INTERPACE BIOSCIENCES, INC. FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Statements that are not historical facts, including statements about our plans, objectives, beliefs and expectations, are forward-looking statements. Forward-looking statements include statements preceded by, followed by or that include the words "believes," "expects," "anticipates," "plans," "estimates," "intends," "projects," "should," "could," "may," "will" or similar words and expressions. These forward-looking statements are contained throughout this Form 10-Q.
Forward-looking statements are only predictions and are not guarantees of future performance. These statements are based on current expectations and assumptions involving judgments about, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. These predictions are also affected by known and unknown risks, uncertainties and other factors that may cause our actual results to be materially different from those expressed or implied by any forward-looking statement. Many of these factors are beyond our ability to control or predict. Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors. Such factors include, but are not limited to, the following:
? the substantial doubt about our ability to continue as a going concern due to
our history of operating losses, declining cash position and other liquidity
factors, which in the absence of additional short term financing is causing us
to reduce headcount and other expenses and may cause us to cease or scale back
operations; without sufficient working capital and the ability to meet our
debt obligations, our business will be jeopardized and we may not be able to
continue in our current structure, if at all. Under these circumstances, we
would likely have to consider other options, such as selling assets, raising
additional debt or equity capital, cutting costs or otherwise reducing our
cash requirements, or negotiating with our creditors to restructure our
applicable obligations, including the potential filing of a petition for
relief under the United States Bankruptcy Code;
? the effect of the Coronavirus (COVID-19) pandemic which has materially and
adversely affected our business and financial results, particularly during
portions of 2020, due to the slowdown in demand for our clinical services and
pharma services, a reduction in samples received and testing volume and
delayed third party collections and other factors and which may continue to
have an adverse effect on our future business;
? our expectations of future revenues, expenditures, capital or other funding
requirements;
? our reliance on Medicare reimbursement for our clinical services and our being
subject to decisions of the Centers for Medicare and Medicaid Services ("CMS")
regarding reimbursement and pricing of our clinical services which could have
a material adverse effect on our business and financial results, the reduction
in reimbursement for our ThyGeNEXT® test is expected to have an approximate
$5.0 million impact to Fiscal 2022 revenues;
? our secured lenders have the right to foreclose on substantially all of our
assets if we are unable to timely repay our outstanding obligations;
? our dependence on sales and reimbursements from our clinical services for more
than 50% of our revenue; the ability to continue to generate sufficient
revenue from these and other products and/or solutions that we develop in the
future is important for our ability to meet our financial and other targets;
? our revenue recognition is based, in part, on our estimates for future
collections which may prove to be incorrect with the changes in reimbursement
rates for ThyGeNEXT® by Medicare causing us to revise our NRV's which will
reduce revenues in future periods;
? our ability to finance our business on acceptable terms in the future, which
may limit the ability to grow our business, develop and commercialize products
and services, develop and commercialize new molecular clinical service
solutions and technologies and expand our pharma services offerings;
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? our obligations to make royalty and milestone payments to our licensors;
? our dependence on third parties for the supply of some of the materials used
in our clinical and pharma services tests;
? the potential adverse impact of current and future laws, licensing
requirements and governmental regulations upon our business operations,
including but not limited to the evolving U.S. regulatory environment related
to laboratory developed tests ("LDTs"), pricing of our tests and services and
patient access limitations;
? our reliance on our sales and marketing activities for future business growth
and our ability to continue to expand our sales and marketing activities;
? our ability to implement our business strategy; and
? the potential impact of existing and future contingent liabilities on our
financial condition.
Please see Part I - Item 1A - "Risk Factors" in our Annual Report on Form 10-K
for the fiscal year ended
OVERVIEW
We are an emerging leader in enabling precision medicine principally in oncology by offering specialized services along the therapeutic value chain from early diagnosis and prognostic planning to targeted therapeutic applications through our clinical and 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 for evaluating the risk of cancer by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. Through our pharma services, we develop, commercialize and provide molecular- and biomarker-based tests and services and provide companies with customized solutions for patient stratification and treatment selection through an extensive suite of molecular and 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 advance personalized medicine by partnering with pharmaceutical, academic and technology leaders to effectively integrate pharmacogenomics into drug development and clinical trial programs with the goals of delivering safer, more effective drugs to market more quickly, and improving patient care.
Impact of Our Reliance on CMS
In
25 Impact of COVID-19 Pandemic
There continues to be widespread impact from the COVID-19 pandemic. Beginning in the first quarter of 2021, there has been a trend in many parts of the world of increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel and government activities and functions. On the other hand, infection rates and regulations continue to fluctuate in various regions and there are ongoing global impacts resulting from the pandemic, including challenges and increases in costs for logistics and supply chains. We have also previously been affected by temporary laboratory closures, employment and compensation adjustments and impediments to administrative activities. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.
In addition, we have experienced and are experiencing varying levels of inflation resulting in part from various supply chain disruptions, increased shipping and transportation costs, increased raw material and labor costs and other disruptions caused by the COVID-19 pandemic and general global economic conditions.
The continuing impact that the COVID-19 pandemic will have on our operations, including duration, severity and scope, remains highly uncertain and cannot be fully predicted at this time. While we believe we have generally recovered from the adverse impact that the COVID-19 pandemic had on our business during 2020, we believe that the COVID-19 pandemic could continue to adversely impact our results of operations, cash flows and financial condition in the future.
We continue to monitor the COVID-19 pandemic and the guidance that is being provided by relevant federal, state and local public health authorities and may take additional actions based upon their recommendations. It is possible that we may have to make adjustments to our operating plans in reaction to developments that are beyond our control.
Impact of the ongoing military conflict between
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26 Revenue Recognition
Clinical services derive its revenues from the performance of its proprietary assays or tests. Our performance obligation is fulfilled upon completion, review and release of test results to the customer, at which time we bill third-party payers or direct-bill payers for the tests performed. Under Accounting Standards Codification 606, revenue is recognized based upon the estimated transaction price or net realizable value ("NRV"), which is determined based on historical collection rates by each payer category for each proprietary test offered. To the extent that the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, we estimate the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience.
The ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates are regularly reviewed and we adjust the NRV's and related contractual allowances accordingly. If actual collections and related NRV's vary significantly from our estimates, we adjust the estimates of contractual allowances, which affects net revenue in the period such variances become known.
With respect to our pharma services, customer performance obligations are satisfied at a point in 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.
Cost of Revenue
Cost of 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.
Transition costs
Transition expenses are primarily related to the
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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 EndedJune 30, 2022 Compared to the Quarter EndedJune 30, 2021 (unaudited, in thousands) Three Months Ended June 30, 2022 2022 2021 2021 % to % to revenue revenue Revenue, net$ 9,351 100.0 %$ 11,155 100.0 % Cost of revenue 5,850 62.6 % 5,800 52.0 % Gross profit 3,501 37.4 % 5,355 48.0 % Operating expenses: Sales and marketing 2,774 29.7 % 2,776 24.9 % Research and development 267 2.9 % 424 3.8 % General and administrative 3,907 41.8 % 3,326 29.8 % Transition expense 61 0.7 % 858 7.7 % Gain on DiamiR transaction - 0.0 % (235 ) -2.1 % Acquisition related amortization expense 535 5.7 % 1,112 10.0 % Change in fair value of contingent consideration (311 ) -3.3 % - 0.0 % Total operating expenses 7,233 77.4 % 8,261 74.1 % Operating loss (3,732 ) -39.9 % (2,906 ) -26.1 % Interest accretion expense 36 0.4 % (135 ) -1.2 % Related party interest - 0.0 % (163 ) -1.5 % Note payable interest (210 ) -2.2 % - 0.0 % Other income (expense), net 35 0.4 % (168 ) -1.5 % Loss from continuing operations before tax (3,871 ) -41.4 % (3,372 ) -30.2 % Provision for income taxes 16 0.2 % 16 0.1 %
Loss from continuing operations (3,887 ) -41.6 % (3,388 ) -30.4 %
Loss from discontinued operations, net of tax (52 ) -0.6 % (58 ) -0.5 % Net loss$ (3,939 ) -42.1 %$ (3,446 ) -30.9 % Revenue, net
Consolidated revenue, net for the three months ended
Cost of revenue
Consolidated cost of revenue for the three months ended
Gross profit
Consolidated gross profit was approximately
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Sales and marketing expense
Sales and marketing expense was approximately
Research and development
Research and development expense was
General and administrative
General and administrative expense was approximately
Transition expense
Transition expense was approximately
Acquisition amortization expense
During the three months ended
Change in fair value of contingent consideration
During the three months ended
Operating loss
Operating loss from continuing operations was
Provision for income taxes
Income tax expense was approximately
Loss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately
29 Condensed Consolidated Results of Continuing Operations for the Six Months EndedJune 30, 2022 Compared to the Six Months EndedJune 30, 2021 (unaudited, in thousands) Six Months Ended June 30, 2022 2022 2021 2021 % to % to revenue revenue Revenue, net$ 19,728 100.0 %$ 20,989 100.0 % Cost of revenue 11,234 56.9 % 11,116 53.0 % Gross profit 8,494 43.1 % 9,873 47.0 % Operating expenses: Sales and marketing 5,190 26.3 % 5,128 24.4 % Research and development 566 2.9 % 1,060 5.1 % General and administrative 7,597 38.5 % 6,362 30.3 % Transition expense 146 0.7 % 2,111 10.1 % Gain on DiamiR transaction - 0.0 % (235 ) -1.1 % Acquisition related amortization expense 1,071 5.4 % 2,224 10.6 % Change in fair value of contingent consideration (311 ) -1.6 % (57 ) -0.3 % Total operating expenses 14,259 72.3 % 16,593 79.1 % Operating loss (5,765 ) -29.2 % (6,720 ) -32.0 % Interest accretion expense (85 ) -0.4 % (270 ) -1.3 % Related party interest - 0.0 % (308 ) -1.5 % Note payable interest (390 ) -2.0 % - 0.0 % Other income (expense), net 194 1.0 % (212 ) -1.0 % Loss from continuing operations before tax (6,046 ) -30.6 % (7,510 ) -35.8 % Provision for income taxes 34 0.2 % 31 0.1 %
Loss from continuing operations (6,080 ) -30.8 % (7,541 ) -35.9 %
Loss from discontinued operations, net of tax (106 ) -0.5 % (112 ) -0.5 % Net loss$ (6,186 ) -31.4 %$ (7,653 ) -36.5 % Revenue, net
Consolidated revenue, net for the six months ended
Cost of revenue
Consolidated cost of revenue for the six months ended
Gross profit
Consolidated gross profit was approximately
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Sales and marketing expense
Sales and marketing expense was approximately
Research and development
Research and development expense was
General and administrative
General and administrative expense was approximately
Transition expense
Transition expense was approximately
Acquisition amortization expense
During the six months ended
Change in fair value of contingent consideration
During the six months ended
Operating loss
Operating loss from continuing operations was
Provision for income taxes
Income tax expense was approximately
Loss from discontinued operations, net of tax
We had a loss from discontinued operations of approximately
Non-GAAP Financial Measures
In addition to
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In this 10-Q, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the ongoing business. Adjusted EBITDA is defined as income or loss from continuing operations, plus depreciation and amortization, acquisition related expenses, transition expenses, noncash stock based compensation, interest and taxes, and other non-cash expenses including asset impairment costs, bad debt expense, loss on extinguishment of debt, goodwill impairment and change in fair value of contingent consideration, and warrant liability. The table below includes a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure.
Reconciliation of Adjusted EBITDA (Unaudited)
($ in thousands)
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Loss from continuing operations
(GAAP Basis) $ (3,887 ) $ (3,388 ) $ (6,080 ) $ (7,541 )
Bad debt (recovery) expense - - - (140 )
Transition expenses 61 858 146 2,111
Depreciation and amortization 790 1,411 1,571 2,943
Stock-based compensation 334 551 659 837
Tax expense 16 16 34 31
Interest accretion expense (36 ) 135 85 270
Financing interest and related
costs 210 163 390 308
Gain on DiamiR transaction - (235 ) - (235 )
Mark to market on warrant
liability (5 ) 168 (68 ) 209
Change in fair value of note
payable (53 ) - (160 ) -
Change in fair value of
contingent consideration (311 ) - (311 ) (57 )
Adjusted EBITDA $ (2,881 ) $ (321 ) $ (3,734 ) $ (1,264 ) LIQUIDITY AND CAPITAL RESOURCES
The accompanying consolidated financial statements have been prepared on a basis that assumes that the Company will continue as a going concern and that contemplates the continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Accordingly, the accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.
In
The amount that may be borrowed under the Credit Facility is the lower of (i)
the revolving limit of
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In addition, also in
The BroadOak Loan Agreement contains affirmative and negative restrictive covenants, including restrictions on certain mergers, acquisitions, investments and encumbrances which could adversely affect our ability to conduct our business. The BroadOak Loan Agreement also contains customary events of default. The Comerica Loan Agreement contains affirmative and negative restrictive covenants that are applicable whether or not any amounts are outstanding under the Comerica loan agreement. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc., could adversely affect our ability to conduct our business. The Comerica Loan Agreement also contains financial covenants requiring specified minimum liquidity and minimum revenue thresholds and also contains customary events of default. However, if we are unable to meet the financial covenants under the Comerica Loan Agreement, the revolving line of credit and notes payable will become due and payable immediately.
In
For the six months ended
During the six months ended
For the six months ended
We will not generate positive cash flows from operations for the year ending
The Company is currently exploring various strategic alternatives, dilutive and
non-dilutive sources of funding, including equity and debt financings, strategic
alliances, business development and other sources in order to provide additional
liquidity. With the Company's delisting from Nasdaq in
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Management has determined that certain factors raise substantial doubt about our ability to continue as a going concern. As of the date of this filing, the Company currently anticipates that current cash and cash equivalents will be insufficient to meet its anticipated cash requirements through the next twelve months. These factors include inadequate liquidity to sustain operations, our substantial debts, margin deterioration and volatility, and historic net losses. Our consolidated financial statements assume we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. Our ability to continue as a going concern depends on having working capital for vendor payments, meeting short-term obligations on other accrued liabilities, and amongst other requirements, making interest payments on our debt obligations. Without positive operating margins and sufficient working capital and the ability to meet our debt obligations, our business will be jeopardized and we may not be able to continue in our current structure, if at all. Under these circumstances, we would likely have to consider other options, such as selling assets, raising additional debt or equity capital, cutting costs or otherwise reducing our cash requirements, or negotiating with our creditors to restructure our applicable obligations, including the potential filing of a petition for relief under the United States Bankruptcy Code (the "Bankruptcy Code"). Such a filing would subject us to the risks and uncertainties associated with bankruptcy filing proceedings and may place investors in our stock at significant risk of losing some or all of their investment. In a bankruptcy, holders of our common stock will be subordinated to our Series B Preferred Stock, which is likely to increase the risk of total loss of investment for holders of our common stock. A bankruptcy filing by us could cause a material adverse effect on our business, financial condition, results of operations and liquidity.
Inflation
We do not believe that inflation had a significant impact on our results of operations for the periods presented. However, inflation and supply chain disruptions, whether caused by restrictions or slowdowns in shipping or logistics, increases in demand for certain goods used in our operations, or otherwise, could impact our operations in the near term.
Off-Balance Sheet Arrangements
None.
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