Oncocyte(US:OCX)2024-08-08 20:27PART I—FINANCIAL INFORMATION Financial Statements Unaudited financial statements highlight a going concern uncertainty and detail assets, liabilities, operations, and cash flows Condensed Consolidated Balance Sheets Total assets remained stable at $74.7 million, while liabilities increased and shareholders' equity grew to $22.7 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | June 30, 2024 (Unaudited) | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,256 | $9,432 | | Total current assets | $9,968 | $10,698 | | Total Assets | $74,720 | $74,892 | | Total current liabilities | $7,198 | $7,194 | | Contingent consideration liabilities | $42,181 | $39,900 | | Total Liabilities | $52,017 | $49,298 | | Total shareholders' equity | $22,703 | $20,468 | Unaudited Condensed Consolidated Statements of Operations Quarterly revenue declined while net loss improved, but the six-month net loss widened due to fair value changes Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | 6 Months 2024 | 6 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $104 | $463 | $280 | $760 | | Gross profit | $50 | $272 | $95 | $282 | | Loss from operations | $(4,632) | $(8,294) | $(13,899) | $(2,444) | | Net loss | $(4,530) | $(8,333) | $(13,659) | $(5,300) | | Net loss per share | $(0.36) | $(1.07) | $(1.32) | $(0.83) | Unaudited Condensed Consolidated Statements of Cash Flows Operating cash burn improved, while financing activities provided necessary capital to offset operational use Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,808) | $(15,132) | | Net cash used in investing activities | $(215) | $(1,249) | | Net cash provided by financing activities | $9,847 | $12,246 | | Net change in cash | $(176) | $(4,135) | Notes to Unaudited Condensed Consolidated Financial Statements Notes detail accounting policies, going concern doubts, contingent liabilities, and recent equity transactions - The company has incurred operating losses since inception, with an accumulated deficit of $303.5 million as of June 30, 2024; these conditions raise substantial doubt about the company's ability to continue as a going concern2128 - In April 2024, the company raised net proceeds of approximately $9.9 million from a private placement after using $5.4 million to redeem all remaining shares of its Series A Redeemable Convertible Preferred Stock24163165 - The company entered into a collaboration agreement with a global strategic partner (Bio-Rad) on April 5, 2024, to develop and commercialize kitted transplant products; this partner also made a strategic investment in the company24183185 - Contingent consideration liabilities from the Insight and Chronix acquisitions increased to $42.2 million as of June 30, 2024, with the change in fair value resulting in a $2.3 million loss for the first six months of 2024115121258 - The operations of Razor Genomics, related to the DetermaRx test, were divested in February 2023 and are presented as discontinued operations in the 2023 financial statements20190 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management analyzes decreased revenue, fluctuating expenses, and the impact of fair value changes on net loss Overview The company focuses on molecular diagnostics for organ transplants and oncology, shifting to a decentralized kit model - The company's primary near-term strategic market is organ transplant, with its VitaGraft Kidney test becoming commercially available in January 2024201 - A key part of the business model is developing diagnostic test kits to empower customers to run their own tests, a decentralized approach199 - In July 2024, the company began commercializing GraftAssure, a Research Use Only (RUO) version of the VitaGraft Kidney technology203 Results of Operations Revenue fell sharply due to decreased Pharma Services, with net loss significantly impacted by contingent consideration Revenue by Service (in thousands) | Service | Q2 2024 | Q2 2023 | 6 Months 2024 | 6 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Pharma Services | $104 | $440 | $258 | $737 | | Laboratory developed test services | $0 | $23 | $22 | $23 | | Total | $104 | $463 | $280 | $760 | - The decrease in loss from continuing operations for Q2 2024 was mainly due to a positive change in the fair value of contingent consideration (a gain of $1.0M in Q2 2024 vs a loss of $1.8M in Q2 2023)211213 - The increase in loss from continuing operations for the first six months of 2024 was primarily driven by a loss of $2.3 million from the change in fair value of contingent consideration, compared to a gain of $16.5 million in the prior year period215218 Liquidity and Capital Resources The company faces liquidity challenges and going concern doubts despite recent capital-raising activities - The company had $9.3 million in cash and cash equivalents as of June 30, 2024, and an accumulated deficit of $303.5 million237 - Management has concluded that there is substantial doubt regarding the company's ability to continue as a going concern for one year after the financial statement issuance date237 - In April 2024, the company raised approximately $9.9 million in net proceeds from a private placement after redeeming all remaining Series A Preferred Stock for $5.4 million239 Quantitative and Qualitative Disclosures about Market Risk The company is exempt from market risk disclosures as a smaller reporting company - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk270 Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report271 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls272 PART II - OTHER INFORMATION Legal Proceedings The company is not currently involved in any material legal proceedings - As of the filing date, the company is not involved in any material pending litigation273 Risk Factors A new FDA rule regulating Laboratory Developed Tests as medical devices poses significant commercialization risks - A significant risk is the FDA's new final rule, published in May 2024, which will regulate Laboratory Developed Tests (LDTs) as medical devices276 - The new regulation will phase out the FDA's enforcement discretion over a four-year period, which could require the company to seek pre-market approval for its tests, leading to delays and increased costs277 - Compliance with new FDA regulations would increase business costs, subject the company to inspections, and could lead to enforcement actions for non-compliance280 Unregistered Sales of Equity Securities and Use of Proceeds The company issued common stock in an unregistered sale to a third party under a Securities Act exemption - On April 23, 2024, 14,664 shares of common stock were issued to PCG Advisory, Inc. in an unregistered sale281 Exhibits This section lists all exhibits filed with the report, including key agreements and officer certifications