NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular
information in thousands, except per share amounts)
Nature
of Business
Interpace
Biosciences, Inc. (“Interpace” or the “Company”) 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.
COVID-19
pandemic
The
COVID-19 pandemic, together with related precautionary measures, continues to impact portions of the regions in which we operate. These
regions are attempting to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses,
restricting gatherings, restricting travel, and mandating social distancing and face coverings. 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.
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.
Lab
closures experienced thus far by the Company have consisted of periodic, temporary work stoppages to clean and disinfect the labs. However,
this could change in the future based upon conditions caused by the pandemic. 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. For the foreseeable future, however, we do not anticipate supply chain shortages of critical
supplies.
We
have contingency plans in place and will continue to monitor and update them in order to mitigate pandemic-related, adverse financial
impacts upon our business.
Transition
costs
Transition
expenses are primarily related to the Rutherford, New Jersey lab closing and subsequent move to Morrisville, North Carolina, which was
completed during the first half of Fiscal 2021, as well as other cost-saving initiatives consisting primarily of reductions in headcount
and the implementation of a new laboratory information system. To optimize the operations of laboratory operations within our pharma
services, we transitioned activities from the Rutherford facility to our Morrisville facility. The transition included the transfer of
personnel, expansion of the Morrisville facility and validation of transferred processes.
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 the Company 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, 2021, as filed with the Securities
& Exchange Commission (“SEC”) on March 31, 2022 and as amended on April 29, 2022.
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,
InServe Support Solutions; and TVG, Inc. and its Commercial Services 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, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022.
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.
For
the three months ended March 31, 2022, we had an operating loss of $2.0
million. As of March 31, 2022, we had cash, cash
equivalents and restricted cash of $3.1
million, total current assets of $13.1
million and current liabilities of $16.9
million. As of May 6, 2022, we had approximately
$3.7 million of cash on hand, excluding restricted cash.
In
January 2022, the Company announced that the Centers for Medicare & Medicaid Services, or CMS, issued a new billing policy whereby
CMS will no longer reimburse for the use of the Company’s ThyGeNEXT® and ThyraMIR® tests when billed
together by the same provider/supplier for the same beneficiary on the same date of service. On February 28, 2022, the Company announced
that the National Correct Coding Initiative (NCCI) program issued a response on behalf of CMS stating that the January 2022 billing policy
reimbursement change for ThyGeNEXT® (0245U) and ThyraMIR® (0018U) tests has been retroactively reversed
to January 1, 2022. CMS is currently reimbursing the Company for one of its two thyroid tests, and has agreed to retroactively reimburse
for the second test once they have completed their internal administrative adjustments. We have been notified by CMS/NCCI that processing
of claims for dates of service after January 1, 2022 will be completed beginning July 1, 2022. As of the date of this filing, the Company
has not yet realized the full cash collection benefit of current and retroactive Thyroid testing and such cash collections may be temporarily
reduced or delayed until we resolved the matter with CMS. 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
raise substantial doubt about the Company’s ability to continue as a going concern.
On
January 7, 2021, the Company entered into secured promissory notes in the amount of $3 million and $2 million with Ampersand (“Ampersand
Note”) and 1315 Capital (“1315 Capital Note”), respectively. See Note 14, Notes Payable, of the notes to the
financial statements. On May 10, 2021, the Company amended the Ampersand Note to increase the principal amount to $4.5 million and amended
the 1315 Capital Note to increase the principal amount to $3.0 million. The maturity dates of the Notes were the earlier of (a) June
30, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Notes. On June
24, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) August 31, 2021 and
(b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On June 25,
2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner. On August 31, 2021,
the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) September 30, 2021 and (b) the
date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On August 31, 2021,
the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner.
On
September 29, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) October 31,
2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On
September 29, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner.
In
October 2021, the Company entered into a $7.5
million revolving credit facility with Comerica.
See Note 18, Revolving Line of Credit, for more details. In addition, also in October 2021, the Company entered into the $8.0
million BroadOak Term Loan, the proceeds of which
were used to repay in full at their maturity the notes extended by Ampersand and 1315 Capital discussed above. See Note 14, Notes
Payable, for more details. In May 2022, the Company entered into a term loan with BroadOak for an additional $2.0 million. See
Note 20, Subsequent Events, for more details.
Although
the Company is targeting to achieve Adjusted EBITDA and cash flow breakeven during Fiscal 2022, we may not generate positive cash flows
from operations for the year ending December 31, 2022. We intend to meet our ongoing capital needs by using our available cash and availability
under the Comerica Loan Agreement, as well as through revenue growth and margin improvement; collection of accounts receivable; containment
of costs; and the potential use of other financing options. 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
January 2022, the Company’s registration statement for a rights offering filed with the Securities and Exchange Commission (SEC)
became effective; however, the rights offering was subsequently terminated in January 2022. The Company is currently exploring various
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 and expand the business through acquisitions or other strategic transactions. With the
Company’s delisting from Nasdaq in February 2021, its ability to raise additional capital on terms acceptable to the Company has
been adversely impacted. There can be no assurance that the Company will be successful in obtaining such funding on terms acceptable
to the Company.
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
clinical services 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 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
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.
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 will adjust the estimates of contractual allowances, which affects net revenue in the period
such variances become known.
For
our pharma services, project level activities, including study setup and project management, are satisfied over the life of the contract
while performance-related obligations are satisfied at a point in time as the Company processes samples delivered by the customer. Revenues
are recognized at a point in time when the test results or other deliverables are reported to the customer.
Financing
and Payment
For
non-Medicare claims, our payment terms vary by payer category. Payment terms for direct-payers in our clinical services 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. We bill Medicare directly for tests performed for Medicare
patients and must accept Medicare’s fee schedule for the covered tests as payment in full.
Costs
to Obtain or Fulfill a Customer Contract
Sales
commissions are expensed in the period in which they have been earned. These costs are recorded in sales and marketing expense in the
condensed consolidated statements of operations.
Accounts
Receivable
The
Company’s accounts receivable represent unconditional rights to consideration and are generated using its 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 direct-bill payer. Contractual adjustments
represent the difference between the list prices and the reimbursement rates set by third-party payers, including Medicare, commercial
payers, and amounts billed to 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 7, Leases.
Other
Current Assets
Other
current assets consisted of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF OTHER CURRENT ASSETS
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
(unaudited) | | |
| |
Lab
supply inventory | |
$ | 2,059 | | |
$ | 1,786 | |
Prepaid
expenses | |
| 610 | | |
| 800 | |
Other | |
| 108 | | |
| 108 | |
Total
other current assets | |
$ | 2,777 | | |
$ | 2,694 | |
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 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.
Basic
and Diluted Net Loss per Share
A
reconciliation of the number of shares of common stock, par value $0.01 per share, used in the calculation of basic and diluted loss
per share for the three-month periods ended March 31, 2022 and 2021 is as follows:
SCHEDULE OF BASIC AND DILUTED NET LOSS PER SHARE
| |
2022 | | |
2021 | |
| |
Three
Months | |
| |
Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
(unaudited) | |
Basic
weighted average number of common shares | |
| 4,208 | | |
| 4,089 | |
Potential
dilutive effect of stock-based awards | |
| - | | |
| - | |
Diluted
weighted average number of common shares | |
| 4,208 | | |
| 4,089 | |
The
Company’s Series B Preferred Stock, on an as converted basis into common stock of 7,833,334 shares for the three- months ended
March 31, 2022, 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 as they would have been anti-dilutive (rounded to thousands):
SCHEDULE OF ANTI-DILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE
| |
Three
Months | |
| |
Ended
March 31, | |
| |
2022 | | |
2021 | |
| |
(unaudited) | |
Options | |
| 641 | | |
| 1,061 | |
Restricted
stock units (RSUs) | |
| 319 | | |
| 395 | |
Warrants | |
| 1,339 | | |
| 1,405 | |
| |
| 2,299 | | |
| 2,861 | |
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, 2022 was $8.4 million. The net carrying value of the identifiable intangible assets from all acquisitions as of March 31,
2022 and December 31, 2021 are as follows:
SCHEDULE OF IDENTIFIABLE INTANGIBLE ASSETS CARRYING VALUE
| |
(Years) | | |
Amount | | |
Amount | |
| |
| | |
As
of March 31, 2022 | | |
As
of December 31, 2021 | |
| |
Life | | |
Carrying | | |
Carrying | |
| |
(Years) | | |
Amount | | |
Amount | |
| |
| | |
(unaudited) | | |
| |
Asuragen acquisition: | |
| | |
| | |
| |
Thyroid | |
| 9 | | |
$ | 8,519 | | |
$ | 8,519 | |
RedPath
acquisition: | |
| | | |
| | | |
| | |
Pancreas
test | |
| 7 | | |
| 16,141 | | |
| 16,141 | |
Barrett’s
test | |
| 9 | | |
| 6,682 | | |
| 6,682 | |
BioPharma
acquisition: | |
| | | |
| | | |
| | |
Trademarks | |
| 10 | | |
| 1,600 | | |
| 1,600 | |
Customer
relationships | |
| 8 | | |
| 5,700 | | |
| 5,700 | |
| |
| | | |
| | | |
| | |
CLIA
Lab | |
| 2.3 | | |
| 609 | | |
| 609 | |
| |
| | | |
| | | |
| | |
Total | |
| | | |
$ | 39,251 | | |
$ | 39,251 | |
| |
| | | |
| | | |
| | |
Accumulated
Amortization | |
| | | |
| (32,500 | ) | |
| (31,964 | ) |
| |
| | | |
| | | |
| | |
Net
Carrying Value | |
| | | |
$ | 6,751 | | |
$ | 7,287 | |
Amortization
expense was approximately $0.5 million and $1.1 million for the three-month periods ended March 31, 2022 and 2021, respectively. Estimated
amortization expense for the remainder of 2022 and the next four years is as follows:
SCHEDULE OF FUTURE ESTIMATED AMORTIZATION EXPENSE
2022 | | |
2023 | | |
2024 | | |
2025 | | |
2026 | |
| | |
| | |
| | |
| | |
| |
$ | 1,607 | | |
$ | 1,734 | | |
$ | 873 | | |
$ | 873 | | |
$ | 873 | |
The
following table displays a roll forward of the carrying amount of goodwill from December 31, 2021 to March 31, 2022:
SCHEDULE OF GOODWILL CARRYING VALUE
| |
Carrying | |
| |
Amount | |
Balance
as of December 31, 2021 | |
$ | 8,433 | |
Adjustments | |
| - | |
Balance
as of March 31, 2022 | |
$ | |
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, warrant
liability and note payable. 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. |
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:
SCHEDULE OF FINANCIAL INSTRUMENT MEASURED ON RECURRING BASIS
| |
Amount | | |
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| |
As
of March 31, 2022 | | |
Fair
Value Measurements | |
| |
Carrying | | |
Fair | | |
As
of March 31, 2022 | |
| |
Amount | | |
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| |
| | |
| | |
(unaudited) | | |
| | |
| |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Contingent
consideration: | |
| | | |
| | | |
| | | |
| | | |
| | |
Asuragen
(1) | |
$ | 1,833 | | |
$ | 1,833 | | |
$ | - | | |
$ | - | | |
$ | 1,833 | |
Asuragen
(1)(2) | |
$ | 1,833 | | |
$ | 1,833 | | |
$ | - | | |
$ | - | | |
$ | 1,833 | |
Other
accrued expenses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant
liability (2) | |
| 8 | | |
| 8 | | |
| - | | |
| - | | |
| 8 | |
Warrant
liability (1)(2) | |
| 8 | | |
| 8 | | |
| - | | |
| - | | |
| 8 | |
Note
payable: | |
| | | |
| | | |
| | | |
| | | |
| | |
BroadOak
loan | |
| 7,835 | | |
| 7,835 | | |
| - | | |
| - | | |
| 7,835 | |
Fair
value of liabilities | |
$ | 9,676 | | |
$ | 9,676 | | |
$ | - | | |
$ | - | | |
$ | 9,676 | |
| |
Amount | | |
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
| |
As
of December 31, 2021 | | |
Fair
Value Measurements | |
| |
Carrying | | |
Fair | | |
As
of December 31, 2021 | |
| |
Amount | | |
Value | | |
Level
1 | | |
Level
2 | | |
Level
3 | |
Liabilities: | |
| | | |
| | | |
| | | |
| | | |
| | |
Contingent
consideration: | |
| | | |
| | | |
| | | |
| | | |
| | |
Asuragen
(1) | |
$ | 1,871 | | |
$ | 1,871 | | |
$ | - | | |
$ | - | | |
$ | 1,871 | |
Contingent consideration(1)(2) | |
$ | 1,871 | | |
$ | 1,871 | | |
$ | - | | |
$ | - | | |
$ | 1,871 | |
Other
accrued expenses: | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrant
liability (2) | |
| 71 | | |
| 71 | | |
| - | | |
| - | | |
| 71 | |
Warrant
liability (1)(2) | |
| 71 | | |
| 71 | | |
| - | | |
| - | | |
| 71 | |
Note
payable: | |
| | | |
| | | |
| | | |
| | | |
| | |
BroadOak
loan | |
| 7,942 | | |
| 7,942 | | |
| - | | |
| - | | |
| 7,942 | |
Notes payable | |
| 7,942 | | |
| 7,942 | | |
| - | | |
| - | | |
| 7,942 | |
Fair
value of liabilities | |
$ | 9,884 | | |
$ | 9,884 | | |
$ | - | | |
$ | - | | |
$ | 9,884 | |
(1)(2) | See Note 9, Accrued Expenses and Long-Term Liabilities |
In
connection with the acquisition of certain assets from Asuragen, Inc., 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.
In
connection with the BroadOak loan, the Company records the loan at fair value. The fair value of the loan is determined by a probability-weighted
approach regarding the loan’s change in control feature. See Note 14, Notes Payable, for more details. The fair value
measurement is based on the estimated probability of a change in control and thus represents a Level 3 measurement.
A
roll forward of the carrying value of the Contingent Consideration Liability, 2017 Underwriters’ Warrants and BroadOak Loan to
March 31, 2022 is as follows:
SCHEDULE OF FAIR VALUE, ASSETS MEASURED ON RECURRING BASIS, UNOBSERVABLE INPUT RECONCILIATION
| |
| | |
| | |
| | |
Adjustment | | |
| |
| |
| | |
| | |
Accretion/ | | |
to
Fair Value/ | | |
| |
| |
December
31,
2021 | | |
Earned | | |
Interest
Accrued | | |
Mark
to Market | | |
March
31, 2022 | |
| |
(unaudited) | |
Asuragen | |
$ | 1,871 | | |
$ | (159 | ) | |
$ | 121 | | |
$ | - | | |
$ | 1,833 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Underwriters
Warrants | |
| 71 | | |
| - | | |
| - | | |
| (63 | ) | |
| 8 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
BroadOak
Loan | |
| 7,942 | | |
| - | | |
| - | | |
| (107 | ) | |
| 7,835 | |
| |
$ | 9,884 | | |
$ | (159 | ) | |
$ | 121 | | |
$ | (170 | ) | |
$ | 9,676 | |
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.
Finance
lease assets are included in fixed assets, net of accumulated depreciation.
The
table below presents the lease-related assets and liabilities recorded in the Condensed Consolidated Balance Sheet:
SCHEDULE OF FINANCING AND OPERATING LEASES
| |
Classification
on the Balance Sheet | |
March
31, 2022 | |
| |
| |
(unaudited) | |
Assets | |
| |
| | |
Financing
lease assets | |
Property
and equipment, net | |
$ | 620 | |
Operating
lease assets | |
Operating
lease right of use assets | |
| 3,760 | |
Total
lease assets | |
| |
$ | 4,380 | |
| |
| |
| | |
Liabilities | |
| |
| | |
Current | |
| |
| | |
Financing
lease liabilities | |
Other
accrued expenses | |
$ | 70 | |
Operating
lease liabilities | |
Other
accrued expenses | |
| 999 | |
Total
current lease liabilities | |
| |
$ | 1,069 | |
Noncurrent | |
| |
| | |
Financing
lease liabilities | |
Other
long-term liabilities | |
| 41 | |
Operating
lease liabilities | |
Operating
lease liabilities, net of current portion | |
| 2,928 | |
Total
long-term lease liabilities | |
| |
| 2,969 | |
Total
lease liabilities | |
| |
$ | 4,038 | |
The
weighted average remaining lease term for the Company’s operating leases was 6.3 years as of March 31, 2022 and the weighted average
discount rate for those leases was 6.5%. The Company’s operating lease expenses are recorded within “Cost of revenue”
and “General and administrative expenses.”
The
table below reconciles the cash flows to the lease liabilities recorded on the Company’s Condensed Consolidated Balance Sheet as
of March 31, 2022:
SCHEDULE OF MATURITIES OF OPERATING AND FINANCING LEASE LIABILITIES
| |
Operating
Leases | | |
Financing
Leases | |
2022 | |
$ | 961 | | |
$ | 58 | |
2023 | |
| 897 | | |
| 60 | |
2024 | |
| 567 | | |
| - | |
2025 | |
| 402 | | |
| - | |
2026-2030 | |
| 1,924 | | |
| | |
Total
minimum lease payments | |
| 4,751 | | |
| 118 | |
Less:
amount of lease payments representing effects of discounting | |
| 824 | | |
| 7 | |
Present
value of future minimum lease payments | |
| 3,927 | | |
| 111 | |
Less:
current obligations under leases | |
| 999 | | |
| 70 | |
Long-term
lease obligations | |
$ | 2,928 | | |
$ | 41 | |
As
of March 31, 2022, 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:
SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS UNDER NON-CANCELABLE LEASES
| |
| | |
Less
than | | |
1
to 3 | | |
3
to 5 | | |
After | |
| |
Total | | |
1
Year | | |
Years | | |
Years | | |
5
Years | |
Operating
lease obligations | |
$ | 4,751 | | |
$ | 961 | | |
$ | 1,464 | | |
$ | 816 | | |
$ | 1,510 | |
Total | |
$ | 4,751 | | |
$ | 961 | | |
$ | 1,464 | | |
$ | 816 | | |
$ | 1,510 | |
8. |
COMMITMENTS
AND CONTINGENCIES |
Litigation
From
time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.
When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a
loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. In addition
to the estimated loss, the recorded liability includes probable and estimable legal costs associated with the claim or potential claim.
Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may
harm the Company’s business. There is no pending litigation involving the Company at this time.
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 or services that 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. There is also the risk of employment related litigation and other litigation in the ordinary course of business.
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.
9. |
ACCRUED
EXPENSES AND LONG-TERM LIABILITIES |
Other
accrued expenses consisted of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF OTHER ACCRUED EXPENSES
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
(unaudited) | | |
| |
Accrued
royalties | |
$ | 4,116 | | |
$ | 3,890 | |
Contingent
consideration | |
| 488 | | |
| 488 | |
Operating
lease liability | |
| 999 | | |
| 1,041 | |
Financing
lease liability | |
| 70 | | |
| 79 | |
Deferred
revenue | |
| 31 | | |
| 40 | |
Interest
payable | |
| 62 | | |
| 120 | |
Warrant
liability | |
| 8 | | |
| 71 | |
Accrued
sales and marketing - diagnostics | |
| 63 | | |
| 47 | |
Accrued
lab costs - diagnostics | |
| 185 | | |
| 228 | |
Accrued
professional fees | |
| 707 | | |
| 932 | |
Taxes
payable | |
| 269 | | |
| 245 | |
Unclaimed
property | |
| 565 | | |
| 565 | |
All
others | |
| 1,129 | | |
| 1,452 | |
Total
other accrued expenses | |
$ | 8,692 | | |
$ | 9,198 | |
Long-term
liabilities consisted of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF LONG TERM LIABILITIES
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
(unaudited) | | |
| |
Uncertain
tax positions | |
$ | 4,631 | | |
$ | 4,577 | |
Deferred
revenue | |
| 13 | | |
| 13 | |
Other | |
| 41 | | |
| 58 | |
Total
other long-term liabilities | |
$ | 4,685 | | |
$ | 4,648 | |
10. |
STOCK-BASED
COMPENSATION |
Historically,
stock options have been granted with an exercise price equal to the market value of the common stock on the date of grant, with expiration
10 years from the date they are granted, and generally vest over a one to three-year period for employees and members of the Board. Upon
exercise, new shares will be issued by the Company. The restricted shares and restricted stock units (“RSUs”) granted to
Board members and employees generally have a three-year graded vesting period and are subject to accelerated vesting and forfeiture under
certain circumstances.
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, 2022 and 2021.
SCHEDULE OF STOCK OPTIONS, VALUATION ASSUMPTIONS
| |
March
31, 2022 | | |
March
31, 2021 | |
| |
| (unaudited) | |
Risk-free
interest rate | |
| 1.76 | % | |
| 0.78 | % |
Expected
life | |
| 6.0
years | | |
| 6.0
years | |
Expected
volatility | |
| 129.93 | % | |
| 134.79 | % |
Dividend
yield | |
| - | | |
| - | |
During
March 2021, the Company granted 312,500 stock options with an exercise price of $6.00 and 152,500 RSUs. The market value of the Company’s
common stock was $5.00 at the grant date of these awards. The Company recognized approximately $0.3 million and $0.3 million of stock-based
compensation expense during the three-month periods ended March 31, 2022 and 2021, respectively. The following table has a breakout of
stock-based compensation expense by line item.
SCHEDULE OF SHARE-BASED COMPENSATION ARRANGEMENTS BY SHARE-BASED PAYMENT AWARD
| |
Three
Months Ended | |
| |
March
31, | |
| |
2022 | | |
2021 | |
| |
| (unaudited) |
Cost
of revenue | |
$ | 27 | | |
$ | 48 | |
Sales
and marketing | |
| 44 | | |
| 47 | |
Research
and development | |
| - | | |
| 35 | |
General
and administrative* | |
| 254 | | |
| 156 | |
Total
stock compensation expense | |
$ | 325 | | |
$ | 286 | |
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 from continuing operations and the effective tax
rate for the three-month periods ended March 31, 2022 and 2021:
SCHEDULE OF EFFECTIVE INCOME TAX RATE
| |
2022 | | |
2021 | |
| |
Three
Months Ended | |
| |
March
31, | |
| |
2022 | | |
2021 | |
| |
(unaudited) | |
| |
| | | |
| | |
Provision
for income tax | |
$ | 18 | | |
$ | 15 | |
Effective
income tax rate | |
| (0.8 | %) | |
| (0.4 | %) |
Income
tax expense for both the three-month periods ended March 31, 2022 and 2021 was primarily due to minimum state and local taxes.
We
operate under one segment which is the business of developing and selling clinical and pharma services.
13. |
DISCONTINUED
OPERATIONS |
The
components of liabilities classified as discontinued operations consist of the following as of March 31, 2022 and December 31, 2021:
SCHEDULE OF DISCONTINUED OPERATIONS
| |
March
31, 2022 | | |
December
31, 2021 | |
| |
(unaudited) | | |
| |
| |
| | |
| |
Accrued
liabilities | |
| 766 | | |
| 766 | |
Current
liabilities from discontinued operations | |
| 766 | | |
| 766 | |
Total
liabilities | |
$ | 766 | | |
$ | 766 | |
The
table below presents the significant components of CSO’s results included
within loss from discontinued operations, net of tax in the condensed consolidated statements of operations for the three-months ended
March 31, 2022 and 2021.
| |
2022 | | |
2021 | |
| |
Three
Months Ended | |
| |
March
31, | |
| |
2022 | | |
2021 | |
| |
(unaudited) | |
Income
from discontinued operations, before tax | |
$ | - | | |
$ | - | |
Income
tax expense | |
| 54 | | |
| 54 | |
Loss
from discontinued operations, net of tax | |
$ | (54 | ) | |
$ | (54 | ) |
BroadOak
Loan
On
October 29, 2021, the Company and its subsidiaries entered into a Loan and Security Agreement (the “BroadOak Loan Agreement”)
with BroadOak, providing for a term loan in the aggregate principal amount of $8,000,000 (the “Term Loan”). Funding of the
Term Loan took place on November 1, 2021. The Term Loan matures upon the earlier of (i) October 31, 2024 or (ii) the occurrence of a
change in control, and bears interest at the rate of 9% per annum. The Term Loan is secured by a security interest in substantially all
of the Company’s and its subsidiaries’ assets and is subordinate to the Company’s $7,500,000 revolving credit facility
with Comerica Bank. The Term Loan had an origination fee of 3% of the Term Loan amount, and a terminal payment equal to (i) 15% of the
original principal amount of the Term Loan if the change of control occurs on or prior to the first anniversary of the funding of the
Term Loan, (ii) 20% of the original principal amount of the Term Loan if the change of control occurs after the first anniversary but
on or prior to the second anniversary of the funding of the Term Loan and (iii) 30% of the original principal amount of the Term Loan
if the change of control occurs after the second anniversary of the funding of the Term Loan, or if the Term Loan is repaid on its maturity
date.
The
BroadOak Loan Agreement contains affirmative and negative restrictive covenants that are applicable from and after the date of the Term
Loan advance. These restrictive covenants, which include restrictions on certain mergers, acquisitions, investments, encumbrances, etc.,
could adversely affect our ability to conduct our business. The BroadOak Loan Agreement also contains customary events of default.
In
connection with the BroadOak Loan Agreement, the Company and its subsidiaries entered into that certain First Amendment to Loan and Security
Agreement and Consent with Comerica, dated as of November 1, 2021 (the “Comerica Amendment”), pursuant to which Comerica
consented to the Company’s and its subsidiaries’ entry into the BroadOak Loan Agreement, and amended that certain Loan and
Security Agreement among Comerica, the Company and its subsidiaries (the “Comerica Loan Agreement”) to, among other things,
permit the indebtedness, liens and encumbrances contemplated by the BroadOak Loan Agreement.
As
a condition for BroadOak to extend the Term Loan to the Company and its subsidiaries, the Company’s existing creditor, Comerica,
and BroadOak entered into that certain Subordination and Intercreditor Agreement, dated as of November 1, 2021, pursuant to which BroadOak
agreed to subordinate all of the indebtedness and obligations of the Company and its subsidiaries owing to BroadOak to all of the indebtedness
and obligations of the Company and its subsidiaries owing to Comerica (the “Intercreditor Agreement”). BroadOak further agreed
to subordinate all of its respective security interests in assets or property of the Company and its subsidiaries to Comerica’s
security interests in such assets or property. The Intercreditor Agreement provides that it is solely for the benefit of BroadOak and
Comerica and is not for the benefit of the Company or any of its subsidiaries.
The
Company concluded that the Note met the definition of a “recognized financial liability” which is an acceptable financial
instrument eligible for the fair value option under ASC 825-10-15-4, and did not meet the definition of any of the financial instruments
listed within ASC 825-10-15-5 that are not eligible for the fair value option. The Note is not convertible and does not have any component
recorded to shareholders’ equity. Accordingly, the Company elected the fair value option for the Note.
Related
Party Secured Promissory Note
On
January 7, 2021, the Company entered into secured promissory notes in the amount of $3 million and $2 million with Ampersand and 1315
Capital, respectively. On May 10, 2021, the Company amended the Ampersand Note to increase the principal amount to $4.5 million and amended
the 1315 Capital Note to increase the principal amount to $3.0 million. The maturity dates of the Notes were the earlier of (a) June
30, 2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Notes. On June
24, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) August 31, 2021 and
(b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On June 25,
2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner. On August 31, 2021,
the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) September 30, 2021 and (b) the
date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On August 31, 2021,
the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner.
On
September 29, 2021, the Company and Ampersand amended the Ampersand Note to change its maturity date to the earlier of (a) October 31,
2021 and (b) the date on which all amounts become due upon the occurrence of any event of default as defined in the Ampersand Note. On
September 29, 2021, the Company and 1315 Capital amended the 1315 Capital Note to change its maturity date in a similar manner.
The
Company used the proceeds of the BroadOak Term Loan discussed above to repay in full at their maturity all outstanding indebtedness under
the promissory notes with Ampersand, dated January 7, 2021 and as last amended on September 29, 2021, in the amount of $4.5 million,
and 1315 Capital, dated January 7, 2021 and as last amended on September 29, 2021, in the amount of $3 million, respectively.
15.
|
SUPPLEMENTAL
CASH FLOW INFORMATION |
Supplemental
Disclosures of Non Cash Activities
(in
thousands)
SUPPLEMENTAL CASH FLOW INFORMATION
| |
2022 | | |
2021 | |
| |
Three
Months Ended | |
| |
March
31, | |
| |
2022 | | |
2021 | |
| |
| | |
| |
Operating | |
| | | |
| | |
Taxes
accrued for repurchase of restricted shares | |
$ | 60 | | |
$ | - | |
| |
| | | |
| | |
Investing | |
| | | |
| | |
Accrued
capital expenditures | |
$ | 22 | | |
$ | - | |
| |
| | | |
| | |
Financing | |
| | | |
| | |
| |
| | | |
| | |
Accrued
financing costs | |
$ | - | | |
$ | 123 | |
Preferred
Stock Issuance: Securities Purchase and Exchange Agreement
On
January 10, 2020, the Company entered into a Securities Purchase and Exchange Agreement (the “Securities Purchase and Exchange
Agreement”) with 1315 Capital and Ampersand (collectively, the “Investors”) pursuant to which the Company agreed to
sell to the Investors an aggregate of $20.0 million in Series B Preferred Stock of the Company, 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 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 existing Series A convertible preferred stock, par value
$0.01 per share, held by Ampersand (the “Series A Preferred Stock”), 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.
In
April 2020, the Company entered into support agreements with each of the Series B Investors, pursuant to which Ampersand and 1315 Capital,
respectively, consented to, and agreed to vote (by proxy or otherwise), all shares of Series B Preferred Stock registered in its name
or beneficially owned by it and/or over which it exercises voting control as of the date of the Support Agreement and any other shares
of Series B Preferred Stock legally or beneficially held or acquired by such Series B Investor after the date of the Support Agreement
or over which it exercises voting control, in favor of any Fundamental Action desired to be taken by the Company as determined by the
Board. For purposes of each Support Agreement, “Fundamental Action” means any action proposed to be taken by the Company
and set forth in Section 4(d)(i), 4(d)(ii), 4(d)(v), 4(d)(vi), 4(d)(viii) or 4(d)(ix) of the Certificate of Designation of Series B Preferred
Stock or Section 8.5.1.1, 8.5.1.2, 8.5.1.5, 8.5.1.6, 8.5.1.8 or 8.5.1.9 of the Amended and Restated Investor Rights Agreement. The support
agreement between the Company and Ampersand was terminated by mutual agreement on July 9, 2020; however, the support agreement entered
into with 1315 Capital remains in effect. During October 2021, Ampersand and 1315 Capital provided consent to the Company to enter into
the Comerica Loan Agreement and the BroadOak Term Loan.
As
of March 31, 2022 and December 31, 2021, there were 47,000 Series B issued and outstanding shares of preferred stock, respectively.
Warrants
outstanding and warrant activity for the three-months ended March 31, 2022 are as follows:
SCHEDULE OF WARRANTS OUTSTANDING AND WARRANTS ACTIVITY
Description | |
Classification | |
Exercise
Price | | |
Expiration
Date | |
Warrants
Issued | | |
Balance December
31, 2021 | | |
Warrants
Cancelled/ Expired | | |
Balance March
31, 2022 | |
| |
| |
| | |
| |
| | |
| | |
| | |
| |
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 | | |
| 53,500 | | |
| - | | |
| 53,500 | |
Base
& Overallotment Warrants, issued June 21, 2017 | |
Equity | |
$ | 12.50 | | |
June
2022 | |
| 1,437,500 | | |
| 870,214 | | |
| - | | |
| 870,214 | |
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 | ) | |
| - | |
| |
| |
| | | |
| |
| | | |
| | | |
| | | |
| | |
| |
| |
| | | |
| |
| 1,975,934 | | |
| 1,404,648 | | |
| (65,434 | ) | |
| 1,339,214 | |
The
weighted average exercise price of the warrants is $16.30 and the weighted average remaining contractual life is approximately 0.2 years.
18. |
REVOLVING
LINE OF CREDIT |
On
October 13, 2021, the Company and its subsidiaries entered into a Loan and Security Agreement (the “Comerica Loan Agreement”)
with Comerica Bank (“Comerica”), providing for a revolving credit facility of up to $7,500,000 (the “Credit Facility”).
The Company may use the proceeds of the Credit Facility for working capital and other general corporate purposes.
The
amount that may be borrowed under the Credit Facility is the lower of (i) the revolving limit of $7,500,000 (the “Revolving Line”)
and (ii) 80% of the Company’s eligible accounts receivable plus an applicable non-formula amount consisting of $2,000,000 of additional
availability at close not based upon the Company’s eligible accounts receivable, with such additional availability reducing by
$250,000 per quarter beginning with the quarter ending June 30, 2022. Borrowings on the Credit Facility are limited to $5,000,000 until
80% of the Company’s and its subsidiaries’ customers are paying into a collection account or segregated governmental account
with Comerica. The Revolving Line can also include, at the Company’s option, credit card services with a sublimit of $300,000.
Borrowings on the Revolving Line are subject to an interest rate equal to prime plus 0.50%, with prime being the greater of (x) Comerica’s
stated prime rate or (y) the sum of (A) the daily adjusting LIBOR rate plus (B) 2.5% per annum. The Company is also required to pay an
unused facility fee quarterly in arrears in an amount equal to 0.25% per annum on the average unused but available portion of the Revolving
Line for such quarter.
The
Credit Facility matures on September 30, 2023, and is secured by a first priority lien on substantially all of the assets of the Company
and its subsidiaries. As of March 31, 2022, the balance of the revolving line was $2.5 million.
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.
In April 2022, Comerica waived certain covenants specifically relating to the Company receiving financial statements with a going concern
comment or qualification, and failure to maintain bank accounts outside of Comerica in an aggregate amount not to exceed $0.5
million during the transition period.
As
a condition for Comerica to extend the Credit Facility to the Company and its subsidiaries, the Company’s existing creditors, Ampersand
and 1315 Capital (the “Existing Creditors”), entered into that certain Subordination Agreement, dated as of October 13, 2021,
pursuant to which each Existing Creditor agreed to subordinate all of the indebtedness and obligations of the Company and its subsidiaries
owing to such Existing Creditor to all of the indebtedness and obligations of the Company and its subsidiaries owing to Comerica (the
“Subordination Agreement”). Each Existing Creditor further agreed to subordinate all of its respective security interests
in assets or property of the Company and its subsidiaries to Comerica’s security interests in such assets or property. The Subordination
Agreement provides that it is solely for the benefit of Comerica and each of the Existing Creditors and is not for the benefit of the
Company or any of its subsidiaries.
19. |
RECENT
ACCOUNTING STANDARDS |
Accounting
Pronouncements Pending Adoption
In
February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC
Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards
Update No. 2016-02, Leases (Topic 842) which amends the effective date of the original pronouncement for smaller reporting companies.
ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December
15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate
a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated
financial statements.
In
August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
– Contracts in Entity’s Own Equity (Subtopic 815 – 40), (“ASU 2020-06”). ASU 2020-06 simplifies the accounting
for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on
an entity’s own equity. The ASU2020-06 amendments are effective for fiscal years beginning after December 15, 2023, and interim
periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including
interim periods within those fiscal years. The Company does not expect this will have any impact on its consolidated financial statements.
20. |
SUBSEQUENT
EVENTS
BroadOak
Convertible Note
On
May 5, 2022, the Company issued a Subordinated Convertible Promissory Note (the “Convertible Note”) to BroadOak, pursuant
to which BroadOak funded a term loan in the aggregate principal amount of $2 million (the “Convertible Debt”). The Company
will use the proceeds of the Convertible Debt for general corporate purposes and working capital.
The
Convertible Note will be converted into shares of common stock of the Company in connection with, and upon the consummation of, a private
placement transaction pursuant to which the Company will issue common stock to certain investors, and such conversion will be subject
to the same terms and conditions (including purchase price per share) applicable to the purchase of common stock of the Company by such
investors. If such private placement transaction is not consummated on or prior to August 5, 2022 (the “Maturity Date”),
then the Convertible Note will be converted into an additional term loan advance under the Company’s existing BroadOak Loan Agreement
on the Maturity Date and will thereafter be subject to the terms of the definitive financing agreements for the BroadOak Loan Agreement
until repaid in accordance with the terms thereof. The Convertible Debt bears interest at a fixed rate of interest equal to 9.0%
per annum and is unsecured. There are no scheduled amortization payments prior to the Maturity Date. The Convertible Note contains customary
representations and warranties and customary events of default.
In
connection with the issuance of the Convertible Note, on May 5, 2022, the Company and its subsidiaries entered into a) a consent letter
(the “Comerica Consent”) with Comerica, pursuant to which Comerica consented to the issuance of the Convertible Note, the
incurrence of the Convertible Debt and the conversion of the Convertible Debt into common stock of the Company or an additional term
loan advance under the BroadOak Loan Agreement in accordance with the terms of the Convertible Note, and b) a First Amendment to Loan
and Security Agreement and Consent (the “BroadOak Amendment”) with BroadOak, pursuant to which, among other things, BroadOak
consented to the issuance of the Convertible Note, the incurrence of the Convertible Debt and the conversion of the Convertible Debt
into common stock of the Company or an additional term loan advance under the BroadOak Loan Agreement in accordance with the terms of
the Convertible Note.
The
Convertible Debt is subordinated in right of payment to all of the indebtedness and obligations of the Company owing to Comerica under
the Company’s existing senior secured credit facility with Comerica. In connection with the issuance of the Convertible Note, on
May 5, 2022, the Company, BroadOak and Comerica entered into a First Amendment to Subordination and Intercreditor Agreement (the “Intercreditor
Amendment”), pursuant to which, among other things, BroadOak agreed that the Convertible Debt is subordinated to all of the indebtedness
and obligations of the Company owing to Comerica on the same terms and conditions applicable to the indebtedness and obligations of the
Company under the BroadOak Loan Agreement.
|
INTERPACE
BIOSCIENCES, INC