Annual report pursuant to Section 13 and 15(d)

Discontinuing Operations

v3.21.1
Discontinuing Operations
12 Months Ended
Dec. 31, 2020
Discontinued Operations and Disposal Groups [Abstract]  
Discontinued Operations Discontinuing Operations
Interpace Biosciences, Inc.

On July 15, 2019, the Company entered into a secured creditor asset purchase agreement (the “BioPharma Agreement”) by and among the Company, Gentris, LLC, a wholly-owned subsidiary of the Company, Partners for Growth IV, L.P. (“PFG”), Interpace Biosciences, Inc. (“IDXG”) and a newly-formed subsidiary of IDXG, Interpace BioPharma, Inc. (“Buyer”). The BioPharma Agreement provided for a consensual private foreclosure sale by PFG of all assets relating to the Company’s BioPharma Business (as defined in the BioPharma Agreement) to Buyer (the “BioPharma Disposal”).

Pursuant to the BioPharma Agreement, Buyer purchased from PFG certain assets and assumed certain liabilities of the Company relating to the BioPharma Business, providing as gross consideration $23.5 million, less certain closing adjustments totaling $2.0 million, of which $7.7 million was settled in the form of a promissory note issued by Buyer to the Company (the “Excess Consideration Note”) and the remainder was paid to PFG in cash. PFG utilized the cash proceeds to satisfy the outstanding balances of the Silicon Valley Bank (“SVB”) asset-based revolving line of credit (“ABL”) and the $6.0 million term note to PFG (“PFG Term Note”), and to satisfy certain transaction expenses. The balance of $2.3 million was delivered to the Company in addition to the Excess Consideration Note.

The following is a reconciliation of the original gross sales price to the consideration received (in thousands):
Original sales price:
Gross sales price $ 23,500 
Adjustments to sales price:
Transaction costs (1,525)
Working capital adjustments (2,705)
Payment of other expenses (171)
Total adjustments to sales price (4,401)
Consideration received $ 19,099 

The BioPharma Disposal resulted in the following (in thousands):
Consideration received:
Cash received at closing $ 2,258 
Fair value of Excess Consideration Note 6,795 
Repayment of ABL and accrued interest 2,906 
Repayment of Term Note and accrued interest 6,250 
Repayment of certain accounts payable and accrued expenses 890 
Net sales price $ 19,099 
Net assets sold:
Accounts receivable $ 4,271 
Other current assets 1,142 
Fixed assets 2,998 
Operating lease right-of-use assets 1,969 
Patents and other intangible assets 42 
Goodwill 10,106 
Accounts payable and accrued expenses (4,970)
Obligations under operating leases (2,110)
Obligations under finance leases (451)
Deferred revenue (1,046)
$ 11,951 
Gain on disposal of BioPharma Business $ 7,148 

The Excess Consideration Note, which required interest-only quarterly payments at a rate of 6% per year, was settled on October 24, 2019 for $6.0 million, including interest of $24 thousand. The Buyer withheld from the settlement of the Excess Consideration Note $775 thousand for a net worth adjustment (assets less liabilities) of the BioPharma business (“Net Worth”), $153 thousand to secure collection of certain older accounts receivable of the Company purchased by Buyer (“AR Holdback”) and an additional $735 thousand as security for indemnification obligations of the Company for any breaches of certain limited warranties and covenants of the Company and other specified items (“Indemnification Holdback”). The Company received the full amounts of the AR Holdback and the Indemnification Holdback in April and May 2020, respectively. The fair value of the Excess Consideration Note was $888 thousand at December 31, 2019 and was paid in full in May 2020.

The Company and Buyer also entered into a transition services agreement (the “TSA”) pursuant to which the Company and Buyer are providing certain services to each other to accommodate the transition of the BioPharma Business to Buyer. In particular, the Company agreed to provide to Buyer, among other things, certain personnel services, payroll processing, administration services and benefit administration services, for a period not to exceed six months from July 15, 2019, subject to the terms and conditions of the TSA, in exchange for payment or reimbursement, as applicable, by Buyer for the costs related thereto, including salaries and benefits for certain of the Company’s BioPharma employees during the transition period. The Buyer paid for certain costs of the Company under the TSA with respect to a limited number of employees and professionals. Such shared services amounted to $217 thousand and $186 thousand for the years ended December 31, 2020 and 2019, respectively. In addition, the Buyer reimbursed the Company, in part, for the salaries and benefits of John A. Roberts, the Company’s Chief Executive Officer, and Glenn Miles, the Company’s former Chief Financial Officer through July 2020. The reimbursed portion of such salaries and benefits amounted to $155 thousand and $188 thousand for the years ended December 31, 2020 and 2019, respectively. Including the amounts due under the TSA described above, the net amount due to the Buyer is approximately $15 thousand at December 31, 2020.

In connection with the closing of the BioPharma Disposal, the SVB ABL and the PFG Term Note were terminated, and all related liens were released.

siParadigm, Inc.

On July 5, 2019, the Company entered into an asset purchase agreement (the “Clinical Agreement”) by and among the Company and siParadigm, LLC (“siParadigm”), pursuant to which the Company sold to siParadigm, certain assets associated
with the Company’s clinical laboratory business (the “Clinical Business,” and such assets, the “Designated Assets”), and agreed to cease operating its Clinical Business. The Designated Assets include intellectual property, equipment and customer lists associated with the Clinical Business, and for a period of time the Company was providing certain transitional services to siParadigm pursuant to the Clinical Agreement. The cash consideration paid by siParadigm at closing was $747 thousand, which includes $45 thousand for certain equipment plus a $1.0 million advance payment of the Earn-Out (as defined below), less $298 thousand of supplier invoices paid directly by siParadigm, an adjustment of $11 thousand and transaction costs of $110 thousand. The Clinical Business sale (together with the sale of BioServe and the BioPharma Disposal, the “Business Disposals”) was completed on July 8, 2019.

The Clinical Business disposal resulted in the following:
Consideration received:
Cash received at closing $ 747 
Fair value of Earn-Out from siParadigm 2,376 
Advance from siParadigm received in cash (1,000)
$ 2,123 
Net assets sold:
Goodwill $ 1,188 
Accounts payable and accrued expenses (287)
$ 901 
Gain on disposal of Clinical Business $ 1,222 

The Earn-Out, to be paid over the 24 months post-closing, is based on fees for all tests performed by siParadigm for the Company’s clinical customers during the 12-month period following the closing (the “Earn-Out”). siParadigm withholds a set percentage from each monthly earn-out payment remitted to the Company as repayment of the Advance from siParadigm. The percentage withheld was 25% for earn-out payments for July through September 2019; siParadigm began withholding 75% from the earn-out payments for October 2019 and will continue withholding 75% each month until the Advance from siParadigm is paid in full. At December 31, 2019, the fair value of the current and long-term portion of the Earn-Out from siParadigm was $747 thousand and $356 thousand, respectively. In addition, the current and long-term portion of the Advance from siParadigm was $566 thousand and $252 thousand, respectively. The Company has netted the Earn-out and advance from siParadigm as December 31, 2020 as all amounts are fixed and determinable and the Company and SiParadigm intend to offset. At December 31, 2020 the net Earn-out receivable was approximately $91 thousand.

Under the Clinical Agreement, the Company agreed to certain non-competition and non-solicitation provisions, including that it will cease performing certain clinical tests and will not solicit or seek business from certain of its customers (other than for the Company’s other lines of business) for a period of three years following the closing date.

The Business Disposals have been classified as discontinuing operations in conformity with accounting principles generally accepted in the United States of America. Accordingly, the operations and balances of the Company's BioPharma and Clinical operations have been reported as discontinuing operations and removed from all financial disclosures of continuing operations. As permitted by Accounting Standards Codification (“ASC”) 205-20, the Company elected to allocate $1.5 million of interest expense from the Convertible Note to Iliad and Advance from NDX to discontinuing operations during the year ended December 31, 2019. The interest was allocated based on the ratio of net assets sold less debt required to be paid as a result of the disposal to the Company's net assets (prior to the disposal) plus the consolidated debt not repaid as a result of the disposal. Unless otherwise indicated, information in these notes to consolidated financial statements relates to continuing operations.

Summarized results of the Company's consolidated discontinuing operations are as follows for the years ended December 31, 2020 and 2019 (in thousands):
  Year Ended December 31,
  2020 2019
Revenue $   $ 10,066 
Cost of revenues   7,554 
Gross profit   2,512 
Operating expenses:
Research and development   937 
General and administrative (42) 4,675 
Sales and marketing   1,527 
Restructuring costs   194 
Transaction costs   560 
Impairment of patents and other intangible assets   601 
Total operating expenses (42) 8,494 
Income (loss) from discontinuing operations 42  (5,982)
Other income (expense):
Interest expense   (2,211)
Gain on disposal of Clinical Business   1,222 
Gain on disposal of BioPharma Business   7,148 
Total other income   6,159 
Net income from discontinuing operations $ 42  $ 177 

Consolidated carrying amounts of major classes of assets and liabilities from discontinuing operations were as follows as of December 31, 2020 and 2019 (in thousands):
2020 2019
Current assets of discontinuing operations:
Accounts receivable, net of allowance for doubtful accounts of $4,536 in 2019
$   $ 71 
Current assets of discontinuing operations $   $ 71 
Current liabilities of discontinuing operations
Accounts payable and accrued expenses $ 659  $ 1,137 
Due to Interpace Biosciences, Inc.   92 
Current liabilities of discontinuing operations $ 659  $ 1,229 
Cash flows used in discontinuing operations consisted of the following for the years ended December 31, 2020 and 2019:
  Years Ended December 31,
  2020 2019
Income from discontinuing operations $ 42  $ 177 
Adjustments to reconcile income from discontinuing operations to net cash used in operating activities, discontinuing operations
Depreciation   542 
Amortization   613 
Provision for bad debts (28) 1,074 
Accounts payable settlements (43) — 
Stock-based compensation (6) 107 
Amortization of operating lease right-of-use assets   358 
Amortization of discount of debt and debt issuance costs   601 
Interest added to Convertible Note   343 
Loss on extinguishment of debt   328 
Gain on disposal of Clinical business   (1,222)
Gain on disposal of BioPharma business   (7,148)
Change in working capital components:
Accounts receivable 99  845 
Other current assets   398 
Other non-current assets  
Accounts payable, accrued expenses and deferred revenue (435) (2,163)
Obligations under operating leases   (217)
Deferred rent payable and other   (151)
Due to Interpace Biosciences, Inc. (92) 92 
Net cash used in operating activities, discontinuing operations $ (463) $ (5,421)