our pharma services first quarter revenue increased throughout the first quarter and average daily accessions improved in March 2020 as compared to January and February 2020. However, as of the date of this Report, our overall business is still down approximately 30% from our run rate before the pandemic.

We continue to monitor the rapidly evolving situation and guidance from authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these dynamic circumstances, there may be developments outside our control requiring us to adjust our operating plan.

At this time, we do not anticipate any lab closures beyond temporary work stoppages from time to time to clean and disinfect the labs. Lab supplies including reagents have been secured to mitigate any potential supply chain issues for the foreseeable future and we are not observing any shortages due to supply chain issues. Our third party clinical services billing and collections company has taken steps to continue operations remotely.

We are monitoring the situation on a daily basis and have developed contingency plans to potentially mitigate the anticipated adverse financial impact of the COVID-19 pandemic. These contingency plans include significant cost saving actions to offset any volume shortfall and additional action plans to react to further potential declines. While we are continuing to make progress on a regular basis in returning to volumes prior to the pandemic there is, however, no guarantee in the future we will recover the business which has been lost or inactive.

1.2.	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,~~Biosciences, Inc. (the “Company” or “Interpace”), and its wholly-owned subsidiaries, Interpace Diagnostics Lab Inc., Interpace Diagnostics Corporation, Interpace Pharma Solutions, Inc. and Interpace Diagnostics, LLC, and related notes as included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the ~~U.S. Securities~~SEC on April 22, 2020 and ~~Exchange Commission (“SEC”)~~amended on ~~March 21, 2019.~~ May 29, 2020 (the “Form 10-K”).

The condensed Interim Financial Statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The condensed Interim Financial Statements include all normal recurring adjustments that, in the judgment of management, are necessary for a fair presentation of such interim financial statements. Discontinued operations include the Company’s wholly owned subsidiaries: Group DCA, LLC, or Group DCA; InServe Support Solutions; and TVG, Inc. and its Commercial Services (“CSO”) business unit which was sold on December 22, 2015. All significant intercompany balances and transactions have been eliminated in consolidation. Operating results for the three-month period ended March 31, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, ~~2019.~~2020. All information related to common stock, stock options, restricted stock units, warrants and earnings per share have been retroactively adjusted to give effect to the reverse stock split (1 for 10) that occurred in January 2020.

2.3.

LIQUIDITY

As of March 31, ~~2019,~~2020, the Company had cash and cash equivalents of ~~$9.1~~$13.4 million, net accounts receivable of ~~$11.2~~$9.8 million, total current assets of ~~$22.2~~$28.1 million and total current liabilities of ~~$9.8~~$15.7 million. For the ~~quarter~~three-months ended March 31, ~~2019,~~2020, the Company had a net loss of ~~$3.4~~$6.3 million and cash used in operating activities was ~~$3.0~~$7.1 million.

~~The Company does~~

We do not expect to generate positive cash flows from operations for the year ending December 31, ~~2019. The Company believes however, that it has sufficient cash balances~~2020. We intend to meet ~~near term obligations and further intends to meet its~~our ongoing capital needs by using our available cash, proceeds under the Securities Purchase and Exchange Agreement, additional borrowings under the Line of Credit as well as by increasing our line of credit limit as a result of the additional accounts receivable acquired in July 2019 as part of our acquisition of the Biopharma business of Cancer Genetics, Inc. or CGI, now our pharma services (which requires a modification to the bank agreement and approval by Silicon Valley Bank (“SVB”), revenue growth and margin improvement, collecting accounts receivable, 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~~financing options. Management believes that the Company ~~will be successful in meeting its capital requirements prior~~has sufficient cash on hand and sufficient access to ~~becoming~~ cash ~~flow positive.~~to sustain operations through at least June 30, 2021.

In ~~November 2018, the Company~~September 2019, we entered into the Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell shares of our common stock in an aggregate offering price of up to $4.8 million through the Agent. See Note 16,Equity, for more details. As of March 31, 2020, approximately 178,000 shares of common stock were sold for net proceeds of approximately $0.7 million. As a result of the preferred shares transaction mentioned below, additional shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the preferred shares. See Note 16,Equity, for more detail.

In January 2020, we sold 20,000 Series B preferred shares to investors, led by 1315 Capital, for net proceeds of approximately $19.5 million. See Note 16,Equity, for more detail.

The Company maintains an 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”).~~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.term. 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%. As of March 31, 2020, $1.2 million was outstanding and $2.2 million was remaining on the Line of Credit.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~See Note 1,Overview, regarding the adverse impact of the COVID-19 pandemic on our results of operations, cash flows and financial condition for the second quarter of fiscal 2020 and possibly beyond.

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

~~(Tabular information~~During April 2020, the Company applied for various federal stimulus grants and advances made available under Title 1 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. As of May 1, 2020, we received $2.1 million in ~~thousands, except per share amounts)~~advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, and the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. Based on these restrictions and limitations, the Company is treating the $0.65 million HSS grant as restricted cash until we have clarity on how the funds can be utilized by the Company based on the specific requirements of the HSS.

During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Assets and Other Current Liabilities, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.

As of June 17, 2020 we have approximately $16.2 million of cash on hand. Also as of June 17, 2020, the Company has no further availability on its credit facility, but is in the process of completing an agreement with SVB to expand the credit facility. No assurance can be given that such an expansion agreement will be entered into.

3.4.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

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

Revenue Recognition

Our ~~Services~~

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

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

~~The Company derives~~derive its revenues from the performance of its proprietary assays or tests. The Company’s performance obligation is fulfilled upon the completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the ~~proprietary~~ tests performed. ~~Revenue~~Under Accounting Standards Codification 606, revenue is recognized based on the estimated transaction price or ~~net realizable value (“NRV”),~~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~~For our clinical services, we regularly ~~reviews~~review the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates and ~~adjusts~~adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we will adjust the estimates of contractual allowances, which would affect net revenue in the period such variances become known.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

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

~~(Tabular information~~For our pharma services, performance obligations are satisfied at a point in ~~thousands, except per share amounts)~~time as the Company processes samples delivered by the customer. Project level activities, including study setup and project management, are satisfied over the life of the contract. Revenues are recognized at a point in time when the test results or other deliverables are reported to the customer.

~~Disaggregated Revenues~~Deferred Revenue

~~We operate~~For our pharma services, project level fee revenue is recognized as deferred revenue and recorded at fair value. It represents payments received in ~~a single operating segment~~advance of services rendered and ~~therefore,~~is recognized ratably over the results of our operations are reported on a consolidated basis for purposes of segment reporting, which is consistent with internal management reporting. For the three-month periods ended March 31, 2019 and 2018, substantially alllife of the ~~Company’s revenues were derived from its Gastrointestinal and Endocrine molecular diagnostic tests.~~contract.

Financing and Payment

For non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical or diagnostics business are typically thirty days and in our pharma services, up to sixty days. Commercial third-party-payers are required to respond to a claim within a time period established by their respective state regulations, generally between thirty to sixty days. However, payment for commercial third-party claims may be subject to a denial and appeal process, which could take up to two years in some instances where multiple appeals are submitted. The Company generally appeals all denials from commercial third-party payers.

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~~receivables represent unconditional rights to consideration and are generated using its ~~proprietary molecular diagnostic tests.~~clinical services and pharma services. The Company’s clinical services are fulfilled upon completion of the test, review and release of the test results. In conjunction with fulfilling these services, the Company bills the third-party payer or ~~directly bills the hospital or service provider. Accounts receivable is recognized for all payer groups net of contractual adjustment and net of estimated uncollectable amounts.~~direct-bill payer. Contractual adjustments represent the difference between the list prices and the reimbursement ~~rate~~rates set by third party payers, including Medicare, commercial payers, orand amounts billed ~~directly~~ to ~~hospitals and service providers.~~direct-bill payers. Specific accounts may be written off after several appeals, which in some cases may take longer than twelve months. Pharma services represent, primarily, the performance of laboratory tests in support of clinical trials for pharma services customers. The Company bills these services directly to the customer.

Leases

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

Our lease terms include all non-cancelable periods and may include options to extend (or to not terminate) the lease when it is reasonably certain that we will exercise that option. Leases with terms of twelve months or less at the commencement date are expensed on a straight-line basis over the lease term and do not result in the recognition of an asset or liability.See Note 6, 7,Leases.

~~INTERPACE DIAGNOSTICS GROUP, INC.~~

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

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

Other Current Assets

Other current assets consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

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
March 31, 2020 December 31, 2019
(unaudited)
Lab supply inventory 1,885 1,825
Prepaid expenses 826 971
Funds in escrow 888 888
Due from CGI 1,297 92
Other 80 75
Total other current assets $ 4,976 $ 3,851

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~~ten years in acquisition related amortization expense in the condensed consolidated statements of operations.

The Company reviews the recoverability of long-lived assets and finite-lived intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss is recognized by reducing the recorded value of the asset to its fair value measured by future discounted cash flows. This analysis requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary.
~~Discontinued Operations~~
~~The Company accounts for business dispositions and its businesses held for sale in accordance with ASC 205-20,~~~~Discontinued Operations (“ASC 205-20”)~~~~. ASC 205-20 requires the results of operations of business dispositions to be segregated from continuing operations and reflected as discontinued operations in current and prior periods. See Note 12,~~~~Discontinued Operations~~ ~~for further information.~~

Basic and Diluted Net Loss per Share
A reconciliation of the number of shares of common stock, par value $0.01 per share (the “Common Stock”), used in the calculation of basic and diluted loss per share for the three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 is as follows:

Three Months Ended Three Months Ended
March 31, March 31,
2019 2018 2020 2019
(unaudited) (unaudited)
Basic weighted average number of common shares 35,147 27,855 4,004 3,515
Potential dilutive effect of stock-based awards - - - -
Diluted weighted average number of common shares 35,147 27,855 4,004 3,515
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
13
~~(Tabular information in thousands, except per share amounts)~~

The Company’s Preferred Stock, on an as converted basis of 7,833,334 shares for the three months ended March 31, 2020, and the following outstanding stock-based awards and warrants were excluded from the computation of the effect of dilutive securities on loss per share for the following periods ~~because~~as they would have been ~~anti-dilutive:~~anti-dilutive (rounded to thousands):

Three Months Ended Three Months Ended
March 31, March 31,
2019 2018 2020 2019
(unaudited) (unaudited)
Options 3,936 2,256 578 394
Stock-settled stock appreciation rights (SARs) 25 84 - 3
Restricted stock 6 -
Restricted stock units (RSUs) 607 220 36 61
Warrants 14,196 13,542 1,420 1,420
18,764 16,102 2,040 1,878

4.5. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is attributable to the acquisition of our pharma services in July 2019. The carrying value of the intangible assets acquired was $15.6 million, with goodwill of approximately $8.3 million and identifiable intangible assets of approximately $7.3 million. The goodwill balance at March 31, 2020 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019 are as follows:

As of
March 31, 2019 As of
December 31, 2018 As of March 31, 2020 As of December 31, 2019
(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
Pharma services acquisition:
Trademarks 10 1,600 1,600
Customer relationships 8 5,700 5,700

CLIA Lab 2.3 $ 609 $ 609

Total $ 43,011 $ 43,011 $ 50,920 $ 50,920
Diagnostic lab:
CLIA Lab 2.3 $ 609 $ 609

Accumulated Amortization $ (14,580 ) $ (13,767 ) $ (18,450 ) $ (17,419 )

Net Carrying Value $ 29,040 $ 29,853 $ 32,470 $ 33,501
The following table displays a roll forward of the carrying amount of goodwill from December 31, 2019 to March 31, 2020:
Carrying
Amount
Balance as of December 31, 2019 $ 8,433
Adjustments -
Balance as of March 31, 2020 $ 8,433
14

Amortization expense was approximately $1.0 million and $0.8 million for the three-month periods ended March 31, 2020 and 2019, ~~and 2018,~~ respectively. ~~Amortization of our diagnostic assets begins upon launch of the product.~~ Estimated amortization expense for the next five years is as ~~follows, based on current assumptions of future product launches:~~follows:

2019 2020 2021 2022 2023
$ 3,252 $ 4,272 $ 4,908 $ 2,987 $ 2,987
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~
2020 2021 2022 2023 2024

$ 5,145 $ 5,781 $ 3,859 $ 3,859 $ 3,149

5.6. FAIR VALUE MEASUREMENTS

Cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their relative short-term nature. The Company’s financial liabilities reflected at fair value in the condensed consolidated financial statements include contingent consideration 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.
15

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

As of March 31, 2019 Fair Value Measurements
Carrying Fair As of March 31, 2019
Amount Value Level 1 Level 2 Level 3
(unaudited)
Liabilities:
Contingent consideration:
Asuragen⁽¹⁾ $ 3,136 $ 3,136 $ - $ - $ 3,136
Other long-term liabilities:
Warrant liability⁽²⁾ 358 358 - - 358
$ 3,494 $ 3,494 $ - $ - $ 3,494
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~
As of March 31, 2020 Fair Value Measurements
Carrying Fair As of March 31, 2020
Amount Value Level 1 Level 2 Level 3
Liabilities: (unaudited)
Contingent consideration:
Asuragen⁽¹⁾ $ 2,866 $ 2,866 $ - $ - $ 2,866
Other long-term liabilities:
Warrant liability⁽²⁾ 55 55 - - 55
$ 2,921 $ 2,921 $ - $ - $ 2,921

As of December 31, 2019 Fair Value Measurements
As of December 31, 2018 Fair Value Measurements Carrying Fair As of December 31, 2019
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⁾ $ 3,127 $ 3,127 $ - $ - $ 3,127 $ 2,893 $ 2,893 $ - $ - $ 2,893
Other long-term liabilities:
Warrant liability⁽²⁾ 361 361 - - 361 82 82 - - 82
$ 3,488 $ 3,488 $ - $ - $ 3,488 $ 2,975 $ 2,975 $ - $ - $ 2,975

⁽¹⁾⁽²⁾See Note 8,9,Accrued Expenses and Long-Term Liabilities

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

On June 21, 2017, the Company issued 575,000 Underwriters Warrants, related to a public offering on the same date that included a cash settlement feature in the event of certain circumstances. Accordingly, the Underwriters Warrants are classified as liabilities and were fair valued using the Black Scholes Option-Pricing Model, the inputs for which include exercise price of the respective warrants, market price of the underlying common shares, expected term, volatility based on the Company’s historical market price, and the risk-free rate corresponding to the expected term of the underlying exchange agreement. Changes to the fair value of the warrant liabilities were recorded in Other income (expense), net.
A roll forward of the carrying value of the Contingent Consideration Liability and the Underwriters’ Warrants to March 31, ~~2019~~2020 is as follows:

Cancellation Adjustment Cancellation Adjustment
of Obligation/ to Fair Value/ of Obligation/ to Fair Value/
December 31, 2018 Payments Accretion Conversions Exercises Mark
to Market March 31, 2019
December 31,
2019
Payments Accretion
Conversions
Exercises

Mark to
Market

March 31,
2020
(unaudited) (unaudited)
Asuragen $ 3,127 $ (120 ) $ 129 $ - $ - $ 3,136 $ 2,893 $ (136 ) $ 109 $ - $ - $ 2,866

Underwriters Warrants 361 - - - (3 ) 358 82 - - - (27 ) 55
$ 3,488 $ (120 ) $ 129 $ - $ (3 ) $ 3,494 $ 2,975 $ (136 ) $ 109 $ - $ (27 ) $ 2,921

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.~~
16
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

6.7. 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~~Finance lease assets ~~and $2.5 million~~are included in fixed assets, net 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.~~depreciation.

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 Classification on the Balance Sheet March 31, 2020

(unaudited)
(unaudited)
Assets
Financing lease assets Property and equipment, net $ 475
Operating lease assets Operating lease assets $ 2,320 Operating lease right of use assets 2,811
Total lease assets $ 2,320 $ 3,286

Liabilities
Current
Financing lease liabilities Other accrued expenses $ 160
Operating lease liabilities Other accrued expenses $ 526 Other accrued expenses 1,251
Total current lease liabilities $ 1,411
Noncurrent
Financing lease liabilities Other long-term liabilities 85
Operating lease liabilities Operating lease liabilities 1,899 Operating lease liabilities, net of current portion 1,384
Total long-term lease liabilities 1,469
Total lease liabilities $ 2,425 $ 2,880

The weighted average remaining lease term for the Company’s operating leases was ~~4.1~~2.6 years as of March 31, ~~2019~~2020 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. With respect to the Rutherford lease, in March 2020 the Company delivered a notice of early termination which would terminate the lease in March 2021.

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:~~2020:

Operating Leases Operating Leases Financing Leases

(unaudited)

2019 $ 495
2020 675 1,189 170
2021 671 878 120
2022 629 660 13
2023 250 250 -
Total minimum lease payments 2,720 2,977 303
Less: amount of lease payments representing effects of discounting 295 342 58
Present value of future minimum lease payments 2,425 2,635 245
Less: current obligations under leases 526 1,251 160
Long-term lease obligations $ 1,899 $ 1,384 $ 85

1417

~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

As of ~~December~~March 31, ~~2018,~~2020, 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 $ -
Less than 1 to 3 3 to 5 After
Total 1 Year Years Years 5 Years
Operating lease obligations $ 2,977 $ 1,189 $ 1,538 $ 250 $ -

7.8. COMMITMENTS AND CONTINGENCIES

Litigation

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

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

~~As of March 31, 2019, the Company’s accrual for litigation and threatened litigation was not material to the condensed consolidated financial statements.~~
8.9. ACCRUED EXPENSES AND LONG-TERM LIABILITIES

Other accrued expenses consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

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
March 31, 2020 December 31, 2019
(unaudited)
Accrued royalties $ 2,101 $ 1,934
Contingent consideration 602 502
Operating lease liability 1,251 1,321
Financing lease liability 160 184
Deferred revenue 354 457
Payable to CGI 888 888
Accrued sales and marketing - diagnostics 167 197
Accrued lab costs - diagnostics 104 163
Accrued professional fees 1,064 1,399
Taxes payable 327 403
Unclaimed property 565 565
All others 1,056 1,366
Total other accrued expenses $ 8,639 $ 9,379

Long-term liabilities consisted of the following as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

March 31, 2020 December 31, 2019
(unaudited)
Warrant liability $ 55 $ 82
Uncertain tax positions 4,146 4,081
Deferred revenue 258 269
Other 104 141
Total other long-term liabilities $ 4,563 $ 4,573
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
1518

~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

9.10. STOCK-BASED COMPENSATION

~~Stock Incentive Plan~~
The Company’s stock-incentive program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests. Currently, the Company is able to grant options, SARs and restricted shares from the Interpace Diagnostics Group, Inc. Amended and Restated 2004 Stock Award and Incentive Plan, (the “Amended 2004 Plan”). Unless earlier terminated by action of its Board of Directors, the Amended 2004 Plan will remain in effect until such time as no stock remains available for delivery and the Company has no further rights or obligations under the Amended 2004 Plan with respect to outstanding awards thereunder.
Historically, stock options have been granted with an exercise price equal to the market value of the common stock on the date of grant, expire 10 years from the date they are granted, and generally vested over a one to three-year period for employees and members of the ~~Board of Directors.~~Board. Upon exercise, new shares will be issued by the Company. The Company granted stock options in 2017 which vest monthly over a one-year period. SARs are generally granted with a grant price equal to the market value of the common stock on the date of grant, vest one-third each year on the anniversary of the date of grant and expire five years from the date of grant. The restricted shares and restricted stock units (“RSUs”) 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~~RSUs granted to ~~board~~Board members generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.
During March 2019, the Company’s Chief Executive Officer, Chief Financial Officer, and other executives were granted incentive stock options to purchase an aggregate of 1,105,440 shares of common stock with an exercise price of $0.98 per share and 276,360 RSUs, subject generally to the executive’s or board member’s, as applicable, continued service with the Company, which vest one-third each year over a period of three years.

The following table provides the weighted average assumptions used in determining the fair value of the stock option awards granted during the three month periods ended March 31, ~~2019~~2020 and ~~2018.~~2019.

March 31, 2019 March 31, 2018
(unaudited) (unaudited)
Risk-free interest rate 2.51% 2.65%
Expected life 6.0 years 6.0 years
Expected volatility 127.81% 126.93%
Dividend yield - -
March 31, 2020 March 31, 2019
(unaudited)
Risk-free interest rate 1.51 % 2.51 %
Expected life 6.0 years 6.0 years
Expected volatility 128.87 % 127.81 %
Dividend yield - -

The Company recognized approximately ~~$0.5~~$0.4 million and ~~$0.6~~$0.5 million of stock-based compensation expense during the ~~three month~~three-month periods ended March 31, 2020 and 2019, ~~and 2018,~~ respectively.
19

~~10.~~11. 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~~loss from continuing operations and the effective tax rate for the three-month periods ended March 31, ~~2019~~2020 and ~~2018:~~2019:

Three Months Ended
March 31,
2019 2018
(unaudited)

Provision (benefit) from income tax $ 5 $ 6
Effective income tax rate (0.1 %) (0.2 %)
Three Months Ended
March 31,
2020 2019
(unaudited)

Provision for income tax $ 15 $ 5
Effective income tax rate (0.2 %) (0.1 %)

Income tax expense for the three-month periods ended March 31, ~~2019~~2020 and ~~2018~~2019 was primarily due to minimum state and local taxes.

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in March 2020. The CARES Act includes several U.S. income tax provisions related to, among other things, net operating loss carrybacks, alternative minimum tax credits, modifications to the net interest deduction limitations, and technical amendments regarding the income tax depreciation of qualified improvement property placed in service after December 31, 2017. The CARES Act is not expected to have a material impact on the Company’s financial results.
1620

~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

~~11.~~12. SEGMENT INFORMATION

~~Since December 22, 2015, the Company reports its operations as~~We operate under one segment ~~molecular diagnostics and bioinformatics. The Company’s reporting segment structure~~which is ~~reflective of the way both the Company’s management and chief operating decision maker view~~ the business make operating decisions and assess performance. This structure allows investors to better understand Company performance, better assess prospects for future cash flows, and make more informed decisions about the Company.
~~The Company’s molecular diagnostics and bioinformatics business focuses on~~of developing and ~~commercializing molecular~~selling diagnostic ~~tests, leveraging the latest technology~~clinical 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.pharma services.

~~12.~~13. DISCONTINUED OPERATIONS

The components of liabilities classified as discontinued operations relate to Commercial Services and consist of the following as of March 31, ~~2019~~2020 and December 31, ~~2018:~~2019:

March 31, 2019 December 31, 2018
(unaudited)

Accounts payable $ 192 $ 192
Other 726 726
Current liabilities from discontinued operations 918 918
Total liabilities $ 918 $ 918
March 31, 2020 December 31, 2019
(unaudited)

Accruedliabilities 766 766
Current liabilities from discontinued operations 766 766
Total liabilities $ 766 $ 766

~~13.~~14. LINE OF CREDIT

~~As of March 31, 2019,~~On November 13, 2018 the Company, ~~had no borrowings on its Silicon Valley Bank~~Interpace Diagnostics Corporation, and Interpace Diagnostics, LLC entered into a Loan and Security Agreement ~~(“SVB~~(the “SVB Loan Agreement”) ~~and was in compliance~~ with ~~all covenants. The~~ SVB, ~~Loan Agreement~~which provides for up to $4.0 million of debt financing ~~and consists~~consisted 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~~$3.75 million. The ~~Company intends~~ability to use the ~~proceeds~~term loan portion of the ~~Term~~SVB Loan ~~for capital expenditures~~Agreement expired in connection with its laboratory expansion and the proceeds of the Revolving Line for working capital purposes. According to the Term Loan provisions, the Company intends to draw the full $850,000 by June 30, 2019.
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

~~Term Loan outstanding amounts will bear interest at a rate per annum equal to the greater of the Wall Street Journal Prime Rate (the “Prime Rate”) and 5.00%.~~ The amount that may be borrowed under the Revolving Line is the lower of (i) ~~$4.0~~$3.75 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 Wall Street Journal 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. The Revolving Line has a maturity date three years from the effective date, or November 13, 2021.
As of March 31, 2020, the Company had drawn $1.2 million of the available funds with the Revolving Line and had $2.55 million of remaining availability. As of December 31, 2019, we were in violation of a financial covenant for which we received a waiver from SVB on March 19, 2020. The Company currently is in compliance with all covenants.
As of June 17, 2020, the Company has maximized its borrowing under its line of credit facility and therefore has no further availability on its credit facility; however, we are in the process of seeking to expand availability under the credit facility on terms similar to existing terms, but there can be no assurance that such credit line extension will be granted or that it will be granted on commercially reasonable and acceptable terms
21

~~14.~~15. 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 Three Months Ended
March 31, March 31,
2019 2018 2020 2019
(unaudited) (unaudited)
Operating
Adoption of ASC 606 $ - $ 2,500
Adoption of ASC 842 - right of use asset $ 2,449 $ - $ - $ 2,449
Adoption of ASC 842 - operating lease liability $ (2,536 ) $ - $ - $ (2,536 )
Taxes accrued for repurchase of restricted shares $ 32 $ - $ - $ 32
Investing
Acquisition of property and equipment $ - $ 16
Stock offering costs in other accrued expenses $ 53 $ -
Financing
Accrued Financing costs $ 314 $ 53
Preferred Stock Deemed Dividend $ 3,033 $ -

22
~~15.~~16. EQUITY

Preferred Stock Issuance
Securities Purchase and Exchange Agreement
On January ~~25, 2019,~~10, 2020, the Company entered into ~~an underwriting agreement~~a Securities Purchase and Exchange Agreement (the ~~“Underwriting~~“Securities Purchase and Exchange Agreement”) with ~~H.C. Wainwright & Co.~~1315 Capital II, L.P., ~~LLC~~ (“~~Wainwright”~~1315 Capital”), and Ampersand 2018 Limited Partnership (“Ampersand” and, together with 1315 Capital, the “Investors”) ~~with respect~~pursuant to which the Company agreed to sell to the ~~issuance and sale of~~Investors an aggregate of ~~9,333,334~~$20.0 million in Series B convertible preferred stock of the Company, par value $0.01 per share (the “Series B Preferred Stock”), at an issuance price per share of $1,000. Pursuant to the Securities Purchase and Exchange Agreement, 1315 Capital agreed to purchase 19,000 shares ~~(the “Firm Shares”)~~of Series B Preferred Stock at an aggregate purchase price of $19.0 million and Ampersand agreed to purchase 1,000 shares of Series B Preferred Stock at an aggregate purchase price of $1.0 million.
In addition, the Company agreed to exchange $27.0 million of the Company’s ~~common~~existing Series A convertible preferred stock, par value $0.01 per share, held by Ampersand (the ~~“Common~~“Series A Preferred Stock”), ~~in an underwritten public offering. Pursuant~~represented by 270 shares of Series A Preferred Stock with a stated value of $100,000 per share, which represents all of the Company’s issued and outstanding Series A Preferred Stock, for 27,000 newly issued shares of Series B Preferred Stock (such shares of Series B Preferred Stock, the “Exchange Shares” and such transaction, the “Exchange”). Following the Exchange, no shares of Series A Preferred Stock remained designated, authorized, issued or outstanding. The Series B Preferred Stock has a conversion price of $6.00 as compared to a conversion price of $8.00 on the Series A Preferred Stock, but did not include certain rights applicable to the ~~Underwriting Agreement,~~Series A Preferred Stock, including a six-percent (6%) dividend, and a conversion price adjustment for any failure by the Company to achieve a revenue target of $34.0 million in 2020 related to its diagnostics business or a weighted-average anti-dilution adjustment. Under the terms of the Securities Purchase and Exchange Agreement, Ampersand also ~~granted Wainwright an option, exercisable for 30 days,~~agreed to ~~purchase an additional 1,400,000 shares of Common~~waive all dividends and weighted-average anti-dilution adjustments accrued to date on the Series A Preferred Stock. The option expired unexercised. The Firm Shares were offered to the public at a price of $0.75 per Share. Wainwright purchased the Firm Shares from the Company pursuant to the Underwriting Agreement at an effective price of $0.6975 per share.
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

A convertible financial instrument includes a beneficial conversion feature if its conversion price is lower than the Company’s stock price at the commitment date. The Company ~~received net proceeds, after deducting underwriter discounts~~determined that the sale of the Series B Preferred resulted in a beneficial conversion feature with an intrinsic value of $2.2 million, which the Company recorded as a reduction to additional paid-in capital upon the sale of the Series B Preferred stock. The Company calculated the intrinsic value of the beneficial conversion feature as the difference between the estimated fair value of the common stock on January 15, 2020 of $6.79 per share and ~~commissions and other expenses related to~~ the ~~offering,~~effective conversion price per share of $6.00 multiplied by the number of shares of common stock issuable upon conversion. The Company fully amortized the beneficial conversion feature during the three months ended March 31, 2020 in accordance with GAAP. The beneficial conversion feature resulted in an increase in the ~~amount of approximately $6.1 million. The Company intends~~loss attributable 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.~~
~~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~~common shareholders for the three months ended March 31, ~~2019.~~ 2020 in the Condensed Consolidated Statement of Operations, as it represents a deemed dividend to the preferred shareholders.
ATM program
On September 20, 2019, the Company entered into an Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which the Company may, from time to time, issue and sell shares of its Common Stock, at an aggregate offering price of up to $4.8 million (the “Shares”) through the Agent. Under the terms of the Agreement, the Agent may sell the Shares at market prices by any method that is deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended.
Subject to the terms and conditions of the Agreement, the Agent will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions. The Company has no obligation to sell any of the Shares, and may at any time suspend sales under the Agreement or terminate the Agreement in accordance with its terms. The Company has provided the Agent with customary indemnification rights, and the Agent will be entitled to a fixed commission of 3.0% of the aggregate gross proceeds from the Shares sold. The Agreement contains customary representations and warranties, and the Company is required to deliver customary closing documents and certificates in connection with sales of the Shares. As of March 31, 2020, approximately 178,000 shares have been sold for net proceeds to the Company of approximately $0.7 million.
As a result of the January 15, 2020 Securities Purchase and Exchange Agreement, additional Shares may no longer be sold under the ATM arrangement without a majority approval by the holders of the Series B Preferred Stock in accordance with the Amended and Restated Investor Rights Agreement entered into on that date.
23
17. WARRANTS
Warrants outstanding and warrant activity for the ~~period~~three-months ended March 31, ~~2019~~2020 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
Description Classification Exercise Price Expiration Date Warrants Issued Warrants Exercised Warrants Cancelled/ Expired Balance
December 31,
2019 Balance
March 31,
2020

Private Placement Warrants, issued January 25, 2017 Equity $ 46.90 June 2022 85,500 - - 85,500 85,500
RedPath Warrants, issued March 22, 2017 Equity $ 46.90 September 2022 10,000 - - 10,000 10,000
Underwriters Warrants, issued June 21, 2017 Liability $ 13.20 December 2022 57,500 - (4,000 ) 53,500 53,500
Base & Overallotment Warrants, issued June 21, 2017 Equity $ 12.50 June 2022 1,437,500 (567,286 ) - 870,214 870,214
Vendor Warrants, issued August 6, 2017 Equity $ 12.50 August 2020 15,000 - - 15,000 15,000
Warrants issued October 12, 2017 Equity $ 18.00 April 2022 320,000 - - 320,000 320,000
Underwriters Warrants, issued January 25, 2019 Equity $ 9.40 January 2022 65,434 - - 65,434 65,434

1,990,934 (567,286 ) (4,000 ) 1,419,648 1,419,648
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~
~~(Tabular information in thousands, except per share amounts)~~

~~17.~~18. RECENT ACCOUNTING PRONOUNCEMENTS
~~Recently adopted standards~~Standards not yet effective

In ~~February 2016,~~December 2019, the FASB issued ASU ~~2016-02, Leases~~No. 2019-12, Income Taxes (Topic ~~842), which~~740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). ASU 2019-12 will simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendment is effective for ~~public companies for~~ annual ~~reporting~~ periods beginning after December 15, ~~2018, including interim periods within those fiscal years. Topic 842 establishes a right-of-use model~~2020. We do not expect that ~~requires a lessee to record a right-of-use asset and a lease liability, measured on a discounted basis, on~~ the balance sheet for all leases with terms longer than 12 months. Leases are to be classified as either finance or operating leases, with such classification affecting the pattern or expense recognition in the statementrequirements of ~~operations. We adopted this new standard as of January 1, 2019, by using the alternative modified transition method. See Note 3,~~~~Significant Accounting Policies~~~~, for more details.~~
~~18.~~ ~~SUBSEQUENT EVENT~~
As previously disclosed on the Company’s Current Report on Form 8-K, filed with the SEC on April 18, 2019, we were notified by NASDAQ on April 16, 2019 that we were no longer in compliance with the minimum bid price requirement of NASDAQ. Nasdaq Listing Rule 5550(a)(2) requires listed securities to maintain a minimum bid price of at least $1.00 per share, and Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum bid price requirement exists if the deficiency continues for a period of thirty (30) consecutive business days. Based on the closing bid price of our common stock for the thirty (30) consecutive business days from March 5, 2019 to April 15, 2019, we no longer meet the minimum bid price requirement. The Notification Letter does not impact our listing on The Nasdaq Capital Market at this time. We have 180 calendar days or until October 14, 2019 to regain compliance with this requirement or face delisting. To regain compliance, the bid price of our common stock mustASU 2017-04 will have a closing bid price of at least $1.00 per share for a minimum of 10 consecutive business days. We may be eligible for an additional 180 calendar day compliance period if we do not regain compliance by October 14, 2019. To qualify, we would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and would need to provide written notice ofmaterial impact on 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.consolidated financial statements.

2024
19. SUBSEQUENT EVENTS
Federal Stimulus Programs in Connection with Coronavirus Pandemic
As of May 1, 2020, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, and the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. Based on these restrictions and limitations, the Company is treating the $0.65 million HSS grant as restricted cash until we have clarity on how the funds can be utilized by the Company based on the specific requirements of the HSS. Furthermore, although the Company initially explored the possibility of requesting a loan under the Small Business Administration Paycheck Protection Program, we elected not to complete an application because we are not certain we meet certain criteria of the program.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Current Assets and Other Accrued Expenses, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.
Amendment to Morrisville, North Carolina lease
On June 3, 2020, Interpace Pharma Solutions, Inc. (“IPS”), a wholly-owned subsidiary of the Company, entered into an agreement with Southport Business Park Limited Partnership (“the Landlord”) to amend its Morrisville, North Carolina lease effective June 1, 2020 (the “Amendment”). This lease was originally entered into on June 12, 2004 by the Landlord and Cancer Genetics, Inc., the Company’s predecessor-in-interest (the “Original Lease”) and was assigned to the Company on July 15, 2019 (the “Lease Assignment”). The Original Lease together with all amendments, as assigned by the Lease Assignment constitutes the “Lease.” The Company re-affirmed its Guaranty of Lease, dated July 15, 2019, in the Amendment, guaranteeing the obligations of IPS under the Lease.
The Amendment provides for an extension of the term of the Lease, which consists of approximately 24,906 square feet utilized by IPS as laboratory and office space to provide its pharma solutions services. The terms of the Lease were set to expire on May 31, 2020. Pursuant to the Amendment, the term of the Lease was extended for ten additional years, commencing on June 1, 2020 and continuing until May 31, 2030 (the “Term”). The minimum rent per rentable square foot pursuant to the Amendment is $14.10 from June 1, 2020 to May 31, 2021, with annual increases of 3%. The minimum rent during the first year under the Amendment is $351,174.60, which is subject to a rent abatement consisting of six months of rent forgiveness totaling $175,587, provided there is no outstanding uncured event of default (as defined in the Lease). The Company shall continue to pay to Landlord additional rent, representing the Company’s proportionate share of any direct expenses, as stipulated in the Lease.
Pursuant to the Amendment, the Company has two options to extend the Term for a period of five years each (the “Extended Terms”). Minimum rent during the Extended Terms, if such options are exercised by the Company, is subject to certain “market value” adjustments as provided for in the Amendment. Also pursuant to the Amendment, the Company has the irrevocable right to terminate the Lease on November 30, 2025, as well as on November 30, 2027, providing certain timely notification is given to Landlord, specified events occur (such as a merger or sale of the Company’s business), and specified termination payments are made to Landlord.
25

~~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”).~~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:

● adverse impact of Coronavirus (COVID-19) pandemic due to the slowdown in demand for our clinical services and pharma services, a reduction in samples received and testing volume and delayed third party collections and other factors;
● we have a history of operating losses, and our clinical services and pharma services have generated limited revenue;
● we expect to incur net losses for the foreseeable future and may never achieve or sustain profitability;
● our limited operating history and the limited revenue generated from our business thus far and fluctuating quarterly and annual revenue and operating results, including as a result of how we recognize revenue;
● we depend on sales and reimbursements from our ~~ability~~clinical services for more than 50% of our revenue, and we will need to ~~commercially leverage~~generate sufficient revenue from these and other products and/or solutions that we develop or require to grow our ~~bioinformatics~~business;
● we rely on third parties to process and transmit claims to payers for our clinical services, and any delay, data loss, or other disruption in processing or transmitting could have an adverse effect on our revenue and ~~develop our pipeline products;~~financial condition;
● our ~~obligations~~ability to ~~make royalty~~utilize our commercial and ~~milestone~~operating experience to sell our clinical and pharma services;
● our ability to compete successfully in the markets our clinical services and pharma services operate in;
● our ability to obtain, retain and increase sufficient levels of third party reimbursement for our molecular diagnostic tests in a changing and challenging reimbursement environment, including our current dependence on a concentrated number of third-party payers and the lack of timeliness of their payments, and the potential failure of such payments to ever occur;
● our ~~licensors;~~billing practices and those of our third-party billing providers to effectively bill and collect on claims for the sale of our tests;
● our revenue recognition is based in part on our estimates for future collections and such estimates may prove to be incorrect;
26
● a deterioration in the collectability of our accounts receivable could have a material adverse effect on our business, financial condition and results of operations;
● our inability to finance our business on acceptable terms in the future may limit our ability to grow our business, develop and commercialize products and services, develop and commercialize new molecular diagnostic solutions and technologies and ~~grow~~expand our ~~business;~~pharma services;
● our ability to comply with financial covenants under our current line of credit facility and comply with our debt ~~obligations;~~obligations and our ability to expand our working capital borrowing base to provide sufficient working capital financing during growth periods;
● ~~whether~~ we ~~are able to successfully utilize~~have issued convertible preferred stock and may issue additional convertible preferred stock in the future, and the terms of our ~~commercial and operating experience to sell~~preferred stock may dilute our ~~molecular diagnostic tests;~~common stock;
● two private equity firms and their affiliates control, on an as-converted basis, 66% of our ~~products continuing to perform as expected;~~fully diluted outstanding shares of common stock through their holdings of Series B Convertible Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”), and this concentration of ownership along with having authority for designation rights for a majority of our directors will have a substantial influence on our decisions;
● billing for our ~~limited operating history;~~clinical services tests is complex, and we must dedicate substantial time and resources to the billing process to be paid for our clinical services;
● we depend on a few payers for a significant portion of our ~~ability to attract~~revenue for our clinical services, and ~~retain key personnel;~~if one or more significant payers stops providing reimbursement or decreases the amount of reimbursement for our tests, our revenue could decline;
● if payers do not provide reimbursement, rescind or modify their reimbursement policies or delay payments for clinical services, our ~~dependence on a concentrated selection of third-party payers including the lack of timeliness of their payments;~~commercial success could be compromised;
● developing new tests and related services and solutions includes a lengthy and complex process with uncertain results;
● the effect of potential adverse findings resulting from regulatory audits of our ~~ability to obtain broad adoption of~~billing and ~~ability to grow or continue to secure sufficient levels of reimbursement in a changing reimbursement environment, including obtaining~~payment practices and the impact such results could have on our clinical ~~data to support sufficient levels of reimbursement;~~services;
● the demand for our molecular diagnostic tests from physicians and patients;
● ~~our relationships with leading thought leaders and biopharmaceutical companies;~~
● ~~demonstration of clinical relevance~~our products and ~~value in utility studies;~~services continuing to perform as expected;
● claims against us for inaccurate results from our molecular diagnostic tests;
● our obligations to make royalty and milestone payments to our licensors;
● our ability to ~~continue~~obtain data and samples to ~~expand~~perform sufficient clinical studies to successfully publish data demonstrating the clinical relevance and value of our ~~sales and marketing forces;~~molecular diagnostic tests, including to support sufficient levels of third party reimbursement;
● ~~our reliance on our 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 ~~tests;~~molecular diagnostic tests and pharma services;
● our ability to scale our operations ~~testing capacity~~or delays or reagent and ~~processing technology;~~supply shortages for our tests and services;
● our ability to ~~support demand for our molecular diagnostic~~develop or acquire tests, ~~and any~~services or solutions;
27
● the ability of our clinical services to enter into additional clinical study collaborations with highly regarded institutions;
● the effect current and future laws, licensing requirements and regulation have on our business including the changing U.S. Food and Drug Administration environment as it relates to molecular diagnostics and pharma services and laboratory developed tests (LDT’s);
● changes in governmental regulations mandating price controls and limitations on patient access to our products and services;
● if we fail to comply with Federal, State and foreign laboratory licensing requirements, we could lose the ability to perform our tests or ~~solutions;~~experience disruptions to our business;
● legislation reforming the U.S. healthcare system;
● a failure to comply with Federal and State laws and regulations pertaining to our payment practices;
● our ability to comply with fraud and abuse laws or payer regulations could result in our being excluded from participation in Medicare, Medicaid or other governmental payer programs;
● compliance with numerous statutes and regulations pertaining to our business;
● the effect of The Eliminating Kickbacks in Recovery Act of 2018 as it potentially impacts our ability to incentivize our sales personnel appropriately;
● our ability to realize all of the anticipated benefits of the acquisition of our pharma services or those benefits, if any, taking longer to realize than expected;
● if pharmaceutical and biotech companies, universities and contract research organizations performing clinical trials decide not to use our tests and services, we may be unable to generate sufficient revenue to sustain our pharma services;
● if we fail to perform our pharma services in accordance with contractual and regulatory requirements, and ethical considerations, we could be subject to significant costs or liability;
● our ability to compete in the markets our clinical services operate in;
● our ability to attract and retain key employees and management personnel;
● our reliance on our sales and marketing forces for future business growth and our ability to continue to expand our sales and marketing forces;
● our limited experience in marketing and selling our products;
● the ability of our molecular diagnostic tests 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;~~
● our ability to license rights to use technologies in order to commercialize new ~~products;~~products and services;
● 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 acts of nature, seasonal results and adverse weather conditions, ~~such as~~ hurricanes and floods, on our ~~business;~~business and our suppliers;
28
● our use of hazardous materials;
● the ~~effect current~~susceptibility of our information systems to security breaches, loss of data and ~~future laws, licensing requirements and regulation have on~~other disruptions;
● catastrophic loss of our ~~business including the changing U.S. Food and Drug Administration, or the FDA, environment as it relates to molecular diagnosis;~~laboratories;
● our ability to obtain and maintain sufficient qualified laboratory space to meet our processing needs for all of our business as well as our ability to pass regulatory inspections and continue to be Clinical Laboratory Improvement Amendments (“CLIA”) and the College of American Pathologists (“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~~U.S. Foreign Corrupt Practices Act 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 ~~attract and retain qualified commercial representatives and other key employees and management personnel;~~respond to rapid scientific changes in the areas in which we operate;
● ~~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 results of any future impairment testing for intangible assets as required under GAAP;~~
● ~~the impact of contingent liabilities on our 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;

● changes in U.S. and global patent law;
● tax reform legislation;
● stock dilution;
● changes in financial accounting standards or practices;
● exposure to international law, regulations and risk as a result of international expansion;
● we may acquire businesses or assets or make investments in other companies or testing, service or solution technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debts or cause us to incur significant expense;
● the impact of contingent liabilities on our financial condition;
● the results of any future impairment testing for intangible assets as required under U.S. generally accepted accounting principles (“GAAP”);
● our ability to maintain ~~our listing with The Nasdaq Capital Market (“NASDAQ”);~~and implement effective internal controls over financial reporting especially as we are consolidating operations;
● ~~compliance with public company reporting requirements;~~if our information technology or communications systems fail or we experience a significant interruption in their operation, our reputation, business and results of operations could be materially and adversely affected;
● 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~~our ability to manage our growth or ~~stock price;~~unexpected declines;
● the ~~volatility~~potential that the temporary equity classification of our preferred stock ~~price~~ and ~~fluctuations~~other matters may trigger a Nasdaq compliance default in the second or third quarter of 2020 for failure to meet minimum stockholder equity requirements which could result in a delisting of our ~~quarterly and annual revenues and earnings;~~common stock from Nasdaq leading to a possible reduced stock price; potential difficulty in raising additional capital or debt as well as loss of exemptions from various state securities laws which could hamper action plans to remediate such a Nasdaq compliance default;
● ~~publications, or~~uncertainty regarding the ~~lack thereof, by equity research analysts about us,~~regulatory obligations related to our ~~business and our competitors;~~receipt of $650,000 funding for COVID testing;
● ~~securities class action litigation;~~our ability to rebuild our cost structure in anticipation of volume growth that does not happen as planned;
● ~~cost of settlement or damage awards against our directors and officers; and~~
● the ~~effect~~potential impact on customers currently in clinical trials in our Rutherford, NJ lab that we are now relocating to North Carolina which may require revalidation in the new site;
● the impact of ~~The Eliminating Kickbacks~~increased costs building expanded laboratory capabilities in ~~Recovery Act~~North Carolina in anticipation of ~~2018 (“EKRA”) as it potentially impacts~~ the move from Rutherford, NJ and the potential loss of customers related to the move;
● our ability to ~~incentive~~efficiently execute and complete the planned laboratory move from Rutherford, NJ to North Carolina on a timely basis within our forecasted costs;
● the risk of loss of personnel that are uniquely qualified to perform the breadth of specialty testing and lab applications necessary for developing customized assays in our pharma solutions business; and
● the risk related to our sales ~~personnel appropriately.~~reps fully reengaging with customers after reducing physical visits by our commercial team during the pandemic.

29
Please see Part I – Item 1A – “Risk Factors” in our ~~Annual Report on~~ Form 10-K for the fiscal year ended December 31, ~~2018,~~2019 filed ~~March 21, 2019,~~with the SEC on April 22, 2020, as amended on May 29, 2020, as well as other documents we file with the ~~U.S. Securities and Exchange Commission (“SEC”)~~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.

22
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
OVERVIEW

We are ~~a fully integrated commercial~~an emerging leader in enabling precision medicine principally in oncology by offering specialized services along the therapeutic value chain from early diagnosis and ~~bioinformatics company that develops~~prognostic planning to targeted therapeutic applications through our clinical services and ~~provides~~pharma services. Through our clinical services, we enable physicians to personalize the clinical management of each individual patient by providing genomic information to better diagnose, monitor and inform cancer treatment. Our clinical services provide clinically useful molecular diagnostic tests, bioinformatics and pathology ~~services. We develop and commercialize genomic tests and related first line assays principally focused on early detection of patients with indeterminate biopsies and at high~~services for evaluating risk of cancer ~~using~~by leveraging the latest technology ~~to help~~in personalized medicine ~~and improve~~for improved patient diagnosis and management. ~~Our~~Through our pharma services, we develop, commercialize and provide molecular- and biomarker-based tests and services and provide ~~mutational analysis~~companies with customized solutions for patient stratification and treatment selection through an extensive suite of ~~genomic material contained in suspicious cysts, nodules~~molecular and ~~lesions~~biomarker-based testing services, DNA- and RNA- extraction and customized assay development and trial design consultation. Our pharma services provide pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries and advances personalized medicine by partnering with pharmaceutical, academic and technology leaders to effectively integrate pharmacogenomics into drug development and clinical trial programs with the ~~goal~~goals of ~~better informing treatment decisions in patients at risk of thyroid, pancreatic,~~delivering safer, more effective drugs to market more quickly, and other cancers. The molecular diagnostic tests we offer enable healthcare providers to better assess cancer risk, helping to avoid unnecessary surgical treatment in patients at low risk. We currently have four commercialized molecular diagnostic tests in the marketplace for which we are receiving reimbursement: PancraGEN^®~~, which is a pancreatic cyst and pancreaticobiliary solid lesion genomic test that helps physicians better assess risk of pancreaticobiliary cancers using our proprietary PathFinderTG~~^®~~platform; ThyGeNEXT~~^®~~, which is an expanded oncogenic mutation panel that helps identify malignant thyroid nodules and replaced ThyGenX~~^®~~; ThyraMIR~~^®~~, which assesses thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay; and RespriDx~~^®~~, which is a genomic test that helps physicians differentiate metastatic or recurrent lung cancer from the presence of newly formed primary lung cancer and which also utilizes our PathFinderTG~~^® ~~platform to compare the genomic fingerprint of two or more sites of lung cancer. BarreGEN~~^®~~, an esophageal cancer risk classifier for Barrett’s Esophagus that also utilizes our PathFinder TG~~^® ~~platform, is currently in a Clinical Evaluation Program or (“CEP”) whereby we gather information from physicians using BarreGEN~~^® ~~to assist us in positioning our product for full launch, partnering and potentially supporting reimbursement with payers.~~improving patient care.

Our mission is to provide personalized medicine through 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 accreditedDuring fiscal 2019, in connection with the acquisition of our pharma services, we raised $27 million with Ampersand, a diagnostic laboratory private equity investor. This was followed 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,~~raising an additional $20 million 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 licensed and accredited laboratories to develop and commercialize our assays and products. We aim to provide physicians and patients with diagnostic options for detecting genomic and other molecular alterations that are associated with gastrointestinal, endocrine, and 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 of~~the Worldwide Market for In Vitro Diagnostic Tests~~.early 2020 led by 1315 Capital, another sophisticated private equity investor. We believe that the ~~molecular diagnostics market offers significant~~combination of our clinical services and acquired pharma services uniquely positions us for growth and ~~strong patient value given~~expansion in the ~~substantial opportunity it affords~~fast-growing biopharma sector where we can provide our unique diagnostic capabilities to ~~lower healthcare costs by helping~~a broad customer base.
Impact of COVID-19 pandemic
We have taken what we believe are all necessary precautions to ~~reduce unnecessary surgeries and ensuring~~safeguard our employees from the ~~appropriate frequency of monitoring.~~Coronavirus (COVID-19) pandemic. We are ~~keenly focused~~following CDC guidance and local restrictions. All employees who do not work in a lab have been on ~~growing~~a telecommunication work arrangement. Our employees in the lab are wearing what we believe is appropriate protective gear. There can be no assurance that key employees will not become ill or that we will able to continue to operate our ~~test volumes, securing additional insurance coverage~~labs. We have furloughed a number of employees as a result of reductions in customer demand and ~~reimbursement, maintaining~~we have closed our administrative offices. Our labs require in-person staffing and ~~growing~~as of the date of this report, we have been able to successfully operate our ~~current reimbursement~~labs though a combination of social distancing, managing lab scheduling and ~~supporting revenue growth for~~protective equipment. Our management, finance staff and sales personnel have generally been able to successfully work remotely. As of June 15, 2020 we began allowing general and administrative staff to return to their respective offices on a limited basis.
The extent to which the COVID-19 pandemic impacts our ~~molecular diagnostic tests, introducing related first line product~~operations continues to depend on future developments, which are highly uncertain and ~~service extensions, as well as expanding~~cannot be predicted at this time, and include the duration, severity and scope of the outbreak and the actions taken to contain or treat the coronavirus outbreak. In particular, the continued spread of the coronavirus globally has adversely affecting global economies and financial markets resulting in an economic downturn which could materially and adversely impact our ~~business by developing~~operations including, without limitation, the functioning of our laboratories, the availability of supplies including reagents, the progress and ~~promoting synergistic products in~~data collection of our ~~markets.~~ pharma services, customer demand and travel and employee health and availability.
30
We ~~also~~ believe that ~~BarreGen~~^®the COVID-19 pandemic will also adversely impact our results of operations, cash flows and financial condition for the second quarter of fiscal 2020 and possibly beyond. Our fiscal 2020 first quarter revenue was impacted by lower than expected clinical service volume throughout March 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic. Further, we did reduce overall costs to match the lower volumes in the labs.
However, as of the date of this Report, our overall business is ~~a potentially significant pipeline product,~~still down approximately 30% from our run rate before the pandemic. We have continued to add resources to support the increased volume consistent with the changing environment. However, as we rebuild our cost structure to support the improved volume, there is risk that the anticipated volume growth will not materialize as planned and we will be required to adjust accordingly.
To optimize the pharma services lab operations we are transitioning lab work from Rutherford, NJ to our facility in Morrisville, NC. We will be investing several million dollars to facilitate the move, transfer personnel, build out facilities and validate processes over the next several months. We believe this investment and transition will result in reduced operating costs in the future: however, there is no guarantee we will be as successful with the move or the benefits expected thereof as we currently plan.
All of our labs are currently operating and we believe we are appropriately staffed for the volume of work. At this time, we do not anticipate any lab closures beyond temporary work stoppages from time to time to clean and disinfect the labs. Lab supplies including reagents have been secured to mitigate any potential supply chain issues for the foreseeable future and we are ~~providing necessary resources~~not observing any shortages due to ~~accelerate~~supply chain issues. Our third party clinical services billing and collections company has taken steps to continue operations remotely. There have been indications that payer processing may slow down but so far there has been little or no material impact to our ~~development process. Further,~~collections.
As of May 2020, we ~~believe BarreGEN~~^® ~~is synergistic with our capabilities~~are in the ~~gastrointestinal market, which~~process of launching a new product line of antibody testing for the COVID-19 virus. Validation is ~~one~~complete; we have acquired acceptable kits and reference samples and are now offering this testing to our employees and customers. The serological, or antibody, test measures the amount of antibodies present in the blood. In response to an infection, such as COVID-19, the body develops an overall immune response to fight the infection. One component of the ~~sectors~~immune system’s response is the development of antibodies that attach to the virus and help eliminate it. Antibody tests detect the body’s immune response to the infection caused by the virus rather than detecting the virus itself. The FDA has issued guidance allowing companies to market serological tests that have been validated following notification to FDA. Validated antibody tests offered under the policy should, among other things, include in ~~which~~test reports language explaining that negative results do not rule out COVID-19 infection and that follow-up testing with a molecular diagnostic should be considered to rule out infection. There is no guarantee that we ~~operate. Additionally, we are focused on either acquiring~~will be successful in realizing revenue or ~~licensing products that either leverage our commercial capabilities and/or diversify our revenue base away~~benefit from ~~the risks associated with reimbursement by leveraging our molecular data and capabilities.~~these efforts.

Additional Reimbursement Coverage During ~~2019~~2020

Reimbursement progress is key for any molecular diagnostic company. We have been successful to date in expanding the reimbursement of our products in ~~2019.~~2020. Specifically, the most significant progress we have made regarding payers to date in ~~2019~~2020 is as follows:

● In February 2020, we announced an increase in Medicare reimbursement for our ThyraMIR^® test from $1,800 to $3,000, retroactive to January 1, 2020, reflecting a re-evaluation of the technical and clinical performance of the test relative to other molecular tests in the market and their respective prices.
● In ~~January 2019,~~March 2020, we announced ~~that~~ we had entered into ~~an Agreement~~a contract with ~~the University~~Blue Cross Blue Shield of ~~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 health plans in the the Midwest, extended coverage of both~~Massachusetts making ThyGeNEXT^®and ThyraMIR^® ~~to its 1.3~~tests covered in-network services for their more than 3 million members in Massachusetts and across New England.
31
● In March 2020, we announced we had entered into a contract with CareFirst Blue Cross Blue Shield, making ThyGeNEXT® and ThyraMIR® tests covered ~~lives. Physicians across Medica’s entire network will now be able to utilize Interpace’s thyroid products.~~in-network services for their more than 3.3 million members in Maryland, Washington, D.C., and Northern Virginia.

● In March 2020, we announced we had entered into a contract with Premera Blue Cross, making ThyGeNEXT® and ThyraMIR® tests covered in-network services for their more than 2 million members in Washington State and Alaska.
● In April ~~2019,~~2020, we ~~announced that~~executed an agreement with Avalon Healthcare Solutions (Avalon), a laboratory benefit manager representing numerous health plans. Our agreement with Avalon offers us in-network status to approximately 5.8 million lives covered by the following health plans: Blue Cross Blue Shield North Carolina, South Carolina, Kansas City and Vermont, and Capital Blue Cross of Central Pennsylvania.
● In April 2020, we ~~had received approval to launch ThyraMIR~~^® ~~diagnostic testing on formalin-fixed, paraffin-embedded (“FFPE”) tissue samples from thyroid nodules from the State~~executed a contract with Blue Cross of ~~New York.~~Idaho making ThyGeNEXT® and ThyraMIR® tests covered in-network services for their more than 576 thousand members.
● In May 2020, we executed a contract with Blue Cross Blue Shield of Wyoming.

~~DESCRIPTION OF REPORTING SEGMENTS~~Revenue Recognition

~~Since December 22, 2015, the Company reports~~Clinical services derive 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.
~~Revenue~~
~~The Company’s revenue is generated~~revenues from the performance of its proprietary ~~molecular diagnostics~~assays or tests. The Company’s performance obligation is fulfilled upon completion, review and release of test results ~~and subsequent billing~~ to the customer. The Company subsequently bills third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based on the estimated transaction price or net realizable value (“NRV”), which is determined based on historical collection rates by each payer ~~or hospital.~~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.

~~Under ASC 606,~~For our clinical services, we regularly review the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates and adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we adjust the estimates of contractual allowances, which would affect net revenue in the period such variances become known.
For our pharma services customers, performance obligations are satisfied at a point in time as the Company ~~recognizes revenue for billings less contractual allowances~~processes samples delivered by the customer. Project level activities, including study setup and ~~estimated uncollectable amounts for all payer groups on~~project management, are satisfied over the ~~accrual basis based upon~~life of the contract. Revenues are recognized at 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 NRV is evaluated quarterly or as needed and then applied to future periods until recalculated.
~~Persuasive evidence of an arrangement exists and delivery is deemed to have occurred upon completion, review, and release of~~point in time when the test results or other deliverables are reported to the customer.
Deferred Revenue
For our pharma services, project level fee revenue is recognized as deferred revenue and recorded at ~~which time we billed~~fair value. It represents payments received in advance of services rendered and is recognized ratably over the ~~third-party payor or hospital. The assessment~~life of the ~~fixed or determinable nature~~contract.
Cost of the fees charged for diagnostic testing performed, and the collectability of those fees, requires significant judgment by our management. Our management believes that these two criteria have been met when there is contracted reimbursement coverage or a predictable 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 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.Revenue

Cost of ~~services~~revenue 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, royalty expenses, and facility expenses.

2432

~~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, ~~2019~~2020 Compared to the Quarter Ended March 31, ~~2018 (in~~2019 (unaudited, in thousands)

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 %
Three Months Ended March 31,
2020 2020 2019 2019

Revenue, net $ 9,200 100.0 % $ 6,010 100.0 %
Cost of revenue 6,113 66.4 % 2,622 43.6 %
Gross profit 3,087 33.6 % 3,388 56.4 %
Operating expenses:
Sales and marketing 2,481 27.0 % 2,411 40.1 %
Research and development 809 8.8 % 528 8.8 %
General and administrative 4,887 53.1 % 2,912 48.5 %
Acquisition related amortization expense 1,031 11.2 % 813 13.5 %
Total operating expenses 9,208 100.1 % 6,664 110.9 %

Operating loss (6,121 ) -66.5 % (3,276 ) -54.5 %
Interest accretion (109 ) -1.2 % (129 ) -2.1 %
Other income (expense), net 47 0.5 % 48 0.8 %
Loss from continuing operations before tax (6,183 ) -67.2 % (3,357 ) -55.9 %
Provision for income taxes 15 0.2 % 5 0.1 %
Loss from continuing operations (6,198 ) -67.4 % (3,362 ) -55.9 %

Loss from discontinued operations, net of tax (65 ) -0.7 % (57 ) -0.9 %

Net loss $ (6,263 ) -68.1 % $ (3,419 ) -56.9 %

Revenue, net

Consolidated revenue, net for the three months ended March 31, ~~2019~~2020 increased by ~~$1.2~~$3.2 million, or ~~25%~~53%, to ~~$6.0~~$9.2 million, compared to ~~$4.8~~$6.0 million for the three months ended March 31, ~~2018.~~2019. This increase was principally attributable to ~~increased test~~our acquisition of our pharma services business in 2019. Our first quarter revenue was impacted by lower than expected clinical service volume ~~for our thyroid tests.~~throughout March 2020, which we believe has resulted from the temporary reduction in non-essential testing procedures in connection with the COVID-19 pandemic.

Cost of revenue
Consolidated cost of revenue for the three months ended March 31, ~~2019 and~~2020 was $6.1 million, as compared to $2.6 million for the three months ended March 31, ~~2018 were~~2019. As a percentage of revenue, cost of revenue increased to 66% for the three months ended March 31, 2020 as compared to 44% in the comparable same period in ~~both periods at approximately $2.6 million.~~2019. This increase as a percentage of revenue can be primarily attributed to the lower margins associated with pharma services.
Gross profit

Consolidated gross profit ~~for the three months ended March 31, 2019 increased $1.2 million, or 52%, to $3.4 million, as compared to $2.2~~was approximately $3.1 million for the three months ended March 31, ~~2018.~~2020 and $3.4 million for the three months ended March 31, 2019. The gross profit percentage ~~increased~~decreased from ~~46%~~56% in the first quarter of 2019 to 34% for the first quarter of ~~2018 to 56% for the first quarter of 2019 due~~2020. This decrease can be attributed to the ~~leveraging of fixed costs over~~lower margins associated with pharma services mentioned above and the ~~higher~~reduction in net revenue ~~base as well as the timing of lab supply purchases for the quarter ended March 31, 2018.~~from clinical services.
33

Sales and marketing expense
Sales and marketing expense was ~~$2.4~~$2.5 million for the three months ended March 31, ~~2019,~~2020, or ~~40%~~27% as a percentage of net revenue. For the three months ended March 31, ~~2018,~~2019, sales and marketing expense was ~~$2.0~~$2.4 million, or ~~41%~~40% as a percentage of net revenue. The increase in sales and marketing expense primarily reflects ~~an increase in employee~~the addition of sales and ~~consulting~~marketing costs ~~of $0.4 million, as we are expanding the size of our salesforce and increasing our marketing activities which are supporting our growth.~~associated with pharma services.

25
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
Research and development
Research and development expense ~~totaled approximately $0.5~~was $0.8 million for ~~both~~ the three months ended March 31, ~~2019~~2020 and $0.5 million for the three months ended March 31, ~~2018.~~2019. The increase was primarily attributable to costs associated with the acquired pharma services. As a percentage of revenue, research and development expense ~~decreased to~~stayed the same at approximately 9% ~~for the three months ended March 31, 2019 as compared to 10% for the three months ended March 31, 2018. This decrease as a percentage of revenue was due to the increase~~ in ~~revenue discussed above.~~both periods.

General and administrative
General and administrative expense for the three months ended March 31, ~~2019~~2020 was ~~$2.9~~$4.9 million as compared to ~~$2.2~~$2.9 million for the three months ended March 31, ~~2018. This~~2019. The increase was primarily attributable to ~~increases in professional fees of approximately $0.4 million in connection~~costs associated with ~~evaluating strategic initiatives and non-cash compensation for professional services of $0.3 million when compared to~~ the ~~quarter ended March 31, 2018.~~acquired pharma services.
Acquisition related amortization expense

During the three months ended March 31, ~~2019~~2020 and March 31, ~~2018,~~2019, we recorded amortization expense of ~~approximately~~$1.0 million and $0.8 million, respectively, ~~in both periods~~ which is related to intangible assets associated with prior acquisitions. The increase is related to our acquisition of our pharma services in 2019 and the associated intangible assets.

Operating loss

Operating loss from continuing operations was $6.1 million for the three months ended March 31, 2020 as compared to $3.3 million for the three months ended March 31, ~~2019 as compared to $3.2 million for the three months ended March 31, 2018.~~2019. The increase can be attributed to the ~~increase~~operating loss associated with our pharma services as well as the reduced revenue and gross profit in ~~general and administrative expense discussed above.~~our clinical services.

Provision for income taxes

~~The Company’s income~~Income tax expense was approximately $15,000 for the three months ended March 31, 2020 and $5,000 for the three months ended March 31, ~~2019 and $6,000 for the three months ended March 31, 2018.~~2019. Income tax expense for both periods was primarily driven by minimum state and local taxes.

~~(Loss) income~~Loss from discontinued operations, net of tax
We had a loss from discontinued operations of ~~$0.06~~approximately $0.1 million for both the three months ended March 31, ~~2019~~2020 and ~~a loss from discontinued operations of $0.05 million for the three months ended~~ March 31, ~~2018.~~2019.
34

LIQUIDITY AND CAPITAL RESOURCES

For the three months ended March 31, ~~2019,~~2020, we had an operating loss of ~~$3.3~~$6.1 million. As of March 31, ~~2019,~~2020, we had cash and cash equivalents of ~~$9.1 million, net accounts receivable of $11.2~~$13.4 million, total current assets of ~~$22.2~~$28.1 million and current liabilities of ~~$9.8~~$15.7 million. Currently, the Company has no further availability on its credit facility, but is in the process of completing an agreement with SVB to expand the credit facility. No assurance can be given that such an expansion agreement will be entered into.

During the three months ended March 31, 2020, net cash used in operating activities was $7.1 million. The main component of cash used in operating activities was our net loss of $6.3 million. During the three months ended March 31, 2019, net cash 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 was the net loss of $3.4 million. ~~During~~
For the three months ended March 31, ~~2018, net~~2020, there was cash ~~used~~provided from financing activities of $18.2 million, $19.5 million which resulted from the issuance of Preferred Stock 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.
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
~~Our accounts receivable increased to $11.0~~January 2020, $0.4 million from ~~$6.4~~sales of common stock, and was partially offset by $1.8 million ~~at the end~~in a net repayment of Q1funds under our revolving line 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, 2019, we have been using the full accrual basis for 15 months, as compared to only 3 months as of March 31, 2018. Additionally we changed our billing and collections contractor and we are still in the process of finalizing transition.
credit with SVB. For the three months ended March 31, 2019, there was cash provided from financing activities of $6.0 million which resulted from the issuance of common stock in our underwritten public offering completed in January 2019.

In September 2019, we entered into the Equity Distribution Agreement (the “Agreement”) with Oppenheimer & Co. Inc., as sales agent (the “Agent”), pursuant to which we may, from time to time, issue and sell shares of our common stock in an aggregate offering price of up to $4.8 million through the Agent. See Note 16,Equity of the notes to the financial statements for more details. In January 2020, 80,341 shares (as adjusted for the reverse stock split) of common stock were sold for net proceeds of approximately $0.4 million.
As of March 31, 2020, the Company had drawn $1.2 million of the $3.75 million of available funds under its Revolving Line with SVB. As of June 17, 2020, we had no funds available on the Revolving Line because we were fully drawn.
In January 2020, we sold 20,000 preferred shares to investors, led by 1315 Capital, for net proceeds of approximately $19.5 million; see Note 16,Equityof the footnotes to the financial statements for more detail.
As of June 17, 2020, we received $2.1 million in advances under the Centers for Medicare & Medicaid Services (CMS) accelerated and advance payment program, as well as a $0.65 million grant from the Department of Health and Human Services (HSS). The CMS advance will be offset against future Medicare billings of the Company, and the HSS grant is subject to certain conditions regarding its use, including developing coronavirus and serology tests. These grants and advances require certain certifications by the Company and impose specific limitations on the use of the proceeds. Based on these restrictions and limitations, the Company is treating the $0.65 million HSS grant as restricted cash until we have clarity on how the funds can be utilized by the Company based on the specific requirements of the HSS. Furthermore, although the Company initially explored the possibility of requesting a loan under the Small Business Administration Paycheck Protection Program, we elected not to complete an application because we are not certain we meet certain criteria of the program.
During April and early May 2020, the Company made payments totaling $888,000 to CGI for funds withheld from the Excess Consideration Note to satisfy certain adjustments and indemnification obligations under the Asset Purchase Agreement. The funds used to satisfy this obligation were not included in cash and cash equivalents as of December 31, 2019 and March 31, 2020. These funds and the related liability were included in Other Assets and Other Current Liabilities, respectively, as of those period ends, and the settlement of the liability had no net impact on the Company’s operating cash flow or liquidity.
We do not expect to generate positive cash flows from operations for the year ending December 31, 2020. We intend to meet our ongoing capital needs by ~~driving~~using our available cash, proceeds under the Securities Purchase and Exchange Agreement, additional borrowings under the Line of Credit as well as increasing our line of credit limit as a result of the additional accounts receivable acquired in July 2019 as part of our acquisition of pharma services (which requires a modification to the bank agreement and approval by SVB which cannot be assured, revenue growth and margin improvement, collecting accounts receivable, containing costs as well as exploring other financing options. Our planned capital expenditures over the next twelve months currently includes several million dollars to be utilized in consolidating our laboratories, which includes equipment purchases, calibration and testing costs, moving and other related costs, and leasehold improvements. Management believes that the Company has sufficient cash on hand and available to sustain operations through at least ~~May 31, 2020. There~~June 30, 2021. However, in the event the Company is unable to maintain its Nasdaq listing for its common stock due to a failure to meet minimum stockholder equity requirements due to the classification of its preferred stock as temporary equity, the Company’s ability to raise additional capital may be adversely impacted. Therefore, there is no guarantee that additional capital can be raised to fund our future operations.

35
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.

27
~~INTERPACE DIAGNOSTICS GROUP, INC.~~
Item 3. — Quantitative and Qualitative Disclosures About Market ~~Risk.~~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, ~~2019.~~2020.

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.

28
~~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 21, 2019 (the “Form 10-K”),include a discussion of our legal proceedings, as does Note 7,~~Commitments and Contingencies~~, to the condensed consolidated financial statements furnished herewith. During the fiscal quarter ended March 31, 2019, there have been no material changes from the proceedings disclosed in our Form 10-K.None.
36

Item 1A. Risk Factors.

Not applicable as we are a smaller reporting company.

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

None.

Item 3. Defaults Upon Senior ~~Securities.~~Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other ~~Information.~~Information

~~None.~~As disclosed in Item 8.01 of the May 15^th 8-K and in the Company’s definitive proxy statement, as filed with the SEC on June 10, 2020 (the “Proxy Statement”), the Company plans to hold its 2020 Annual Meeting of Stockholders (the “2020 Annual Meeting”) on July 9, 2020 at 10:00 a.m., Eastern Time. The 2020 Annual Meeting will be held in a virtual format only, via the Internet, with no physical in-person meeting. Additional details regarding the location via the Internet and matters to be voted on at the 2020 Annual Meeting are available in the Proxy Statement.
The Company’s 2019 Annual Meeting of Stockholders (the “2019 Annual Meeting”) was held on October 10, 2019. Because the date of the 2020 Annual Meeting represents a change of more than 30 days from the anniversary date of the 2019 Annual Meeting, the Company disclosed in the May 15^th 8-K a new deadline for the submission of stockholder proposals. In accordance with Rule 14a-5(f) of the Exchange Act and consistent with the Amended and Restated ByLaws of the Company, effective November 12, 2019, the Company informed stockholders that a proposal or notice on Schedule 14N under Rule 14a-18 under the Exchange Act (i) intended to be included in the Proxy Statement under Rule 14a-8 under the Exchange Act or (ii) intended to be presented at the 2020 Annual Meeting other than by inclusion in the Proxy Statement, must have been received by the Company on or prior to 5:00 p.m. Eastern Time on May 28, 2020 to be considered timely. Any proposal or nomination received after such date will be considered untimely.
37

Item 6. Exhibits

Exhibit No. Description

~~31.1~~3.1** Conformed version of Certificate of Incorporation of Interpace Biosciences, Inc., as amended by the Certificate of Amendment, effective January 15, 2020, and the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, filed January 17, 2020, incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on April 22, 2020.
10.1 Securities Purchase and Exchange Agreement, dated January 10, 2020, by and among Interpace Biosciences, Inc., 1315 Capital II, L.P. and Ampersand 2018 Limited Partnership, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on January 14, 2020.
10.2 Amended and Restated Investor Rights Agreement, dated as of January 15, 2020, by and among Interpace Biosciences, Inc., 1315 Capital II, L.P. and Ampersand 2018 Limited Partnership, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on January 17, 2020.
10.3 Form of Indemnification Agreement by and between Interpace Biosciences, Inc. and Indemnitee, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on January 17, 2020.
10.4# Employment Agreement, dated as of January 29, 2020, by and between Interpace Biosciences, Inc. and Fred Knechtel, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on January 31, 2020.
10.5# Severance and Consulting Agreement and General Release, dated January 29, 2020, by and between Interpace Biosciences, Inc. and James Early, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on January 31, 2020.
10.6# First Amendment to Amended and Restated Employment Agreement, dated January 29, 2020, by and between Interpace Biosciences, Inc. and Jack E. Stover, incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed with the SEC on January 31, 2020.
10.7 Eleventh Amendment to Lease, effective as of June 1, 2020, by and between Southport Business Park Limited Partnership and Interpace Pharma Solutions, Inc., incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 9, 2020.
10.8*# Amendment to the Interpace Biosciences, Inc. 2019 Equity Incentive Plan, filed herewith.
10.9*# Form of Interpace Biosciences, Inc. 2019 Equity Incentive Plan Restricted Stock Unit And Restricted Stock Unit 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~~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~~pursuant to 18 U.S.C. Section 1350, as adopted ~~Pursuant~~pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

32.2+ Certification of Chief Financial Officer ~~Pursuant~~pursuant to 18 U.S.C. Section 1350, as adopted ~~Pursuant~~pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
* Filed herewith.

~~101~~ The following financial information from this Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 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 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 herewith 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.
29

** This exhibit is being filed pursuant to Item 601(b)(3)(i) of Regulation S-K which requires a conformed version of the Company’s charter reflecting all amendments in one document. The exhibit reflects the Company’s Certificate of Incorporation, as amended, as amended by the Certificate of Amendment, effective January 15, 2020, and the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, filed January 17, 2020.
# Denotes compensatory plan, compensation arrangement or management contract.
38

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 14, 2019~~June 26, 2020
Interpace ~~Diagnostics Group,~~Biosciences, Inc.
(Registrant)

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

Date: ~~May 14, 2019~~June 26, 2020 /s/ ~~James Early~~Fred Knechtel
~~James Early~~Fred Knechtel
Chief Financial Officer
(Principal Financial Officer)
Date: ~~May 14, 2019~~June 26, 2020 /s/ Thomas Freeburg
Thomas Freeburg
Chief Accounting Officer
(Principal Accounting Officer)

30
39

	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

	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

	March 31, 2020		December 31, 2019
	(unaudited)
Lab supply inventory		1,885		1,825
Prepaid expenses		826		971
Funds in escrow		888		888
Due from CGI		1,297		92
Other		80		75
Total other current assets	$	4,976	$	3,851

	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2019		2018		2020		2019
	(unaudited)					(unaudited)
Basic weighted average number of common shares		35,147		27,855		4,004		3,515
Potential dilutive effect of stock-based awards		-		-		-		-
Diluted weighted average number of common shares		35,147		27,855		4,004		3,515

			As of March 31, 2019			As of December 31, 2018					As of March 31, 2020			As of December 31, 2019
			(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
Pharma services acquisition:
Trademarks										10		1,600			1,600
Customer relationships										8		5,700			5,700

CLIA Lab										2.3	$	609		$	609

Total			$	43,011		$	43,011				$	50,920		$	50,920
Diagnostic lab:
CLIA Lab		2.3	$	609		$	609

Accumulated Amortization			$	(14,580	)	$	(13,767	)			$	(18,450	)	$	(17,419	)

Net Carrying Value			$	29,040		$	29,853				$	32,470		$	33,501

	Carrying
	Amount
Balance as of December 31, 2019	$	8,433
Adjustments		-
Balance as of March 31, 2020	$	8,433

	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.

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

											As of December 31, 2019				Fair Value Measurements
	As of December 31, 2018				Fair Value Measurements						Carrying		Fair		As of December 31, 2019
	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⁾	$	3,127	$	3,127	$	-	$	-	$	3,127	$	2,893	$	2,893	$	-	$	-	$	2,893
Other long-term liabilities:
Warrant liability⁽²⁾		361		361		-		-		361		82		82		-		-		82
	$	3,488	$	3,488	$	-	$	-	$	3,488	$	2,975	$	2,975	$	-	$	-	$	2,975

								Cancellation		Adjustment												Cancellation		Adjustment
								of Obligation/		to Fair Value/												of Obligation/		to Fair Value/
	December 31, 2018		Payments			Accretion		Conversions Exercises		Mark to Market			March 31, 2019		December 31, 2019		Payments			Accretion		Conversions Exercises		Mark to Market			March 31, 2020
	(unaudited)														(unaudited)
Asuragen	$	3,127	$	(120	)	$	129	$	-	$	-		$	3,136	$	2,893	$	(136	)	$	109	$	-	$	-		$	2,866

Underwriters Warrants		361		-			-		-		(3	)		358		82		-			-		-		(27	)		55
	$	3,488	$	(120	)	$	129	$	-	$	(3	)	$	3,494	$	2,975	$	(136	)	$	109	$	-	$	(27	)	$	2,921

	Classification on the Balance Sheet	March 31, 2019		Classification on the Balance Sheet	March 31, 2020
			(unaudited)		(unaudited)
Assets
Financing lease assets				Property and equipment, net	$	475
Operating lease assets	Operating lease assets	$	2,320	Operating lease right of use assets		2,811
Total lease assets		$	2,320		$	3,286

Liabilities
Current
Financing lease liabilities				Other accrued expenses	$	160
Operating lease liabilities	Other accrued expenses	$	526	Other accrued expenses		1,251
Total current lease liabilities					$	1,411
Noncurrent
Financing lease liabilities				Other long-term liabilities		85
Operating lease liabilities	Operating lease liabilities		1,899	Operating lease liabilities, net of current portion		1,384
Total long-term lease liabilities						1,469
Total lease liabilities		$	2,425		$	2,880

	Operating Leases		Operating Leases		Financing Leases
		(unaudited)
2019	$	495
2020		675		1,189		170
2021		671		878		120
2022		629		660		13
2023		250		250		-
Total minimum lease payments		2,720		2,977		303
Less: amount of lease payments representing effects of discounting		295		342		58
Present value of future minimum lease payments		2,425		2,635		245
Less: current obligations under leases		526		1,251		160
Long-term lease obligations	$	1,899	$	1,384	$	85

			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	$	-

	March 31, 2019		March 31, 2018
		(unaudited)		(unaudited)
Risk-free interest rate		2.51%		2.65%
Expected life		6.0 years		6.0 years
Expected volatility		127.81%		126.93%
Dividend yield		-		-

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

	●	adverse impact of Coronavirus (COVID-19) pandemic due to the slowdown in demand for our clinical services and pharma services, a reduction in samples received and testing volume and delayed third party collections and other factors;

	●	we have a history of operating losses, and our clinical services and pharma services have generated limited revenue;

	●	we expect to incur net losses for the foreseeable future and may never achieve or sustain profitability;

	●	our limited operating history and the limited revenue generated from our business thus far and fluctuating quarterly and annual revenue and operating results, including as a result of how we recognize revenue;

	●	we depend on sales and reimbursements from our ~~ability~~clinical services for more than 50% of our revenue, and we will need to ~~commercially leverage~~generate sufficient revenue from these and other products and/or solutions that we develop or require to grow our ~~bioinformatics~~business;

	●	we rely on third parties to process and transmit claims to payers for our clinical services, and any delay, data loss, or other disruption in processing or transmitting could have an adverse effect on our revenue and ~~develop our pipeline products;~~financial condition;

	●	our ~~obligations~~ability to ~~make royalty~~utilize our commercial and ~~milestone~~operating experience to sell our clinical and pharma services;

	●	our ability to compete successfully in the markets our clinical services and pharma services operate in;

	●	our ability to obtain, retain and increase sufficient levels of third party reimbursement for our molecular diagnostic tests in a changing and challenging reimbursement environment, including our current dependence on a concentrated number of third-party payers and the lack of timeliness of their payments, and the potential failure of such payments to ever occur;

	●	our ~~licensors;~~billing practices and those of our third-party billing providers to effectively bill and collect on claims for the sale of our tests;

	●	our revenue recognition is based in part on our estimates for future collections and such estimates may prove to be incorrect;

	●	a deterioration in the collectability of our accounts receivable could have a material adverse effect on our business, financial condition and results of operations;

	●	our inability to finance our business on acceptable terms in the future may limit our ability to grow our business, develop and commercialize products and services, develop and commercialize new molecular diagnostic solutions and technologies and ~~grow~~expand our ~~business;~~pharma services;

	●	our ability to comply with financial covenants under our current line of credit facility and comply with our debt ~~obligations;~~obligations and our ability to expand our working capital borrowing base to provide sufficient working capital financing during growth periods;

	●	~~whether~~ we ~~are able to successfully utilize~~have issued convertible preferred stock and may issue additional convertible preferred stock in the future, and the terms of our ~~commercial and operating experience to sell~~preferred stock may dilute our ~~molecular diagnostic tests;~~common stock;

	●	two private equity firms and their affiliates control, on an as-converted basis, 66% of our ~~products continuing to perform as expected;~~fully diluted outstanding shares of common stock through their holdings of Series B Convertible Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”), and this concentration of ownership along with having authority for designation rights for a majority of our directors will have a substantial influence on our decisions;

	●	billing for our ~~limited operating history;~~clinical services tests is complex, and we must dedicate substantial time and resources to the billing process to be paid for our clinical services;

	●	we depend on a few payers for a significant portion of our ~~ability to attract~~revenue for our clinical services, and ~~retain key personnel;~~if one or more significant payers stops providing reimbursement or decreases the amount of reimbursement for our tests, our revenue could decline;

	●	if payers do not provide reimbursement, rescind or modify their reimbursement policies or delay payments for clinical services, our ~~dependence on a concentrated selection of third-party payers including the lack of timeliness of their payments;~~commercial success could be compromised;

	●	developing new tests and related services and solutions includes a lengthy and complex process with uncertain results;

	●	the effect of potential adverse findings resulting from regulatory audits of our ~~ability to obtain broad adoption of~~billing and ~~ability to grow or continue to secure sufficient levels of reimbursement in a changing reimbursement environment, including obtaining~~payment practices and the impact such results could have on our clinical ~~data to support sufficient levels of reimbursement;~~services;

	●	the demand for our molecular diagnostic tests from physicians and patients;
	●	~~our relationships with leading thought leaders and biopharmaceutical companies;~~
	●	~~demonstration of clinical relevance~~our products and ~~value in utility studies;~~services continuing to perform as expected;

	●	claims against us for inaccurate results from our molecular diagnostic tests;

	●	our obligations to make royalty and milestone payments to our licensors;

	●	our ability to ~~continue~~obtain data and samples to ~~expand~~perform sufficient clinical studies to successfully publish data demonstrating the clinical relevance and value of our ~~sales and marketing forces;~~molecular diagnostic tests, including to support sufficient levels of third party reimbursement;
	●	~~our reliance on our 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 ~~tests;~~molecular diagnostic tests and pharma services;

	●	our ability to scale our operations ~~testing capacity~~or delays or reagent and ~~processing technology;~~supply shortages for our tests and services;

	●	our ability to ~~support demand for our molecular diagnostic~~develop or acquire tests, ~~and any~~services or solutions;

	●	the ability of our clinical services to enter into additional clinical study collaborations with highly regarded institutions;

	●	the effect current and future laws, licensing requirements and regulation have on our business including the changing U.S. Food and Drug Administration environment as it relates to molecular diagnostics and pharma services and laboratory developed tests (LDT’s);

	●	changes in governmental regulations mandating price controls and limitations on patient access to our products and services;

	●	if we fail to comply with Federal, State and foreign laboratory licensing requirements, we could lose the ability to perform our tests or ~~solutions;~~experience disruptions to our business;

	●	legislation reforming the U.S. healthcare system;

	●	a failure to comply with Federal and State laws and regulations pertaining to our payment practices;

	●	our ability to comply with fraud and abuse laws or payer regulations could result in our being excluded from participation in Medicare, Medicaid or other governmental payer programs;

	●	compliance with numerous statutes and regulations pertaining to our business;

	●	the effect of The Eliminating Kickbacks in Recovery Act of 2018 as it potentially impacts our ability to incentivize our sales personnel appropriately;

	●	our ability to realize all of the anticipated benefits of the acquisition of our pharma services or those benefits, if any, taking longer to realize than expected;

	●	if pharmaceutical and biotech companies, universities and contract research organizations performing clinical trials decide not to use our tests and services, we may be unable to generate sufficient revenue to sustain our pharma services;

	●	if we fail to perform our pharma services in accordance with contractual and regulatory requirements, and ethical considerations, we could be subject to significant costs or liability;

	●	our ability to compete in the markets our clinical services operate in;

	●	our ability to attract and retain key employees and management personnel;

	●	our reliance on our sales and marketing forces for future business growth and our ability to continue to expand our sales and marketing forces;

	●	our limited experience in marketing and selling our products;

	●	the ability of our molecular diagnostic tests 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;~~
	●	our ability to license rights to use technologies in order to commercialize new ~~products;~~products and services;

	●	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;~~

	●	our use of hazardous materials;

	●	the ~~effect current~~susceptibility of our information systems to security breaches, loss of data and ~~future laws, licensing requirements and regulation have on~~other disruptions;

	●	catastrophic loss of our ~~business including the changing U.S. Food and Drug Administration, or the FDA, environment as it relates to molecular diagnosis;~~laboratories;

	●	our ability to obtain and maintain sufficient qualified laboratory space to meet our processing needs for all of our business as well as our ability to pass regulatory inspections and continue to be Clinical Laboratory Improvement Amendments (“CLIA”) and the College of American Pathologists (“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~~U.S. Foreign Corrupt Practices Act 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 ~~attract and retain qualified commercial representatives and other key employees and management personnel;~~respond to rapid scientific changes in the areas in which we operate;
	●	~~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 results of any future impairment testing for intangible assets as required under GAAP;~~
	●	~~the impact of contingent liabilities on our 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;

	●	changes in U.S. and global patent law;

	●	tax reform legislation;

	●	stock dilution;

	●	changes in financial accounting standards or practices;

	●	exposure to international law, regulations and risk as a result of international expansion;

	●	we may acquire businesses or assets or make investments in other companies or testing, service or solution technologies that could harm our operating results, dilute our stockholders’ ownership, increase our debts or cause us to incur significant expense;

	●	the impact of contingent liabilities on our financial condition;

	●	the results of any future impairment testing for intangible assets as required under U.S. generally accepted accounting principles (“GAAP”);

	●	our ability to maintain ~~our listing with The Nasdaq Capital Market (“NASDAQ”);~~and implement effective internal controls over financial reporting especially as we are consolidating operations;

	●	~~compliance with public company reporting requirements;~~if our information technology or communications systems fail or we experience a significant interruption in their operation, our reputation, business and results of operations could be materially and adversely affected;

	●	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~~our ability to manage our growth or ~~stock price;~~unexpected declines;

	●	the ~~volatility~~potential that the temporary equity classification of our preferred stock ~~price~~ and ~~fluctuations~~other matters may trigger a Nasdaq compliance default in the second or third quarter of 2020 for failure to meet minimum stockholder equity requirements which could result in a delisting of our ~~quarterly and annual revenues and earnings;~~common stock from Nasdaq leading to a possible reduced stock price; potential difficulty in raising additional capital or debt as well as loss of exemptions from various state securities laws which could hamper action plans to remediate such a Nasdaq compliance default;

	●	~~publications, or~~uncertainty regarding the ~~lack thereof, by equity research analysts about us,~~regulatory obligations related to our ~~business and our competitors;~~receipt of $650,000 funding for COVID testing;

	●	~~securities class action litigation;~~our ability to rebuild our cost structure in anticipation of volume growth that does not happen as planned;
	●	~~cost of settlement or damage awards against our directors and officers; and~~
	●	the ~~effect~~potential impact on customers currently in clinical trials in our Rutherford, NJ lab that we are now relocating to North Carolina which may require revalidation in the new site;

	●	the impact of ~~The Eliminating Kickbacks~~increased costs building expanded laboratory capabilities in ~~Recovery Act~~North Carolina in anticipation of ~~2018 (“EKRA”) as it potentially impacts~~ the move from Rutherford, NJ and the potential loss of customers related to the move;

	●	our ability to ~~incentive~~efficiently execute and complete the planned laboratory move from Rutherford, NJ to North Carolina on a timely basis within our forecasted costs;

	●	the risk of loss of personnel that are uniquely qualified to perform the breadth of specialty testing and lab applications necessary for developing customized assays in our pharma solutions business; and

	●	the risk related to our sales ~~personnel appropriately.~~reps fully reengaging with customers after reducing physical visits by our commercial team during the pandemic.

●	In February 2020, we announced an increase in Medicare reimbursement for our ThyraMIR^® test from $1,800 to $3,000, retroactive to January 1, 2020, reflecting a re-evaluation of the technical and clinical performance of the test relative to other molecular tests in the market and their respective prices.

●	In ~~January 2019,~~March 2020, we announced ~~that~~ we had entered into ~~an Agreement~~a contract with ~~the University~~Blue Cross Blue Shield of ~~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.~~

●	In March 2020, we announced we had entered into a contract with CareFirst Blue Cross Blue Shield, making ThyGeNEXT® and ThyraMIR® tests covered ~~lives. Physicians across Medica’s entire network will now be able to utilize Interpace’s thyroid products.~~in-network services for their more than 3.3 million members in Maryland, Washington, D.C., and Northern Virginia.

●	In March 2020, we announced we had entered into a contract with Premera Blue Cross, making ThyGeNEXT® and ThyraMIR® tests covered in-network services for their more than 2 million members in Washington State and Alaska.

●	In April ~~2019,~~2020, we ~~announced that~~executed an agreement with Avalon Healthcare Solutions (Avalon), a laboratory benefit manager representing numerous health plans. Our agreement with Avalon offers us in-network status to approximately 5.8 million lives covered by the following health plans: Blue Cross Blue Shield North Carolina, South Carolina, Kansas City and Vermont, and Capital Blue Cross of Central Pennsylvania.

●	In April 2020, we ~~had received approval to launch ThyraMIR~~^® ~~diagnostic testing on formalin-fixed, paraffin-embedded (“FFPE”) tissue samples from thyroid nodules from the State~~executed a contract with Blue Cross of ~~New York.~~Idaho making ThyGeNEXT® and ThyraMIR® tests covered in-network services for their more than 576 thousand members.

●	In May 2020, we executed a contract with Blue Cross Blue Shield of Wyoming.

Exhibit No.		Description

~~31.1~~3.1**		Conformed version of Certificate of Incorporation of Interpace Biosciences, Inc., as amended by the Certificate of Amendment, effective January 15, 2020, and the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, filed January 17, 2020, incorporated by reference to Exhibit 3.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on April 22, 2020.

10.1		Securities Purchase and Exchange Agreement, dated January 10, 2020, by and among Interpace Biosciences, Inc., 1315 Capital II, L.P. and Ampersand 2018 Limited Partnership, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on January 14, 2020.

10.2		Amended and Restated Investor Rights Agreement, dated as of January 15, 2020, by and among Interpace Biosciences, Inc., 1315 Capital II, L.P. and Ampersand 2018 Limited Partnership, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on January 17, 2020.

10.3		Form of Indemnification Agreement by and between Interpace Biosciences, Inc. and Indemnitee, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on January 17, 2020.

10.4#		Employment Agreement, dated as of January 29, 2020, by and between Interpace Biosciences, Inc. and Fred Knechtel, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on January 31, 2020.

10.5#		Severance and Consulting Agreement and General Release, dated January 29, 2020, by and between Interpace Biosciences, Inc. and James Early, incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K, filed with the SEC on January 31, 2020.

10.6#		First Amendment to Amended and Restated Employment Agreement, dated January 29, 2020, by and between Interpace Biosciences, Inc. and Jack E. Stover, incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K, filed with the SEC on January 31, 2020.

10.7		Eleventh Amendment to Lease, effective as of June 1, 2020, by and between Southport Business Park Limited Partnership and Interpace Pharma Solutions, Inc., incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K, filed with the SEC on June 9, 2020.

10.8*#		Amendment to the Interpace Biosciences, Inc. 2019 Equity Incentive Plan, filed herewith.

10.9*#		Form of Interpace Biosciences, Inc. 2019 Equity Incentive Plan Restricted Stock Unit And Restricted Stock Unit 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~~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~~pursuant to 18 U.S.C. Section 1350, as adopted ~~Pursuant~~pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

32.2+		Certification of Chief Financial Officer ~~Pursuant~~pursuant to 18 U.S.C. Section 1350, as adopted ~~Pursuant~~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, 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 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 herewith 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.


	**	This exhibit is being filed pursuant to Item 601(b)(3)(i) of Regulation S-K which requires a conformed version of the Company’s charter reflecting all amendments in one document. The exhibit reflects the Company’s Certificate of Incorporation, as amended, as amended by the Certificate of Amendment, effective January 15, 2020, and the Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock, filed January 17, 2020.
	#	Denotes compensatory plan, compensation arrangement or management contract.

Date: ~~May 14, 2019~~June 26, 2020	Interpace ~~Diagnostics Group,~~Biosciences, Inc.
	(Registrant)

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

Date: ~~May 14, 2019~~June 26, 2020	/s/ ~~James Early~~Fred Knechtel
	~~James Early~~Fred Knechtel
	Chief Financial Officer
	(Principal Financial Officer)


Date: ~~May 14, 2019~~June 26, 2020	/s/ Thomas Freeburg
	Thomas Freeburg
	Chief Accounting Officer
	(Principal Accounting Officer)