INTERPACE BIOSCIENCES, INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our consolidated financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and analysis includes certain forward-looking statements that involve risks, uncertainties and assumptions. You should review the Risk Factors sections of this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by such forward-looking statements. See Forward-Looking Statement Information at the beginning of this Form 10-K. Company 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 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 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. 69 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. It is also possible that we could experience supply chain shortages if the pandemic worsens and if one or more suppliers is unable to continue to provide us with supplies. For the foreseeable future, however, we do not anticipate supply chain shortages of critical supplies. We have developed contingency plans and will continue to monitor and update them in order to mitigate pandemic-related, adverse financial impacts upon our business. Clinical services Our clinical services provide clinically useful molecular diagnostic tests, bioinformatics and pathology services for evaluating cancer risk by leveraging the latest technology in personalized medicine for improved patient diagnosis and management. We develop and commercialize genomic tests and related first line assays principally focused on early detection of patients with indeterminate biopsies and at high risk of cancer using the latest technology to help personalized medicine and improve patient diagnosis and management. Our tests and services provide mutational analysis of genomic material contained in suspicious cysts, nodules and lesions with the goal of better informing treatment decisions in patients at risk of thyroid, pancreatic, and other cancers. The laboratory developed molecular diagnostic tests we offer are designed to enable healthcare providers to better assess cancer risk, helping to avoid unnecessary surgical treatment in patients at low risk. We currently have five commercialized molecular diagnostic tests in the marketplace: PancraGEN ® , which is a pancreatic cyst and pancreaticobiliary solid lesion genomic test for the diagnosis and prognosis of pancreatic cancer; PanDNA, a “molecular only” version of PancraGEN ® that provides physicians a snapshot of a limited number of factors enabling physicians to better assess risk of pancreaticobiliary cancers using our proprietary PathFinderTG® platform; ThyGeNEXT ® , which is an expanded oncogenic mutation panel that helps identify malignant thyroid nodules; ThyraMIR ® , which assesses thyroid nodules for risk of malignancy utilizing a proprietary microRNA gene expression assay; and RespriDx ® , which is a genomic test that helps physicians differentiate metastatic or recurrent lung cancer from the presence of newly formed primary lung cancer and which also utilizes our PathFinderTG® platform to compare the genomic fingerprint of two or more sites of lung cancer. In addition, BarreGEN ® , a molecular based assay that helps resolve the risk of progression of Barrett’s Esophagus to esophageal cancer, is currently in a clinical evaluation program (CEP) whereby we gather information from physicians using BarreGEN ® to assist us in gathering clinical evidence relative to the safety and performance of the test. We currently have a multicenter study underway to further assess the ability of BarreGEN ® to accurately predict progression to high grade dysplasia or cancer and to assist us in positioning our product for full launch, partnering, and potentially supporting reimbursement with payers. Our mission is to provide personalized medicine through genomics-based diagnostics and innovation to advance patient care based on rigorous science. Our laboratories are licensed pursuant to federal law under CLIA and are accredited by CAP and New York State. We leverage our laboratories to develop and commercialize our assays and products. We aim to provide physicians and patients with diagnostic options for detecting genomic and other molecular alterations that are associated with gastrointestinal, endocrine, and lung cancers. Our customers consist primarily of physicians, hospitals and clinics. The global molecular diagnostics market is estimated to be $11.77 billion (USD) in 2021 and is expected to grow to $18.1 billion (USD) by 2026 with a CAGR of 9.0% between 2021 and 2026, according to Market Data Forecast’s Molecular Diagnostics Market report (ID: 10293, published January 2022). We believe that the molecular diagnostics market offers significant growth and strong patient value given the substantial opportunity it affords to lower healthcare costs by helping to reduce unnecessary surgeries and ensuring the appropriate frequency of monitoring. We are keenly focused on growing our test volumes, securing additional insurance coverage and reimbursement, maintaining and growing our current reimbursement and supporting revenue growth for our molecular diagnostic tests, introducing related first line product and service extensions, as well as expanding our business by developing and promoting synergistic products in our markets. We also believe that BarreGEN ® is a potentially significant pipeline product, and we are providing necessary resources to accelerate our development process. Further, we believe BarreGEN ® is synergistic with our capabilities in the gastrointestinal market, which is one of the sectors in which we operate. In January 2022, we announced that CMS issued a new billing policy whereby CMS will no longer reimburse for the use of our 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, we 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, we have 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. 70 Pharma services Our pharma services provide pharmacogenomics testing, genotyping, biorepository and other specialized services to the pharmaceutical and biotech industries. Laboratory and testing services are performed for pharmaceutical and biotech companies engaged in clinical trials and focuses on providing these clients with oncology specific and non-oncology genetic testing services for phase I-IV clinical trials along with critical support of ancillary services. These services include: biorepository, clinical trial logistics, clinical trial design, bioinformatics analysis, customized assay development, DNA and RNA extraction and purification, genotyping, gene expression and biomarker analyses. We also seek to apply our expertise in laboratory developed tests to assist in developing and commercializing drug-specific companion diagnostics. We have established business relationships with key instrument manufacturers to support their platforms in the market, and to drive acceptance among biopharmaceutical sponsors developing innovative immuno-oncology therapies. Molecular- and biomarker-based testing services have been altering the clinical trials landscape by providing biotech and pharmaceutical companies with information about trial subjects’ genetic profiles that may be able to inform researchers whether or not a subject will benefit from the trial drug or will experience adverse effects. Streamlined subject selection and stratification, and tailored therapies selected to maximally benefit each group of subjects may increase the number of trials that result in approved therapies and make conducting clinical trials more efficient and less costly for biotech and pharmaceutical companies. In 2021, over 50 new drugs were approved by the FDA, and 20% of these drugs were oncology-focused, highlighting the potential value of incorporating genomic information into oncology clinical trial design. In addition to the tests and services provided to our pharma customers, we custom develop Next Generation Sequencing (NGS) panels for our customers focused on pharmacogenomics and oncology. We also utilize our laboratories to provide clinical trial services to the pharmaceutical and biotech industries to improve the efficiency and economic viability of clinical trials. Our clinical trials services leverage our knowledge of clinical oncology and molecular diagnostics and our laboratories’ fully integrated capabilities. We believe our laboratory is one of a few with the capability to combine somatic and germline mutational analyses in clinical trials. We operate through a CLIA certificated and CAP accredited laboratory located in Morrisville, North Carolina. Our laboratory possesses capabilities in histology, immunohistochemistry (IHC), flow cytometry, cytogenetics and fluorescent in-situ hybridization (FISH), as well as sophisticated molecular analysis techniques, including next generation sequencing. This allows for comprehensive customized testing within one lab enterprise, with our CAP-accredited biorepository laboratory serving as a central hub for specimen tracking. Using this approach, we are able to support demanding clinical trial protocols requiring multiple assays and techniques aimed at capturing data on multiple biomarkers. Our suite of available testing platforms allows for highly customized clinical trial design which is supported by our dedicated group of development scientists and technical personnel. We also provide genetic testing for drug metabolism to aid biotech and pharmaceutical companies identify subjects’ likely responses to treatment, allowing these companies to conduct more efficient and safer clinical trials. We believe pharmacogenomics drug metabolism testing helps deliver the promise of personalized medicine by enabling researchers to tailor therapies in development to differences in patients’ genomic profiles. Transition costs To optimize the operations of laboratory operations within our pharma services, we transitioned activities from the Rutherford, NJ facility to our Morrisville, NC facility. We invested several million dollars to facilitate this relocation which was completed in March 2021, including but not limited to the transfer of personnel, expansion of the Morrisville facility and validation of transferred processes. We believe that this investment will result in a reduction in future operating costs; however, it is not certain whether we will fully realize the anticipated savings. We have also undergone several other cost-cutting initiatives, primarily reductions in headcount, and those costs are categorized as transition expenses as well. 71 Nasdaq Delisting On February 16, 2021, the Company received a delisting determination letter (the “Letter”) from the Listing Qualifications Department (the “Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Staff had determined to delist the Company’s common stock from Nasdaq due to the Company’s failure to regain compliance with the Nasdaq Capital Market’s minimum $2,500,000 stockholders’ equity requirement for continued listing as set forth in Nasdaq Listing Rule 5550(b) (the “Rule”) and the Company’s failure to timely execute its plan to regain compliance under the Rule. Nasdaq commenced with delisting the Company’s common stock from the Nasdaq Capital Market and, suspended trading in the Company’s common stock effective at the open of business on February 25, 2021. On February 24, 2021, the Company was approved to have its common stock quoted on the OTCQX ® Best Market tier of the OTC Markets Group Inc. (the “OTCQX”), an electronic quotation service operated by OTC Markets Group Inc. The trading of the Company’s common stock commenced on OTCQX at the open of business on February 25, 2021 under the trading symbol IDXG. DESCRIPTION OF REPORTING SEGMENTS We operate under one segment which is the business of developing and selling diagnostic clinical and pharma services. CRITICAL ACCOUNTING POLICIES We prepare our consolidated financial statements in accordance with U.S. generally accepted accounting principles, or (“GAAP”). The preparation of financial statements and related disclosures in conformity with GAAP requires management to make judgments, estimates and assumptions at a specific point in time that affect the amounts reported in our consolidated financial statements and disclosed in the accompanying notes. These assumptions and estimates are inherently uncertain. Outlined below are accounting policies, which are important to our financial position and results of operations and require our management to make significant judgments in their application. Some of those judgments can be subjective and complex. Management’s estimates are based on historical experience, information from third-party professionals, facts and circumstances available at the time and various other assumptions that are believed to be reasonable. Actual results could differ from those estimates. Additionally, changes in estimates could have a material impact on our consolidated results of operations in any one period. For a summary of all of our significant accounting policies, including the accounting policies discussed below, see Note 1, Nature of Business and Significant Accounting Policies , to our consolidated financial statements included in this Annual Report on Form 10-K. Revenue and Cost of Revenue The Company’s revenue is primarily generated from the performance of its proprietary molecular diagnostic tests for its clinical customers and its DNA-based testing services in support of clinical trials for its pharma services customers. The Company’s performance obligation is fulfilled upon completion, review and release of test results and subsequent billing to the third-party payer, hospital or service provider, or biopharma companies. Revenue Recognition ASC 606 Revenue Recognition Clinical services derive its revenues from the performance of its proprietary assays or tests. The Company’s performance obligation is fulfilled upon completion, review and release of test results to the customer. The Company subsequently bills third-party payers or direct-bill payers for the tests performed. Revenue is recognized based on the estimated transaction price or net realizable value (“NRV”), which is determined based on historical collection rates by each payer category for each proprietary test offered by the Company. To the extent the transaction price includes variable consideration, for all third party and direct-bill payers and proprietary tests, the Company estimates the amount of variable consideration that should be included in the transaction price using the expected value method based on historical experience. 72 For our clinical services, we regularly review the ultimate amounts received from the third-party and direct-bill payers and related estimated reimbursement rates and adjust the NRV’s and related contractual allowances accordingly. If actual collections and related NRV’s vary significantly from our estimates, we adjust the estimates of contractual allowances, which would affect net revenue in the period such variances become known. For our pharma services customers, performance obligations are satisfied at a point in time as the Company 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. 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 8, Leases . Long-Lived Assets, including Finite-Lived Intangible Assets We review 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. As a result of overall economic conditions related to the coronavirus pandemic, the impact of the coronavirus pandemic on the Company’s financial results, and the decrease in the price of the Company’s common stock noted during the third quarter of fiscal 2020, the Company performed an internal review of its long-lived assets. Due to an extended delay in the launch of the Company’s Barrett’s test, the Company believes there was a triggering event in Fiscal 2016. The Company applied the required procedures under ASC 360 and assessed the estimated future cash flows related to the Barrett’s intangible asset on an undiscounted basis. It was determined that the carrying value of the asset was in excess of the undiscounted cash flows as of December 31, 2016. As a result, the Company performed a formal valuation of the asset on a discounted basis in order to measure the related impairment. Additionally, the Company concluded that amortization of both the Barrett’s intangible asset and its Thyroid intangible assets should have commenced upon acquisition of those assets as opposed to the Company’s previously disclosed policy of beginning asset amortization when the product was launched and generating revenue. 73 Contingencies In the normal course of business, we are subject to various contingencies. Contingencies are recorded in the consolidated financial statements when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated, or otherwise disclosed, in accordance with ASC 450, Contingencies. Significant judgment is required in both the determination of probability and the determination as to whether a loss is reasonably estimable. In the event we determine that a loss is not probable, but is reasonably possible, and it becomes possible to develop what we believe to be a reasonable range of possible loss, then we will include disclosures related to such matter as appropriate and in compliance with ASC 450. To the extent there is a reasonable possibility that the losses could exceed the amounts already accrued, we will, when applicable, adjust the accrual in the period the determination is made, disclose an estimate of the additional loss or range of loss, indicate that the estimate is immaterial with respect to its financial statements as a whole or, if the amount of such adjustment cannot be reasonably estimated, disclose that an estimate cannot be made. We are currently a party to legal proceedings that are incidental to our business. As required, we have accrued our estimate of the probable costs for the resolution of these claims. These estimates are developed in consultation with outside counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. Predicting the outcome of claims and litigation, and estimating related costs and exposures, involves substantial uncertainties that could cause actual costs to vary materially from estimates. Income Taxes Income taxes are based on income for financial reporting purposes calculated using our expected annual effective rate and reflect a current tax liability or asset for the estimated taxes payable or recoverable on the current year tax return and expected annual changes in deferred taxes. We account for income taxes using the asset and liability method. This method requires recognition of deferred tax assets and liabilities for expected future tax consequences of temporary differences that currently exist between tax bases and financial reporting bases of our assets and liabilities based on enacted tax laws and rates. Deferred tax expense (benefit) is the result of changes in the deferred tax asset and liability. A valuation allowance is established, when necessary, to reduce the deferred income tax assets when it is more likely than not that all or a portion of a deferred tax asset will not be realized. We operate in multiple tax jurisdictions and provide taxes in each jurisdiction where we conduct business and are subject to taxation. The breadth of our operations and the complexity of the various tax laws require assessments of uncertainties and judgments in estimating the ultimate taxes we will pay. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions, outcomes of tax litigation and resolution of proposed assessments arising from federal and state audits. We have established estimated liabilities for uncertain federal and state income tax positions. Uncertain tax positions are recognized in the financial statements when it is more likely than not (for example, a likelihood of more than fifty percent) that a position taken or expected to be taken in a tax return would be sustained upon examination by tax authorities that have full knowledge of all relevant information. A recognized tax position is then measured as the largest amount of benefit that is greater than fifty percent likely to be realized upon ultimate settlement. We adjust our accruals for unrecognized tax benefits as facts and circumstances change, such as the progress of a tax audit. We believe that any potential audit adjustments will not have a material adverse effect on our financial condition or liquidity. However, any adjustments made may be material to our consolidated results of operations or cash flows for a reporting period. Penalties and interest, if incurred, would be recorded as a component of current income tax expense. Significant judgment is also required in evaluating the need for and magnitude of appropriate valuation allowances against deferred tax assets. We currently have significant deferred tax assets resulting from net operating loss carryforwards and deductible temporary differences. The realization of these assets is dependent on generating future taxable income. We perform an analysis quarterly to determine whether the expected future income will more likely than not be sufficient to realize the deferred tax assets. Our recent operating results and projections of future income weighed heavily in our overall assessment. The existing and forecasted levels of pretax earnings for financial reporting purposes are not sufficient to generate future taxable income and realize our deferred tax assets and, as a result, we established a full federal and state valuation allowance for the net deferred tax assets at December 31, 2021 and 2020, as we determined that it was more likely than not that these assets would not be realized. 74 The NOL carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL, and tax credit carry forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant stockholders over a three year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, as well as similar state tax provisions. The amount of the annual limitation, if any, will be determined based on the value of our company immediately prior to an ownership change. Subsequent ownership changes may further affect the limitation in future years. Additionally, U.S. tax laws limit the time during which these carry forwards may be applied against future taxes, therefore, we may not be able to take full advantage of these carry forwards for federal income tax purposes. . During 2021, the Company completed a 382 assessment of the available NOLs under Section 382 and determined that the Company underwent an ownership change on September 30, 2017 and July 15, 2019, and as a result, NOLs attributable to the pre-ownership change are subject to a substantial annual limitation under Section 382 of the Internal Revenue Code due to the multiple ownership changes. The Company has adjusted their NOL carryforwards to address the impact of the 382 ownership change. Stock Compensation Costs The compensation cost associated with the granting of stock-based awards is based on the grant date fair value of the stock award. We recognize the compensation cost, net of estimated forfeitures, over the shorter of the vesting period or the period from the grant date to the date when retirement eligibility is achieved. Forfeitures are initially estimated based on historical information and subsequently updated over the life of the awards to ultimately reflect actual forfeitures. As a result, changes in forfeiture activity can influence the amount of stock compensation cost recognized from period-to-period. We primarily use the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock-based payment awards is made on the date of grant and is affected by our stock price as well as assumptions made regarding a number of complex and subjective variables. These assumptions include: our expected stock price volatility over the term of the awards; actual and projected employee stock option exercise behaviors; the risk-free interest rate; and expected dividend yield. Changes in the valuation assumptions could result in a significant change to the cost of an individual award. However, the total cost of an award is also a function of the number of awards granted, and as result, we have the ability to manage the cost and value of our equity awards by adjusting the number of awards granted. 75 CONSOLIDATED RESULTS OF OPERATIONS The following table sets forth the selected statements of operations data ($ in thousands) as a percentage of revenue for the periods indicated. The trends illustrated in this table may not be indicative of future operating results. Years Ended December 31, 2021 2021 2020 2020 Revenue, net $ 41,314 100.0 % $ 32,398 100.0 % Cost of revenue 23,369 56.6 % 21,673 66.9 % Gross profit 17,945 43.4 % 10,725 33.1 % Operating expenses: Sales and marketing 10,067 24.4 % 9,254 28.6 % Research and development 1,882 4.6 % 2,795 8.6 % General and administrative 13,669 33.1 % 18,192 56.2 % Transition expense 2,585 6.3 % 2,578 8.0 % Loss on DiamiR transaction 13 0.0 % - 0.0 % Acquisition related amortization expense 4,064 9.8 % 4,461 13.8 % Change in fair value of contingent consideration (338 ) -0.8 % (489 ) -1.5 % Total operating expenses 31,942 77.3 % 36,791 113.6 % Operating loss (13,997 ) -33.9 % (26,066 ) -80.5 % Interest accretion expense (496 ) -1.2 % (549 ) -1.7 % Related party interest (424 ) -1.0 % - 0.0 % Other (expense) income, net (496 ) -1.2 % 467 1.4 % Loss from continuing operations before tax (15,413 ) -37.3 % (26,148 ) -80.7 % (Benefit) provision for income taxes (667 ) -1.6 % 53 0.2 % Loss from continuing operations (14,746 ) -35.7 % (26,201 ) -80.9 % Loss from discontinued operations, net of tax (197 ) -0.5 % (250 ) -0.8 % Net loss $ (14,943 ) -36.2 % $ (26,451 ) -81.6 % Revenue, net Consolidated revenue for the year ended December 31, 2021 increased by $8.9 million, or 28%, to $41.3 million, compared to $32.4 million for the year ended December 31, 2020. The increase in net revenue was driven by increased reimbursement rates and increased clinical services volume as the year ended December 31, 2020 was impacted by the pandemic. This increase was partially offset by a fairly significant decrease in volume within pharma services. The decrease in revenue within pharma services was approximately 32% from the comparable prior year period. Cost of revenue Consolidated cost of revenue for the year ended December 31, 2021 increased by $1.7 million, or 8%, to $23.4 million, compared to $21.7 million for the year ended December 31, 2020. This increase is primarily attributed to the increased volume associated with the clinical services business. Gross Profit Consolidated gross profit for the year ended December 31, 2021 increased $7.2 million, or 67%, to $17.9 million, compared to $10.7 million for the year ended December 31, 2020. The increase can be attributed to increased reimbursement rates as well as the change in the gross profit mix. 76 Sales and marketing expense Consolidated sales and marketing expense was $10.1 million for the year ended December 31, 2021, as compared to $9.3 million for the year ended December 31, 2020. As a percentage of revenue, sales and marketing expense decreased to 24% from 29% in the comparable prior year period due to the higher revenue for the year ended December 31, 2021. Research and development Research and development expense was $1.9 million for the year ended December 31, 2021 and $2.8 million for the year ended December 31, 2020 due to lower professional services and employee costs. As a percentage of revenue, research and development expense decreased to 5% from 9% in the comparable prior year period. General and administrative General and administrative expense for the year ended December 31, 2021 was $13.7 million as compared to $18.2 million for the year ended December 31, 2020. The decrease can be primarily attributed to the closing of the Rutherford, NJ office as well as employee and consulting costs associated with the closure. The year ended December 31, 2020 also included approximately $1.1 million in executive severance costs. As a percentage of net revenue, general and administrative expense was 33% for the year ended December 31, 2021 as compared to 56% for the year ended December 31, 2020. Transition expense Transition expense was approximately $2.6 million for the year ended December 31, 2021 and $2.6 million for the year ended December 31, 2020. These expenses are primarily related to the Rutherford, NJ lab closing and subsequent move to North Carolina, as well as other cost-saving initiatives, primarily reductions in headcount and the implementation of a new laboratory information system. Loss on DiamiR transaction During the year ended December 31, 2021 there was a loss of $0.01 million on the disposition of New Haven, CT laboratory to DiamiR in April 2021. Acquisition related amortization expense During the years ended December 31, 2021 and December 31, 2020, we recorded amortization expense of approximately $4.1 million and $4.5 million, respectively, which is related to intangible assets associated with our acquisitions. Change in fair value of contingent consideration During the year ended December 31, 2021, there was a $0.3 million decrease in the contingent consideration liability. During the year ended December 31, 2020, there was a $0.5 million decrease in the contingent consideration liability related thereto. Operating loss There were consolidated operating losses from continuing operations of $14.0 million and $26.1 million during the years ended December 31, 2021 and 2020, respectively. (Benefit) provision for income taxes The income tax benefit was approximately $0.7 million for the year ended December 31, 2021 and which primarily pertained to the Company’s sale of NOLs of approximately $0.7 million under the State of New Jersey’s Technology Business Tax Certificate Transfer Program. Income tax expense of $0.1 million for the year ended December 31, 2020 was primarily driven by minimum state and local taxes. 77 Loss from discontinued operations, net of tax We had a loss from discontinued operations of $0.2 million for the year ended December 31, 2021 as compared to a loss from discontinued operations of $0.3 million for the year ended December 31, 2020. Non-GAAP Financial Measures In addition to the United States generally accepted accounting principles, or GAAP, results provided throughout this document, we have provided certain non-GAAP financial measures to help evaluate the results of our performance. We believe that these non-GAAP financial measures, when presented in conjunction with comparable GAAP financial measures, are useful to both management and investors in analyzing our ongoing business and operating performance. We believe that providing the non-GAAP information to investors, in addition to the GAAP presentation, allows investors to view our financial results in the way that management views financial results. In this 10-K, we discuss Adjusted EBITDA, a non-GAAP financial measure. Adjusted EBITDA is a metric used by management to measure cash flow of the ongoing business. Adjusted EBITDA is defined as income or loss from continuing operations, plus depreciation and amortization, acquisition related expenses, transition expenses, non-cash stock based compensation, interest and taxes, and other non-cash expenses including asset impairment costs, bad debt expense, loss on extinguishment of debt, goodwill impairment and change in fair value of contingent consideration, and warrant liability. The table below includes a reconciliation of this non-GAAP financial measure to the most directly comparable GAAP financial measure. Reconciliation of Adjusted EBITDA (Unaudited) ($ in thousands) Years Ended December 31, 2021 2020 Loss from continuing operations (GAAP Basis) $ (14,746 ) $ (26,201 ) Bad debt (recovery) expense (140 ) 585 Loss on DiamiR transaction 13 - Receipt of HHS stimulus grant - (650 ) Transition expenses 2,585 2,578 Legal and professional services - 495 Depreciation and amortization 5,374 5,501 Stock-based compensation 1,368 2,242 Taxes (benefit)/expense (667 ) 53 Interest accretion expense 496 549 Financing interest and related costs 950 - Mark to market on warrant liability 50 (61 ) Change in fair value of note payable (58 ) - Change in fair value of contingent consideration (338 ) (489 ) Adjusted EBITDA $ (5,113 ) $ (15,398 ) LIQUIDITY AND CAPITAL RESOURCES For the fiscal year ended December 31, 2021, we had an operating loss of $14.0 million. As of December 31, 2021, we had cash, cash equivalents and restricted cash of $3.3 million, total current assets of $12.2 million and current liabilities of $15.7 million. As of March 18, 2022, we had approximately $2.7 million of cash on hand, excluding restricted cash. 78 During the year ended December 31, 2021, net cash used in operating activities was $8.7 million. The main component of cash used in operating activities was our net loss of $14.9 million which was partially offset by non-cash depreciation, amortization and stock compensation expenses of $6.6 million. During the year ended December 31, 2020, net cash used in operating activities was $14.0 million. The main component of cash used in operating activities was our net loss of $26.5 million which was partially offset by non-cash expenses of $7.7 million. For the year ended December 31, 2021, cash provided from financing activities was $9.0 million, of which $7.7 million were the net proceeds from the BroadOak loan and $1.5 million borrowed under our line of credit. See Note 13, Notes Payable, for more details. For the year ended December 31, 2020, cash provided from financing activities was $16.6 million, $19.2 million which resulted from the issuance of preferred stock in January 2020 and $0.4 million from sales of Common Stock, partially offset by the repayment of $3.0 million of borrowed funds under our now terminated revolving line of credit with Silicon Valley Bank. For the year ended December 31, 2021, cash used in investing activities was $0.4 million, primarily related to the purchase of lab equipment. For the year ended December 31, 2020, cash used in investing activities was $1.6 million, primarily related to capital expenditures associated with the moving of our Rutherford, New Jersey lab to North Carolina. 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. See Note 13, 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 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. See Note 19, Line of Credit , for more details. Comerica has a first priority security interest in substantially all of the Company’s and its subsidiaries’ assets. In addition, also in October 2021, the Company 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 recently established $7,500,000 revolving credit facility with Comerica Bank. The Term Loan has 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. Upon receipt of the term loan, the proceeds were used to repay in full at their maturity the notes extended by Ampersand and 1315 Capital discussed above. See Note 13, Notes Payable, for more details. As of the date of this Report, the Company currently anticipates that current cash and cash equivalents and availability on the revolving credit facility with Comerica will be sufficient to meet its anticipated operating cash requirements through at least the end of the first quarter of fiscal 2023. 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. As of December 31, 2021, 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 are as follows: Less than 1 to 3 3 to 5 After Total 1 Year Years Years 5 Years Operating lease obligations $ 5,085 $ 1,295 $ 1,464 $ 816 $ 1,510 Total $ 5,085 $ 1,295 $ 1,464 $ 816 $ 1,510 79 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. The Company is 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 may be adversely impacted. In January 2022, the Company’s registration statement for a rights offering become effective. The rights offering was subsequently terminated in January 2022. There can be no assurance that the Company will be successful in obtaining such funding on terms acceptable to the Company or at all. As of the date of this Report, 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a “smaller reporting company” for purposes of the disclosure requirements of Item 305 of Regulation S-K and, therefore, we are not required to provide this information.