Oncocyte(OCX) - 2025 Q2 - Quarterly Report

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements This section serves as a cautionary note regarding forward-looking statements within the report, emphasizing that such statements involve risks and uncertainties and actual results may differ materially. The company does not undertake to update these statements - Forward-looking statements pertain to future financial and/or operating results, future growth in research, technology, clinical development, and potential opportunities for Insight Molecular Diagnostics Inc. (iMDx)[7] - These statements involve risks and uncertainties, including those inherent in product development, clinical trials, regulatory approvals, capital needs, and intellectual property rights[7] - iMDx undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements, except as required by law[7] PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations, comprehensive loss, shareholders' equity, and cash flows, along with detailed notes explaining the company's accounting policies and specific financial items CONDENSED CONSOLIDATED BALANCE SHEETS The condensed consolidated balance sheets show a significant increase in total assets, primarily driven by a substantial rise in cash and cash equivalents, while total liabilities also increased, leading to a positive shift in shareholders' equity from a deficit position Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | June 30, 2025 (Unaudited) | December 31, 2024 | | :----------------------------------- | :-------------------------- | :------------------ | | Cash and cash equivalents | $24,287 | $8,636 | | Total current assets | $26,842 | $11,759 | | Total assets | $50,517 | $35,081 | | Total current liabilities | $6,652 | $7,275 | | Total liabilities | $49,419 | $47,355 | | Total shareholders' equity (deficit) | $1,098 | $(12,274) | - Cash and cash equivalents increased by $15.7 million from December 31, 2024, to June 30, 2025[13] - Total shareholders' equity shifted from a deficit of $(12.3 million) to a positive $1,098 thousand[13] UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS The company experienced a substantial increase in net revenue for both the three and six months ended June 30, 2025, compared to the prior year, but also saw a significant rise in operating expenses, particularly due to changes in contingent consideration fair value, leading to an increased net loss Unaudited Condensed Consolidated Statements of Operations Highlights (In thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenue | $518 | $104 | $2,656 | $280 | | Gross profit | $350 | $50 | $1,675 | $95 | | Total operating expenses | $10,192 | $4,682 | $18,316 | $13,994 | | Loss from operations | $(9,842) | $(4,632) | $(16,641) | $(13,899) | | Net loss | $(9,742) | $(4,530) | $(16,413) | $(13,659) | | Net loss per share - basic and diluted | $(0.30) | $(0.36) | $(0.57) | $(1.32) | - Net revenue increased by 398% for the three months ended June 30, 2025, and by 849% for the six months ended June 30, 2025, compared to the respective prior periods[14] - Net loss increased by 115% for the three months ended June 30, 2025, and by 20% for the six months ended June 30, 2025, primarily due to a significant change in the fair value of contingent consideration and increased operating expenses[14] UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS The unaudited condensed consolidated statements of comprehensive loss show that the net loss is the primary component of comprehensive loss, with minor adjustments from foreign currency translation Unaudited Condensed Consolidated Statements of Comprehensive Loss Highlights (In thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(9,742) | $(4,530) | $(16,413) | $(13,659) | | Foreign currency translation adjustments | $44 | $(3) | $64 | $(12) | | Comprehensive loss | $(9,698) | $(4,533) | $(16,349) | $(13,671) | UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' EQUITY The statements of Series A Redeemable Convertible Preferred Stock and Shareholders' Equity reflect the redemption of all Series A Preferred Stock in 2024, significant increases in common stock due to new issuances, and a substantial accumulated deficit, which improved to a positive equity position by June 30, 2025 Shareholders' Equity Highlights (In thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Common Stock Amount | $367,965 | $338,244 | | Accumulated Deficit | $(366,952) | $(350,539) | | Total Shareholders' Equity (Deficit) | $1,098 | $(12,274) | - All Series A Redeemable Convertible Preferred Stock was redeemed by April 15, 2024[19][21] - Common stock increased significantly due to the sale of 11,146 thousand shares, generating $28.7 million in net proceeds during the six months ended June 30, 2025[21] UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS The unaudited condensed consolidated statements of cash flows show that while operating activities continued to use cash, significant cash was provided by financing activities, primarily from the sale of common shares, resulting in a substantial net increase in cash, cash equivalents, and restricted cash for the six months ended June 30, 2025 Unaudited Condensed Consolidated Statements of Cash Flows Highlights (In thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(12,137) | $(9,808) | | Net cash used in investing activities | $(656) | $(215) | | Net provided by financing activities | $28,444 | $9,847 | | NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | $15,651 | $(176) | | CASH, CASH EQUIVALENTS AND RESTRICTED CASH, ENDING | $25,987 | $10,956 | - Net cash provided by financing activities increased by $18.6 million, primarily due to proceeds from the sale of common shares in 2025[23] - The company's ending cash, cash equivalents, and restricted cash significantly increased from $11.0 million in 2024 to $26.0 million in 2025[23] NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS These notes provide detailed explanations and breakdowns for various financial statement line items, accounting policies, business acquisitions, commitments, and related party transactions, offering crucial context for the condensed consolidated financial statements 1. Organization and Description of the Business Insight Molecular Diagnostics Inc. (iMDx) is a diagnostics technology company focused on organ transplant and oncology, which recently changed its name and relocated its headquarters. The company has incurred operating losses but believes it has sufficient liquidity for the next twelve months, supported by recent financing and commercialization efforts for its GraftAssureCore and GraftAssureIQ products - iMDx's mission is to democratize access to novel molecular diagnostic testing to improve patient outcomes, with an intellectual property portfolio in organ transplant, oncology therapy selection, and oncology therapy monitoring[25] - In June 2025, the company changed its name from 'Oncocyte Corporation' to 'Insight Molecular Diagnostics Inc.' and moved its headquarters from Irvine, California, to Nashville, Tennessee[26] - GraftAssureCore (Kidney) received a positive coverage decision from MolDx in August 2023, became commercially available in January 2024, and received a boosted reimbursement rate of $2,753 per result in May 2025[29] - The company began commercializing GraftAssureIQ (RUO kitted test) in July 2024 and sold its first kits in May 2025, with plans to commercialize its oncology product line, including DetermaIO, over the next 9 months[29][30] - iMDx had an accumulated deficit of $367.0 million as of June 30, 2025, but management believes it has sufficient cash to meet projected operating requirements for at least the next twelve months following a $29.1 million gross proceeds offering in February 2025[28][32][36] 2. Summary of Significant Accounting Policies This note details the company's accounting practices, including GAAP compliance, principles of consolidation, use of estimates, segment reporting (single segment), fair value measurements (Level 1, 2, 3 inputs), revenue recognition (five-step model), and stock-based compensation. It also covers recent accounting pronouncements and income tax policies, noting a full valuation allowance - The financial statements are prepared in accordance with U.S. GAAP, and the company operates as one reportable segment[37][42] - Fair value measurements utilize a hierarchy of inputs (Level 1, 2, 3), with contingent consideration liabilities being Level 3 due to unobservable inputs[43][49][52] - Revenue is recognized when control of goods or services is transferred to customers, following a five-step model, with Laboratory Services, Laboratory Developed Test Services, and Kitted Products as revenue types[71][72][73][74][78][79] - Stock-based compensation expense is recognized over the vesting period, with fair value estimated using the Black-Scholes model for time-based options and Monte Carlo simulation for market/performance-based awards[91][92][93] - The company did not record any income tax provision or benefit due to a full valuation allowance against deferred tax assets for all periods presented[98][99] 3. Business Combinations and Contingent Consideration Liabilities This note details the contingent consideration liabilities arising from the acquisitions of Insight Genetics, Inc. (IGI) and Chronix Biomedical, Inc., which are measured at fair value using Level 3 inputs. The fair value of these liabilities is reassessed periodically, leading to changes recorded in the consolidated statements of operations - Contingent consideration for the IGI Merger includes Milestone Contingent Consideration (Milestone 1, 2, 3) and Royalty Contingent Consideration, with contractual values up to $6.0 million for milestones[107][108][109] - The fair value of IGI contingent consideration decreased by approximately $73 thousand for the six months ended June 30, 2025, primarily due to revised estimates of future payouts[111] - Chronix contingent consideration involves earnout payments of 10% of net collections for specified tests and products, and 5% of gross proceeds from patent sales[114] - The fair value of Chronix contingent consideration increased by approximately $3.8 million for the six months ended June 30, 2025, due to revised estimates of future payouts[115] Contingent Consideration Fair Value (In thousands) | Acquisition | Balance at Dec 31, 2024 | Change in Estimated Fair Value (6M 2025) | Balance at June 30, 2025 | | :---------- | :---------------------- | :--------------------------------------- | :----------------------- | | IGI | $2,593 | $(73) | $2,520 | | Chronix | $35,346 | $3,756 | $39,102 | | Total | $37,939 | $3,683 | $41,622 | 4. Property and Equipment, Net This note provides a breakdown of the company's property and equipment, net, which includes right-of-use and financing lease assets, machinery, equipment, and construction in progress. The total value increased slightly from December 2024 to June 2025, with associated depreciation and amortization expenses Property and Equipment, Net (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------------------------------- | :------------ | :---------------- | | Right-of-use and financing lease assets | $4,703 | $5,323 | | Machinery, equipment and leasehold improvements | $9,860 | $8,366 | | Accumulated depreciation and amortization | $(8,153) | $(7,705) | | Right-of-use and financing lease assets and machinery and equipment, net | $6,410 | $5,984 | | Construction in progress | $263 | $340 | | Total | $6,673 | $6,324 | - Property and equipment depreciation and amortization expense was $1.0 million for the six months ended June 30, 2025, up from $617 thousand in the prior year[120] 5. Intangible Assets, Net This note details the company's intangible assets, primarily acquired In-Process Research and Development (IPR&D) related to DetermaIO and DetermaCNI, and customer relationships. Significant impairment losses were recorded in 2024 for oncology-related IPR&D, but no new impairments occurred in 2025 Intangible Assets, Net (In thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Acquired IPR&D - DetermaIO | $2,900 | $2,900 | | Acquired IPR&D - DetermaCNI | $11,700 | $11,700 | | Acquired intangible assets - customer relationship | $440 | $440 | | Total intangible assets | $15,040 | $15,040 | | Accumulated amortization - customer relationship | $(440) | $(433) | | Intangible assets, net | $14,600 | $14,607 | - The company recorded total impairment losses of $41.9 million related to DetermaIO and DetermaCNI IPR&D in 2024, but no such impairments in 2025[121][274] - Amortization of customer relationship intangible assets, included in cost of revenues, became fully amortized in the first quarter of 2025[123][231] 6. Commitments and Contingencies This note outlines the company's various commitments and contingencies, including office and facilities leases in Irvine (subleased) and Nashville, financing leases for equipment, and potential liabilities from litigation, tax filings, employment contracts, and indemnification agreements - The Irvine office lease, which served as the principal executive office until June 2025, is subleased, and a $1.7 million letter of credit (backed by restricted cash) will be reduced monthly starting July 2025[124][125][129][130][131] - The Nashville CLIA-certified laboratory and office space leases were renewed and expanded in January 2024, with an aggregate of 10,681 square feet and increasing base monthly rent[135][136] Future Minimum Lease Commitments (In thousands) | Year Ending December 31, | Operating Leases | Financing Leases | | :----------------------- | :--------------- | :--------------- | | 2025 | $577 | $275 | | 2026 | $1,182 | $507 | | 2027 | $696 | $299 | | 2028 | — | $31 | | Total minimum lease payments | $2,455 | $1,112 | - The company is involved in a dispute regarding a claimed milestone payment obligation related to its DetermaIO immuno-oncology assay for breast cancer, which it strongly disputes[143] - Accrued severance obligations of approximately $2.3 million related to the Chronix acquisition are classified as current and noncurrent contingent consideration[145] 7. Series A Redeemable Convertible Preferred Stock and Shareholders' Equity This note details the company's equity structure, including the full redemption of Series A Preferred Stock in April 2024, and significant common stock issuances through various offerings in April 2024, October 2024, and February 2025, which raised substantial capital. It also covers outstanding common stock purchase warrants - All 5,882 shares of Series A Redeemable Convertible Preferred Stock were redeemed by April 15, 2024, for approximately $5.4 million[152] - The April 2024 Offering generated approximately $15.8 million in gross proceeds from the sale of common stock and pre-funded warrants[156][158] - The October 2024 Offering generated approximately $10.2 million in gross proceeds from the sale of 3,461,138 shares of common stock[163][164] - The February 2025 Offering generated approximately $29.1 million in aggregate gross proceeds from the sale of common stock and pre-funded warrants[165][167][169] - As of June 30, 2025, the company had 760,866 common stock purchase warrants outstanding, with exercise prices ranging from $30.60 to $109.20 per share and a weighted average remaining life of 1.82 years[171] 8. Stock-Based Compensation This note details the company's equity incentive plans, including the 2018 Incentive Plan, and the stock-based compensation expense recognized for options and restricted stock units (RSUs). It also outlines the valuation methodologies and assumptions used - As of June 30, 2025, 4,060,000 aggregate shares of common stock were reserved for issuance under equity incentive plans, with 1,822,912 shares available for grant[176] - Total stock-based compensation expense was $977 thousand for the six months ended June 30, 2025, compared to $804 thousand in the prior year[183] Stock-Based Compensation Expense by Category (In thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $173 | $202 | $368 | $409 | | Sales and marketing | $42 | $41 | $80 | $83 | | General and administrative | $289 | $147 | $529 | $314 | | Total | $504 | $386 | $977 | $804 | - The weighted average grant date fair value of RSUs granted during the six months ended June 30, 2025, was $3.16 per unit[180] - Unrecognized stock-based compensation expense as of June 30, 2025, was $3.4 million, to be amortized over a weighted average remaining recognition period of 2.84 years[183] 9. Related Party Transactions This note discloses various financing transactions with related parties, including Broadwood, AWM, and Bio-Rad, through common stock and warrant offerings. It also details operational transactions with Bio-Rad, highlighting the company's dependence on this strategic partner for development and commercialization of transplant products - Broadwood, AWM, and Bio-Rad participated in multiple common stock and pre-funded warrant offerings, including the April 2024, October 2024, and February 2025 offerings, contributing significantly to capital raises[189][190][191] - During the six months ended June 30, 2025, the company purchased $1.1 million in laboratory equipment and incurred $215 thousand in laboratory-related costs from Bio-Rad[192] - As of June 30, 2025, the company had accounts payable due to Bio-Rad of $757 thousand[194] - The company entered into a global strategic partnership with Bio-Rad in April 2024 for the development and commercialization of RUO and IVD kitted transplant products, making the company dependent on Bio-Rad for ongoing operations and future performance[195][254] 10. Collaborative Arrangement This note details the 10-year Collaboration Agreement with Bio-Rad for the development and commercialization of RUO and IVD kitted transplant products. The agreement outlines shared responsibilities for development, marketing, and sales, including royalty payments to Bio-Rad and the establishment of pilot study sites - The Collaboration Agreement with Bio-Rad, effective April 5, 2024, is for a 10-year term, focusing on developing GraftAssureIQ™ RUO Assays and GraftAssureDx™ IVD Kits[196][197] - iMDx is responsible for manufacturing and supplying RUO Assays, while Bio-Rad supplies ddPCR instruments and reagents. They co-promote in the US and Germany, with Bio-Rad having exclusive sales rights outside the Territory[198] - Bio-Rad has a 90-day exclusive negotiating period post-regulatory clearance for worldwide IVD Kit promotion, marketing, and sales, with an option to purchase additional common stock[199] - A Memorandum of Understanding in November 2024 established additional activities for pilot study sites outside the Territory for RUO Assays, with iMDx selling and supporting sites and paying royalties to Bio-Rad[200][201] 11. Segment Reporting The company operates as a single reportable segment focused on the research, development, and commercialization of diagnostic tests. This note provides disaggregated revenue and long-lived tangible asset information by geographic area, highlighting the concentration of revenues in the United States - The company operates and reports its results in one reportable segment, which includes the research, development, and commercialization of diagnostic tests[203] Revenues by Geographic Area (In thousands) | Geographic Area | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $494 | $67 | $2,632 | $89 | | Europe | $24 | — | $24 | — | | United Kingdom | — | — | — | $45 | | Asia-Pacific | — | $37 | — | $146 | | Total net revenues | $518 | $104 | $2,656 | $280 | Long-Lived Tangible Assets by Geographic Area (In thousands) | Geographic Area | June 30, 2025 | December 31, 2024 | | :---------------- | :------------ | :---------------- | | United States | $4,716 | $5,543 | | Europe | $1,356 | $611 | | United Kingdom | $485 | — | | Asia-Pacific | $116 | $170 | | Total | $6,673 | $6,324 | 12. Subsequent Events Management has evaluated subsequent events through the financial statement issuance date and determined that no events or transactions require disclosure - No events or transactions requiring disclosure occurred after the reporting period through the date the consolidated financial statements were issued[209] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, liquidity, and capital resources, including an overview of the business, recent developments, detailed analysis of operating results, and critical accounting estimates. It highlights significant revenue growth, increased operating expenses, and ongoing capital needs Overview Insight Molecular Diagnostics Inc. (iMDx) is a pioneering diagnostics technology company focused on democratizing access to molecular diagnostic testing, primarily through developing test kits for organ transplant and oncology. The company has achieved commercial milestones for its GraftAssureCore (Kidney) and GraftAssureIQ products and is advancing its oncology pipeline, including DetermaIO - iMDx's mission is to democratize access to novel molecular diagnostic testing to improve patient outcomes, focusing on developing molecular diagnostic test kits for customers like hospitals and transplant centers[212][213][215] - The company's intellectual property portfolio spans organ transplant, oncology therapy selection, and oncology therapy monitoring, developing both laboratory developed tests (LDTs) and kitted research-use-only (RUO) and clinical tests[218] - GraftAssureCore (Kidney) is commercially available and received a boosted Medicare reimbursement rate of $2,753 per result in May 2025. GraftAssureIQ (RUO) began commercialization in July 2024, with first kits sold in May 2025[219][220] - DetermaIO, an oncology test for checkpoint inhibitor response, is in development, with commercialization of the oncology product line expected over the next 9 months[223] Recent Developments Recent developments include the successful February 2025 Offering, which raised approximately $28.7 million in net proceeds, and the company's rebranding to Insight Molecular Diagnostics Inc. (IMDX) along with the relocation of its headquarters to Nashville, Tennessee - The February 2025 Offering generated approximately $29.1 million in gross proceeds and $28.7 million in net proceeds from the sale of common stock and pre-funded warrants[227] - In June 2025, the company changed its name from 'Oncocyte Corporation' to 'Insight Molecular Diagnostics Inc.' and its Nasdaq trading symbol to 'IMDX'[228] - The company relocated its headquarters from Irvine, California, to Nashville, Tennessee, in June 2025[228] Results of Operations The company experienced significant revenue growth for both the three and six months ended June 30, 2025, primarily from Laboratory Services and Kitted Products. However, this was offset by substantial increases in operating expenses, particularly in research and development, sales and marketing, and a significant loss from the change in fair value of contingent consideration, leading to an increased net loss Summary Results of Operations A high-level comparison of key financial metrics shows substantial revenue growth but also increased net loss due to rising operating expenses and contingent consideration adjustments Summary Results of Operations (In thousands, except percentage change values) | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Net revenue | $518 | $104 | 398% | $2,656 | $280 | 849% | | Loss from operations | $(9,842) | $(4,632) | 112% | $(16,641) | $(13,899) | 20% | | Net loss | $(9,742) | $(4,530) | 115% | $(16,413) | $(13,659) | 20% | Results of Operations – Three Months Ended June 30, 2025 Compared with the Three Months Ended June 30, 2024 For the three months ended June 30, 2025, net revenue increased significantly by $414 thousand, driven by Laboratory Services and Kitted Products. However, net loss increased by $5.2 million, primarily due to a $3.8 million change in fair value of contingent consideration (from a gain to a loss) and higher operating expenses, particularly in R&D and S&M - Net revenue increased to $518 thousand (398% increase) for the three months ended June 30, 2025, primarily from Laboratory Services ($493 thousand) and first Kitted Products revenue ($24 thousand)[230][231] - Net loss increased by $5.2 million to $9.7 million, mainly due to a $3.8 million negative change in fair value of contingent consideration (from a $1.0 million gain in 2024 to a $2.8 million loss in 2025) and increased operating expenses[231][233] - Research and development expenses increased by $828 thousand (34%), driven by higher facilities and insurance costs, and professional fees[231] - Sales and marketing expenses increased by $607 thousand (71%), attributable to ramp-up in transplant business activities and oncology commercialization efforts[233] Results of Operations – Six Months Ended June 30, 2025 Compared with the Six Months Ended June 30, 2024 For the six months ended June 30, 2025, total net revenue surged to $2.7 million, primarily from Laboratory Services. However, net loss increased by $2.8 million to $16.4 million, driven by higher operating expenses across R&D, S&M, and G&A, and a larger loss from the change in fair value of contingent consideration - Total net revenue increased to $2.7 million (849% increase) for the six months ended June 30, 2025, primarily from Laboratory Services ($2.6 million) and Kitted Products ($24 thousand)[232][234] - Net loss increased by $2.8 million to $16.4 million, mainly due to increased operating expenses and a $3.7 million loss from the change in fair value of contingent consideration[233][234] - Research and development expenses increased by $1.4 million (30%), driven by facilities and insurance costs, professional fees, and laboratory costs[234] - Sales and marketing expenses increased by $967 thousand (57%), due to ramp-up in transplant business activities, marketing, advertising, and travel[234] - General and administrative expenses increased by $682 thousand (13%), primarily from personnel-related expenses and stock-based compensation[234] Revenues Revenue growth was primarily driven by Laboratory Services, which saw a substantial increase, and the introduction of Kitted Products revenue in 2025, while Laboratory Developed Test Services revenue declined Revenues by Type (In thousands, except percentage change values) | Revenue Type | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :-------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Laboratory Services | $494 | $104 | 375% | $2,632 | $258 | 920% | | Laboratory Developed Test Services | — | — | — | — | $22 | (100)% | | Kitted Products | $24 | — | 100% | $24 | — | 100% | | Total | $518 | $104 | 398% | $2,656 | $280 | 849% | - Laboratory Services revenue increased by $2.374 million (920%) for the six months ended June 30, 2025, primarily from one existing customer[235] - Kitted Products revenue of $24 thousand was recognized for the first time in 2025 from GraftAssureIQ RUO kitted tests[235][237] Cost of Revenues Cost of revenues increased due to higher labor and allocated overhead associated with performing Laboratory Services, reflecting the growth in revenue-generating activities - Cost of revenues increased by $136 thousand for the three months and $833 thousand for the six months ended June 30, 2025, primarily due to labor and allocated overhead for Laboratory Services[231][234] - Components of cost of revenues include materials, direct labor, equipment and infrastructure expenses, clinical sample costs, and amortization of acquired intangible assets[238] Research and Development Expenses Research and development expenses increased significantly, driven by higher facilities and insurance costs, professional fees, and laboratory supplies, as the company continues to develop its GraftAssure and DetermaIO product lines Research and Development Expenses (In thousands, except percentage change values) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Facilities and insurance | $685 | $194 | 253% | $1,345 | $380 | 254% | | Professional fees, legal, and outside services | $368 | $35 | 951% | $575 | $269 | 114% | | Laboratory supplies and expenses | $557 | $555 | 0% | $1,013 | $802 | 26% | | Total | $3,281 | $2,453 | 34% | $6,205 | $4,765 | 30% | - R&D expenses increased by $828 thousand (34%) for the three months and $1.4 million (30%) for the six months ended June 30, 2025, as development continues for GraftAssureCore, GraftAssureIQ, GraftAssureDx, DetermaIO, and DetermaCNI[239] - The company expects to continue incurring significant R&D expenses, including for a clinical trial in conjunction with its IVD submission in 2025 for transplant products[240] Sales and Marketing Expenses Sales and marketing expenses increased substantially, driven by higher personnel-related costs, depreciation, marketing, and travel, reflecting intensified commercialization efforts for transplant and oncology products Sales and Marketing Expenses (In thousands, except percentage change values) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :-------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Personnel-related expenses | $770 | $600 | 28% | $1,534 | $1,215 | 26% | | Depreciation and amortization | $145 | $1 | 100% | $255 | $1 | 100% | | Marketing and advertising | $159 | $44 | 261% | $224 | $82 | 173% | | Travel and entertainment | $168 | $100 | 68% | $284 | $142 | 100% | | Total | $1,460 | $853 | 71% | $2,666 | $1,699 | 57% | - S&M expenses increased by $607 thousand (71%) for the three months and $967 thousand (57%) for the six months ended June 30, 2025, due to ramp-up in sales, marketing, and advertising for the transplant business and oncology commercialization[241] - Future S&M expenses are expected to increase as product development completes and commercialization efforts for DetermaIO, GraftAssureIQ, GraftAssureCore, GraftAssureDx, and DetermaCNI intensify, contingent on capital and reimbursement approvals[242] General and Administrative Expenses General and administrative expenses increased, primarily driven by higher personnel-related expenses, board fees, and stock-based compensation, partially offset by decreases in professional fees and facilities costs General and Administrative Expenses (In thousands, except percentage change values) | Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | % Change (3M) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | % Change (6M) | | :------------------------------------ | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Personnel-related expenses and board fees | $1,227 | $901 | 36% | $2,468 | $1,917 | 29% | | Stock-based compensation | $289 | $147 | 97% | $529 | $314 | 68% | | Professional fees, legal, and outside services | $657 | $880 | (25)% | $1,702 | $1,738 | (2)% | | Total | $2,647 | $2,407 | 10% | $5,762 | $5,080 | 13% | Change in Fair Value of Contingent Consideration The change in fair value of contingent consideration resulted in a significant loss for both the three and six months ended June 30, 2025, compared to the prior year, reflecting reassessments of key assumptions and future payout estimates related to business acquisitions - The change in fair value of contingent consideration resulted in a loss of $2.8 million for the three months ended June 30, 2025 (compared to a $1.0 million gain in 2024), and a loss of $3.7 million for the six months ended June 30, 2025 (compared to a $2.3 million loss in 2024)[229][233][234] - These changes are based on reassessments of key assumptions and revised estimates on the timing and likelihood of future payouts under the IGI and Chronix merger agreements[244] Other Income and Expenses Other income and expenses primarily consist of interest income from money market funds and interest expense from financing lease obligations and insurance financing activity - Total other income, net, decreased by $2 thousand for the three months and $12 thousand for the six months ended June 30, 2025, primarily due to additional interest expense related to financing leases[229][233][234] - Interest income is earned from money market funds, while interest expense arises from financing lease obligations and insurance financing[245] Income Taxes The company did not record any income tax provision or benefit for the periods presented due to a full valuation allowance against its deferred tax assets, reflecting the uncertainty of realizing future tax benefits from net operating loss carry-forwards - No provision or benefit for income taxes was recorded for the three and six months ended June 30, 2025 and 2024, due to a full valuation allowance[246][247] - A full valuation allowance was established due to the uncertainty of realizing future tax benefits from net operating loss carry-forwards and other deferred tax assets[247] Inflation The company acknowledges potential inflationary pressures on personnel, laboratory supplies, inventory, and vendor costs, which could diminish purchasing power, increase expenses, and impact capital resources, especially if reimbursement rates do not keep pace - The company may experience inflationary pressures on personnel costs, laboratory supplies, raw materials, and essential vendor fees[248] - Elevated inflation could diminish the purchasing power of cash, increase expenses faster than anticipated, and lead to earlier utilization of capital resources[248] - Payers may be unwilling or unable to increase reimbursement rates to compensate for inflationary impacts, potentially adversely affecting results of operations, financial condition, and cash flows[248] Liquidity and Capital Resources The company has historically financed operations through equity sales and continues to incur operating losses and negative cash flows, resulting in an accumulated deficit. Despite this, management believes recent financing, including the February 2025 Offering, provides sufficient cash for the next twelve months. However, ongoing capital raises will be necessary to fund development and commercialization efforts, with risks of dilution and dependence on strategic partnerships like Bio-Rad - iMDx had an accumulated deficit of $367.0 million and $24.3 million in cash and cash equivalents as of June 30, 2025[250] - The February 2025 Offering generated approximately $28.7 million in net proceeds, which management believes provides sufficient cash for at least the next twelve months[251][250] - The remaining $1.7 million restricted cash balance, related to the Irvine office lease, will be reduced monthly starting July 2025[252] - The company relies on its global strategic partnership with Bio-Rad for the development and commercialization of RUO and IVD kitted transplant products[254] - Future capital raises will be necessary to finance operations, including development and commercialization of diagnostic tests, and to meet contingent payment obligations, with potential risks of shareholder dilution and financing availability[257][258] Cash Flow from Operating Activities Net cash used in operating activities increased for the six months ended June 30, 2025, primarily due to higher operating expenses and a larger net loss, partially offset by non-cash adjustments like depreciation, stock-based compensation, and the change in fair value of contingent consideration - Net cash used in operating activities was $12.1 million for the six months ended June 30, 2025, compared to $9.8 million in the prior year[260][261] - Key non-cash items for the six months ended June 30, 2025, included $1.1 million in depreciation and amortization, $977 thousand in stock-based compensation, and a $3.7 million loss from the change in fair value of contingent consideration[260] Cash Flow from Investing Activities Net cash used in investing activities increased for the six months ended June 30, 2025, primarily due to increased purchases of machinery, equipment, and construction in progress - Net cash used in investing activities was $656 thousand for the six months ended June 30, 2025, up from $215 thousand in the prior year[263] - This increase was driven by cash paid for construction in progress and purchases of machinery and equipment[263] Cash Flow from Financing Activities Net cash provided by financing activities significantly increased for the six months ended June 30, 2025, primarily due to substantial net proceeds from the February 2025 Offering, partially offset by financing lease repayments - Net cash provided by financing activities was $28.4 million for the six months ended June 30, 2025, a substantial increase from $9.8 million in the prior year[264][265] - The primary driver was $28.7 million in net cash proceeds from the February 2025 Offering, partially offset by $212 thousand in repayments of financing lease obligations[264] Critical Accounting Estimates This section identifies and explains the critical accounting estimates that involve significant judgment and estimation uncertainty, including going concern assessment, contingent consideration liabilities, intangible assets, impairment of long-lived assets, revenue recognition, stock-based compensation, and income taxes - Critical accounting estimates include Going Concern Assessment, Contingent Consideration Liabilities, Intangible Assets, Impairment of Long-Lived Assets, Revenue Recognition and Allowance for Credit Losses, Stock-Based Compensation, and Income Taxes[268] Going Concern Assessment The company assesses its ability to continue as a going concern for at least one year from the financial statement issuance date, considering various scenarios and potential expenditure curtailments. Management believes it has sufficient cash for the next twelve months - Management evaluates going concern uncertainty by assessing cash, working capital, and ability to operate for at least one year, considering scenarios, forecasts, and potential expenditure curtailments[267] - Based on this assessment, management believes it will have sufficient cash to meet projected operating requirements for at least the next twelve months[250][267] Contingent Consideration Liabilities Contingent consideration liabilities, arising from business acquisitions, are recorded at fair value using scenario analysis for milestone-based payments and single scenario analysis for royalty/revenue share-based payments. Changes in fair value are recognized in the consolidated statements of operations - Contingent consideration is estimated and recorded at fair value as of the acquisition date, representing obligations for future payments based on milestones or revenue achievements[269] - Milestone-based contingent consideration is valued using a scenario analysis, while royalty/revenue share-based consideration uses a single scenario analysis, both incorporating significant management judgment and assumptions[270][271] - Changes in the fair value of contingent consideration resulted in losses of $3.7 million and $2.3 million for the six months ended June 30, 2025 and 2024, respectively[272] Intangible Assets In-Process Research and Development (IPR&D) intangible assets are capitalized and tested for impairment annually or when circumstances indicate a reduction in fair value. Significant impairment losses were recorded in 2024 for oncology-related IPR&D - IPR&D projects acquired in business combinations are capitalized as indefinite-lived intangible assets and tested for impairment annually or when indicators exist[273] - Factors for potential impairment include adverse clinical trial results, delays in regulatory approvals or reimbursement, and competitive advancements[273] - A total impairment of $41.9 million was recorded in 2024 for oncology-related IPR&D (DetermaIO and DetermaCNI), with no impairments in 2025[274] Impairment of Long-Lived Assets The company assesses long-lived assets for impairment when events or changes in circumstances indicate that their carrying amount may not be recoverable. An impairment loss of $169 thousand was recognized in 2024 for held-for-sale assets - Impairment of long-lived assets (right-of-use assets, machinery, equipment, finite-lived intangibles) is assessed when events indicate carrying value may not be recoverable[275] - An impairment loss of $169 thousand on held-for-sale assets was recognized during the six months ended June 30, 2024, with no such impairments in 2025[275] Revenue Recognition and Allowance for Credit Losses Revenue from Laboratory Services is recognized upon completion of service, either on a time and materials or per test basis. Kitted Products revenue is recognized from RUO tests. An allowance for credit losses is established based on collectability factors and historical experience - Laboratory Services revenue is recognized upon completion of service, either on a time and materials basis or per test completed, with performance obligations satisfied by delivery of reports or tests[276] - Kitted Products revenue is recognized from GraftAssureIQ RUO kitted tests sold to research laboratory customers[79] - An allowance for credit losses is established for Laboratory Services accounts receivables, considering factors like past due status, customer's ability to pay, and historical experience[277] - As of June 30, 2025, the allowance for credit losses related to Laboratory Services was $5 thousand[277] Stock-Based Compensation Stock-based compensation expense is recognized based on estimated fair values of awards, using the Black-Scholes model for time-based options and Monte Carlo simulation for market/performance-based awards. These valuations rely on complex and subjective variables - Compensation expense for share-based payment awards is recognized based on estimated fair values over the requisite service period[278] - The Black-Scholes model is used for time-based options, while the Monte Carlo simulation model is used for market-based and time-based vesting conditions, incorporating variables like expected volatility and term[278] - Total stock-based compensation recognized was $977 thousand for the six months ended June 30, 2025, and $804 thousand for the same period in 2024[278] Income Taxes Income taxes are accounted for using the asset and liability method, with deferred tax assets reduced by a full valuation allowance due to uncertainty of realization. No income tax provision or benefit was recorded for the periods presented - Income taxes are accounted for using the asset and liability method, with deferred tax asset/liability balances calculated using current tax laws and rates[279] - A full valuation allowance is established to reduce deferred tax assets when their realization is not more-likely-than-not, leading to no income tax provision or benefit for the periods presented[279][280] - The company is currently unaware of any uncertain tax positions that could result in significant additional payments or accruals[280] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Insight Molecular Diagnostics Inc. is not required to provide quantitative and qualitative disclosures about market risk - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a smaller reporting company under SEC rules[281] Item 4. Controls and Procedures This section confirms management's evaluation of the effectiveness of the company's disclosure controls and procedures and states that there were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures Management, including the principal executive and financial officers, reviewed and concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period - Management, including the principal executive officer and principal financial officer, determined that the company's disclosure controls and procedures are effective as of June 30, 2025[282] Changes in Internal Controls There were no changes in the company's internal control over financial reporting during the quarterly period that materially affected or are reasonably likely to materially affect it - No changes in internal control over financial reporting occurred during the quarterly period that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[283] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material pending litigation, though it is disputing a claim regarding a milestone payment obligation related to its DetermaIO assay - The company is not presently involved in any material pending litigation or proceedings[285] - A letter was received on March 3, 2025, claiming a milestone payment obligation for the DetermaIO immuno-oncology assay, which the company strongly disputes[143] Item 1A. Risk Factors This section highlights key risks, including the need for FDA and other regulatory approvals for IVDs, the potential reclassification of LDTs as IVDs, and the critical dependence on Medicare reimbursement for products like GraftAssureCore (Kidney), with a new draft LCD proposing caps on surveillance tests - The company will need to obtain FDA and other regulatory approvals for any IVDs developed, or if currently marketed products are reclassified as IVDs, which could lead to withdrawal from the market[287] - Commercialization is dependent on increasing Medicare reimbursement for tests, and any loss or significant reduction in reimbursement would materially impact the business[290] - A new 'MolDX: Molecular Testing for Solid Organ Allograft Rejection' draft LCD (L38671) published on July 17, 2025, proposes capping surveillance tests for kidney, heart, and lung, which could impact future reimbursement[295] - Any decision by CMS or its local contractors to reduce or deny coverage for tests would significantly adversely affect revenue, results of operations, and ability to raise capital[298] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company issued unregistered common stock to consulting firms, PCG Advisory, Inc. and LifeSci Advisors, LLC, in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act - On April 24, 2025, 10,620 shares of common stock were issued to PCG Advisory, Inc[299] - On April 24, May 27, June 24, and July 24, 2025, a total of 9,844 shares were granted to LifeSci Advisors, LLC[299] - These shares were issued without registration under the Securities Act in reliance on the exemption from registration under Section 4(a)(2)[299] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[301] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[302] Item 5. Other Information The company reported no other information requiring disclosure under this item - No other information is reported under this item[303] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, warrant forms, securities purchase agreements, and certifications - Key exhibits include the Certificate of Ownership and Third Amended and Restated Bylaws (filed June 17, 2025), Form of Pre-Funded Warrant (filed February 10, 2025), and Securities Purchase Agreements (dated February 7, 2025)[304] - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14 and 18 U.S.C. Section 1350 are filed herewith[304][305] SIGNATURES Report Signatures The report is duly signed on behalf of Insight Molecular Diagnostics Inc. by its President and Chief Executive Officer, Joshua Riggs, and Chief Financial Officer, Andrea James, on August 11, 2025 - The report was signed by Joshua Riggs, President and Chief Executive Officer (Principal Executive Officer), and Andrea James, Chief Financial Officer (Principal Financial Officer), on August 11, 2025[309]