Oncocyte Corp

Previous wording

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Current wording

Item 2. Management’s Disc ussion and Analysis of Financial Condition and Results of Operations.

Previous wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our consolidated financial statements for the three and six months ended June 30, 2024 and 2023 included elsewhere in this Report, and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. These historical consolidated financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly under Risk Factors in this Report and those Risk Factors in Part I, Item 1A of our most recent Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. For additional information, refer to the section above entitled “Cautionary Note Regarding Forward-Looking Statements.”

Current wording

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information necessary to understand our consolidated financial statements for the three and nine months ended September 30, 2024 and 2023 included elsewhere in this Report, and highlight certain other information which, in the opinion of management, will enhance a reader’s understanding of our financial condition, changes in financial condition and results of operations. These historical consolidated financial statements may not be indicative of our future performance. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risks described throughout this filing, particularly under Risk Factors in this Report and those Risk Factors in Part I, Item 1A of our most recent Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. For additional information, refer to the section above entitled “Cautionary Note Regarding Forward-Looking Statements.”

Previous wording

We are a molecular diagnostics technology company focused on developing and commercializing proprietary tests in three areas: VitaGraft is a blood-based solid organ transplantation monitoring test, DetermaIO is a gene expression test that assesses the tumor microenvironment to predict response to immunotherapies, and DetermaCNI is a blood-based monitoring tool for monitoring therapeutic efficacy in cancer patients. Our mission is to democratize access to novel molecular diagnostic testing to improve patient outcomes.

Current wording

We are a diagnostics technology company. Our tests are designed to help provide clarity and confidence to physicians and their patients. VitaGraft™ is a clinical blood-based solid organ transplantation monitoring test, GraftAssure™ is a RUO blood-based donor-derived cell-free DNA test, DetermaIO™ is a gene expression test that assesses the tumor microenvironment to predict response to immunotherapies, and the pipeline test DetermaCNI™ is a blood-based monitoring tool for monitoring therapeutic efficacy in cancer patients.

Previous wording

Our customer institutions are hospitals, transplant centers, and labs. The decision to deploy our tests on behalf of patients or research studies come from front line doctors, including surgeons, nephrologists and oncologists, as well as researchers, pathologists, lab directors, medical directors, department heads, lab managers, and chief medical officers.

Current wording

Our customer institutions are hospitals, transplant centers, and labs. The decision to deploy our tests on behalf of patients or research studies comes from front line doctors, including surgeons, nephrologists and oncologists, as well as researchers, pathologists, lab directors, medical directors, department heads, lab managers, and chief medical officers.

Previous wording

In July 2024, we began to commercialize the technology underlying VitaGraft Kidney by distributing its sister product, GraftAssure, which is intended to be sold and used for research purposes, and is labeled as “Research Use Only,” or RUO. We expect to distribute our RUO production through a mix of direct sales, partnering and distribution agreements, and licensing. We have entered into an agreement with a global strategic partner to collaborate in the development and the commercialization of RUO and in vitro diagnostics kitted transplant products (see Note 10, “Collaborative Arrangements,” to our consolidated financial statements included elsewhere in this Report for additional information).

Current wording

In July 2024, we began to commercialize the technology underlying VitaGraft Kidney by distributing its sister product, GraftAssure, which is intended to be sold and used for research purposes and is labeled as RUO. We expect to distribute our RUO production through a mix of direct sales, partnering and distribution agreements, and licensing. We have entered into an agreement with Bio-Rad, our global strategic partner, to collaborate in the development and the commercialization of RUO and IVD kitted transplant products (see Note 10, “Collaborative Arrangements,” to our consolidated financial statements included elsewhere in this Report for additional information).

Previous wording

Under strict regulatory rules, our tests may not be used in a clinical treatment setting until they have attained In Vitro Diagnostic (“IVD”) approval from the Food and Drug Administration (“FDA”) in the U.S. and In Vitro Diagnostic Medical Devices Regulation approval in the European Union. As such, we are working with these regulatory bodies to attain such approval, supporting future distribution and higher sales of our products for clinical use.

Current wording

Under strict regulatory rules, our tests may not be used in a clinical treatment setting until they have attained IVD approval from the Food and Drug Administration (“FDA”) in the U.S. and In Vitro Diagnostic Medical Devices Regulation approval in the European Union. As such, we are working with these regulatory bodies to attain such approval, supporting future distribution and higher sales of our products for clinical use.

Previous wording

Our secondary strategic market is in the field of oncology – namely through diagnostic tests that can measure and predict which patients will best respond to certain types of therapies, as well as provide efficacy monitoring for therapies. For example, we are continuing to develop DetermaIO, a test with promising data supporting its potential to help identify patients likely to respond to checkpoint inhibitor drugs. This new class of drugs modulate the immune response and show activity in multiple solid tumor types including non-small cell lung cancer, and triple negative breast cancer. DetermaIO is currently available as part of an early access program with leaders in the immuno-oncology field. A kitted research product format of the underlying technology began proof-of-concept development in 2023. The application of immunotherapy is a global problem, so we expect partnering opportunities for each of our products as they reach clinical maturity.

Current wording

Our secondary strategic market is in the field of oncology – namely through diagnostic tests that can measure and predict which patients will best respond to certain types of therapies, as well as provide efficacy monitoring for therapies. For example, we are continuing to develop DetermaIO, a test with promising data supporting its potential to help identify patients likely to respond to checkpoint inhibitor drugs. This new class of drugs modulate the immune response and show activity in multiple solid tumor types including non-small cell lung cancer, and triple negative breast cancer. DetermaIO is currently available as part of an early access program with leaders in the immuno-oncology field. A kitted research product format of the underlying technology began proof-of-concept development in 2023. The application of immunotherapy is a global problem, so we expect partnering opportunities for each of our products as they reach clinical maturity. We also expect to begin commercializing our oncology product line, which includes DetermaIO, over the next 18 months.

Previous wording

On April 11, 2024, we entered into a private placement securities purchase agreement with certain accredited investors. The gross proceeds from the private placement were approximately $15.8 million. See Note 7, “Common Stock – April 2024 Offering,” to our consolidated financial statements included elsewhere in this Report for additional information.

Current wording

On April 15, 2024, we consummated the April 2024 Offering. The gross proceeds from the April 2024 Offering were approximately $15.8 million. See Note 7, “Common Stock – April 2024 Offering,” to our consolidated financial statements included elsewhere in this Report for additional information.

Previous wording

Revenues decreased to $104,000 for the three months ended June 30, 2024, as compared to $463,000 in the prior period, due to decreased revenues in Pharma Services.

Current wording

Revenues decreased to $115,000 for the three months ended September 30, 2024, as compared to $429,000 in the prior period. Decreased revenues in Pharma Services are the result of our shift in strategic focus on commercializing our transplant kitted tests, and deploying our sales personnel toward signing new hospital research laboratory customers.

Previous wording

Loss from continuing operations was $4.5 million for the three months ended June 30, 2024, compared to $8.3 million for the comparable prior period. The loss from continuing operations decrease of $3.8 million was mainly due to the change in fair value of contingent consideration, and the changes in Pharm Services revenue, operating expenses and other income and expenses from continuing operations as follows:

Current wording

Loss from continuing operations was $13.5 million for the three months ended September 30, 2024, compared to $6.5 million for the comparable prior period. The loss from continuing operations expanded by $7.0 million mainly due to the change in fair value of contingent consideration, and the changes in Pharma Services revenue, operating expenses and other income and expenses from continuing operations as follows:

Previous wording

Results of Operations – Six Months Ended June 30, 2024 Compared with the Six Months Ended June 30, 2023

Current wording

Results of Operations – Nine Months Ended September 30, 2024 Compared with the Nine Months Ended September 30, 2023

Previous wording

Loss from continuing operations was $13.7 million for the six months ended June 30, 2024, compared to $2.4 million for the comparable prior period. The loss from continuing operations increase of $11.3 million was mainly due to the change in fair value of contingent consideration, and the changes in Pharm Services revenue, operating expenses and other income and expenses from continuing operations as follows:

Current wording

Loss from continuing operations was $27.2 million for the nine months ended September 30, 2024, compared to $8.9 million for the comparable prior period. The loss from continuing operations expanded by $18.3 million mainly due to the change in fair value of contingent consideration, and the changes in Pharma Services revenue, operating expenses and other income and expenses from continuing operations as follows:

Previous wording

Other income and expenses are primarily comprised of interest income and expense, and unrealized gains/losses from marketable equity securities, which were sold in 2023 (see Note 2, “Marketable Equity Securities,” to our consolidated financial statements included elsewhere in this Report). Interest income is earned from money market funds we hold for capital preservation. Interest expense was incurred mainly from insurance financing activity and our financing lease obligations (see Note 6).

Current wording

Other income and expenses are primarily comprised of interest income and expense, and unrealized gains/losses from marketable equity securities, which were sold in 2023 (see Note 2, “Marketable Equity Securities,” to our consolidated financial statements included elsewhere in this Report). Interest income is earned from money market funds we hold for capital preservation. Interest expense was incurred mainly from our financing lease obligations (see Note 6) and insurance financing activity.

Previous wording

We did not record any provision or benefit for income taxes for the three and six months ended June 30, 2024 and 2023, as we had a full valuation allowance for the periods presented (see Note 2 to our consolidated financial statements included elsewhere in this Report).

Current wording

We did not record any provision or benefit for income taxes for the three and nine months ended September 30, 2024 and 2023, as we had a full valuation allowance for the periods presented (see Note 2 to our consolidated financial statements included elsewhere in this Report).

Previous wording

Since formation, we have financed our operations primarily through the sale of our common stock, preferred stock and warrants. We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $303.5 million as of June 30, 2024. At June 30, 2024, we had $9.3 million of cash and cash equivalents. We expect to continue to incur operating losses and negative cash flows for the near future. Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued (see Note 1).

Current wording

Since formation, we have financed our operations primarily through the sale of our common stock, preferred stock and warrants. We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $317.0 million as of September 30, 2024. At September 30, 2024, we had $3.4 million of cash and cash equivalents. On October 4, 2024, we raised additional capital as discussed below. We expect to continue to incur operating losses and negative cash flows for the near future. Our expectation to generate operating losses and negative operating cash flows in the future and the need for additional funding to support our planned operations raise substantial doubt regarding our ability to continue as a going concern for a period of one year after the date that the financial statements are issued (see Note 1).

Previous wording

On April 3, 2023, we entered into an agreement with certain members of our Board of Directors, and several institutional and accredited investors, including Broadwood, our largest shareholder, relating to their purchase of an aggregate of up to 2,278,121 shares of its common stock at an offering price of $7.08 per share to board members and $6.03 per share to the other investors participating in the offering (see Note 7). The offering was intended to be priced ‘at-the market’ for purposes of complying with applicable Nasdaq Listing Rules. The aggregate gross proceeds from the offering were approximately $13.9 million before deducting offering expenses payable by us. We used approximately $1.1 million of the net proceeds to immediately redeem an aggregate of 1,064 shares of our Series A Redeemable Convertible Preferred Stock.

Current wording

On April 3, 2023, we entered into an agreement with certain members of our Board of Directors, and several institutional and accredited investors, including Broadwood, our largest shareholder, relating to their purchase of an aggregate of up to 2,278,121 shares of our common stock at an offering price of $7.08 per share to board members and $6.03 per share to the other investors participating in the offering (see Note 7). The offering was intended to be priced at-the-market for purposes of complying with applicable Nasdaq Listing Rules. The aggregate gross proceeds from the offering were approximately $13.9 million before deducting offering expenses payable by us. We used approximately $1.1 million of the net proceeds to immediately redeem an aggregate of 1,064 shares of our Series A Redeemable Convertible Preferred Stock.

Previous wording

On April 11, 2024, we entered into a private placement securities purchase agreement with certain accredited investors. The resulting net proceeds were approximately $9.9 million, after deducting offering expenses of $538,000 and deducting $5.4 million for the redemption of all remaining shares of our Series A Redeemable Convertible Preferred Stock. These net proceeds are inclusive of an investment from Bio-Rad, our global strategic partner. See Note 7, “Common Stock – April 2024 Offering,” to our consolidated financial statements included elsewhere in this Report for additional information.

Current wording

On April 15, 2024, we consummated the April 2024 Offering. The resulting net proceeds were approximately $9.9 million, after deducting offering expenses of $538,000 and deducting $5.4 million for the redemption of all remaining shares of our Series A Redeemable Convertible Preferred Stock. These net proceeds are inclusive of an investment from Bio-Rad (see Note 9), our global strategic partner. See Note 7, “Common Stock – April 2024 Offering,” to our consolidated financial statements included elsewhere in this Report for additional information.

Previous wording

We expect that our general operating expenses will be commensurate with the market opportunity as we continue to manage our available cash. Although we intend to market our diagnostic tests in the United States through our own sales force, we are also beginning to make marketing arrangements with distributors in other countries. We may also explore a range of other commercialization options in order to enter overseas markets and to reduce our capital needs and expenditures, and the risks associated the timelines and uncertainty for attaining the Medicare reimbursement approvals that will be essential for the successful commercialization of additional cancer diagnostic tests. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which we might receive a licensing fee and royalty on sales, or through which we might form a joint venture to market one or more tests and share in net revenues, in the United States or abroad.

Current wording

We expect that our general operating expenses will be commensurate with the market opportunity as we continue to manage our available cash. Although we intend to market our diagnostic tests in the United States through our own sales force, we are also beginning to make marketing arrangements with distributors in other countries. We may also explore a range of other commercialization options in order to enter overseas markets and to reduce our capital needs and expenditures, and the risks associated with the timelines and uncertainty for attaining the Medicare reimbursement approvals that will be essential for the successful commercialization of additional cancer diagnostic tests. Those alternative arrangements could include marketing arrangements with other diagnostic companies through which we might receive a licensing fee and royalty on sales, or through which we might form a joint venture to market one or more tests and share in net revenues, in the United States or abroad.

Previous wording

In addition to sales and marketing expenses, we will incur expenses from leasing and improving our offices and laboratory facilities in Nashville, Tennessee. During the third quarter of 2023, we entered into a sublease arrangement for our main office in Irvine, California. On January 1, 2024, we expanded our Nashville facility by adding one new office lease and renewing and extending our existing leases. During the second and third quarters of 2024, we added four financing leases for certain laboratory equipment to be used in our Nashville facility. See Note 6, “Commitments and Contingencies,” to our consolidated financial statements included elsewhere in this Report for additional leasing information.

Current wording

In addition to sales and marketing expenses, we will incur expenses from leasing and improving our offices and laboratory facilities in Nashville, Tennessee. During the third quarter of 2023, we entered into a sublease arrangement for our main office in Irvine, California. In January 2024, we expanded our Nashville facility by adding one new office lease and renewing and extending our existing leases. During the second and third quarters of 2024, we added five financing leases for certain laboratory equipment to be used in our Nashville facility. See Note 6, “Commitments and Contingencies,” to our consolidated financial statements included elsewhere in this Report for additional leasing information.

Previous wording

We will need to continue to raise additional capital to finance our operations, including the development and commercialization of our diagnostic tests, and making payments that may become due under our obligations to former Chronix shareholders and former Insight shareholders, until such time as we are able to generate sufficient revenues to cover our operating expenses. Delays in our collaborative arrangement for the development and the commercialization of research use only and in vitro diagnostics kitted transplant products, or delays in obtaining regulatory approval to distribute our products for clinical use, or delays in the development of, or in obtaining reimbursement coverage from Medicare for DetermaIO and other future laboratory tests that we may develop or acquire, could prevent us from raising sufficient additional capital to finance the completion of development and commercial launch of those tests. Investors may be reluctant to provide us with capital until our tests are approved for reimbursement by Medicare or reimbursement by private healthcare insurers or healthcare providers, or until we begin generating significant amounts of revenue from performing those tests.

Current wording

We will need to continue to raise additional capital to finance our operations, including the development and commercialization of our diagnostic tests, and making payments that may become due under our obligations to former Chronix shareholders and former Insight shareholders, until such time as we are able to generate sufficient revenues to cover our operating expenses. Delays in our collaborative arrangement for the development and the commercialization of RUO and IVD kitted transplant products, or delays in obtaining regulatory approval to distribute our products for clinical use, or delays in the development of, or in obtaining reimbursement coverage from Medicare for DetermaIO and other future laboratory tests that we may develop or acquire, could prevent us from raising sufficient additional capital to finance the completion of development and commercial launch of those tests. Investors may be reluctant to provide us with capital until our tests are approved for reimbursement by Medicare or reimbursement by private healthcare insurers or healthcare providers, or until we begin generating significant amounts of revenue from performing those tests.

Previous wording

During the six months ended June 30, 2024, our total research and development expenses were $4.8 million, our sales and marketing expenses were $1.7 million, and our general and administrative expenses were $5.1 million. We also incurred $185,000 in total cost of revenues, including $44,000 amortization of intangible expenses. Consolidated net loss for the period was $13.7 million, and our consolidated net cash used in operating activities amounted to $9.8 million. Our cash used in operating activities during 2024 did not include the following noncash items: $661,000 in depreciation and amortization expenses, $804,000 in stock-based compensation, $96,000 in other equity compensation expenses, $2.3 million loss from change in fair value of contingent consideration, and $169,000 impairment loss on held for sale assets. Net changes in operating assets and liabilities for the period were $160,000 as an additional use of cash.

Current wording

During the nine months ended September 30, 2024, our total research and development expenses were $7.6 million, our sales and marketing expenses were $2.7 million, and our general and administrative expenses were $7.6 million. We also incurred $250,000 in total cost of revenues, including $66,000 amortization of intangible expenses. Consolidated net loss for the period was $27.2 million, and our consolidated net cash used in operating activities amounted to $15.4 million. Our cash used in operating activities during 2024 did not include the following noncash items: $1.0 million in depreciation and amortization expenses, $1.3 million in stock-based compensation, $110,000 in other equity compensation expenses, $9.4 million loss from change in fair value of contingent consideration, and $169,000 impairment loss on held for sale assets. Net changes in operating assets and liabilities for the period were $162,000 as an additional use of cash.

Previous wording

During the six months ended June 30, 2023, our total research and development expenses were $4.6 million, our sales and marketing expenses were $1.5 million, and our general and administrative expenses were $6.9 million. We also incurred $478,000 in total cost of revenues, including $44,000 amortization of intangible expenses. Consolidated net loss for the period was $5.3 million, and our consolidated net cash used in operating activities amounted to $15.1 million. Our cash used in operating activities during 2023 did not include the following noncash items: $929,000 in depreciation and amortization expenses, $1.7 million in stock-based compensation, $97,000 in unrealized gain on marketable equity securities, $16.5 million gain from change in fair value of contingent consideration, $5.0 million loss from an intangible asset impairment, $1.5 million loss on disposal of discontinued operations, and $1.3 million impairment loss on held for sale assets. Net changes in operating assets and liabilities for the period were $3.6 million as an additional use of cash.

Current wording

During the nine months ended September 30, 2023, our total research and development expenses were $6.7 million, our sales and marketing expenses were $2.2 million, and our general and administrative expenses were $9.4 million. We also incurred $659,000 in total cost of revenues, including $66,000 amortization of intangible expenses. Consolidated net loss for the period was $11.8 million, and our consolidated net cash used in operating activities amounted to $18.9 million. Our cash used in operating activities during 2023 did not include the following noncash items: $1.4 million in depreciation and amortization expenses, $2.3 million in stock-based compensation, $16.9 million gain from change in fair value of contingent consideration, $6.8 million loss from asset impairments, $1.5 million loss related to discontinued operations, $1.3 million loss on disposal and held for sale assets, $108,000 in other equity compensation expenses, and $8,000 in unrealized gain on marketable equity securities. Net changes in operating assets and liabilities for the period were $3.5 million as an additional use of cash.

Previous wording

During the six months ended June 30, 2024, net cash used in investing activities was $215,000 from cash paid for construction in progress and purchase of furniture and equipment.

Current wording

During the nine months ended September 30, 2024, net cash used in investing activities was $302,000 from cash paid for construction in progress and purchase of furniture and equipment.

Previous wording

During the six months ended June 30, 2023, net cash used in investing activities was $1.2 million primarily from cash sold in discontinued operations, partially offset by proceeds from the sale of equipment.

Current wording

During the nine months ended September 30, 2023, net cash used in investing activities was $1.0 million primarily from cash sold in discontinued operations, partially offset by proceeds from the sale of equipment.

Previous wording

During the six months ended June 30, 2024, net cash provided by financing activities was $9.8 million from $15.3 million of net cash proceeds from the sale of shares of common stock, partially offset by the redemption of our remaining Series A Preferred Stock of $5.4 million and repayments of financing lease obligations of $33,000.

Current wording

During the nine months ended September 30, 2024, net cash provided by financing activities was $9.6 million from $15.1 million of net cash proceeds from the April 2024 Offering and the August 2024 Offering, partially offset by the redemption of our remaining Series A Preferred Stock of $5.4 million and repayments of financing lease obligations of $119,000.

Previous wording

During the six months ended June 30, 2023, net cash provided by financing activities was $12.2 million from $13.4 million of net cash proceeds from the sale of shares of common stock, partially offset by the partial redemption of Series A Preferred Stock of $1.1 million and repayments of financing lease obligations of $57,000.

Current wording

During the nine months ended September 30, 2023, net cash provided by financing activities was $12.2 million from $13.4 million of net cash proceeds from the sale of shares of common stock, partially offset by the partial redemption of Series A Preferred Stock of $1.1 million and repayments of financing lease obligations of $87,000.

Previous wording

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). In preparing these financial statements, we make assumptions, judgments and estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

Current wording

Our consolidated financial statements are prepared in conformity with GAAP. In preparing these financial statements, we make assumptions, judgments and estimates that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

Previous wording

The fair value of contingent consideration after the acquisition date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. During the six months ended June 30, 2024 and 2023, we recorded a loss of $2.3 million and a gain of $16.5 million, respectively, related to the fair value of contingent consideration. As of June 30, 2024 and December 31, 2023, contingent consideration liabilities were $42.2 million and $39.9 million, respectively. For additional information, refer to Note 3 to our consolidated financial statements included elsewhere in this Report.

Current wording

The fair value of contingent consideration after the acquisition date is reassessed by us as changes in circumstances and conditions occur, with the subsequent change in fair value recorded in our consolidated statements of operations. Changes in key assumptions can materially affect the estimated fair value of contingent consideration liabilities and, accordingly, the resulting gain or loss that we record in our consolidated financial statements. During the nine months ended September 30, 2024 and 2023, we recorded a loss of $9.4 million and a gain of $16.9 million, respectively, related to the fair value of contingent consideration. As of September 30, 2024 and December 31, 2023, contingent consideration liabilities were $49.3 million and $39.9 million, respectively. For additional information, refer to Note 3 to our consolidated financial statements included elsewhere in this Report.

Previous wording

During the first quarter of 2023, due to changes in management and our economic condition, management shifted our business strategy to direct efforts on fewer studies and to transition from tests that are laboratory developed tests (“LDTs”) to research use only sales. Due to the change in strategy, our long range plan forecasts were updated and anticipated future benefits derived from our assets. The change in strategy represent a significant indicator for change in value of our long-lived assets. The original IPR&D balances were reassessed based on the updated long range plan, using the multi-period excess earnings method approach, the results of the valuation noted that the carrying value of certain IPR&D intangible assets was greater than the fair market value. Accordingly, we recorded an impairment of approximately $5.0 million as of March 31, 2023. We have not recorded any additional impairment adjustments as of June 30, 2024. For additional information, refer to Note 5 to our consolidated financial statements included elsewhere in this Report.

Current wording

During the first quarter of 2023, due to changes in management and our economic condition, management shifted our business strategy to direct efforts on fewer studies and to transition from tests that are laboratory developed tests (“LDTs”) to RUO sales. Due to the change in strategy, our long range plan forecasts were updated and anticipated future benefits derived from our assets. The change in strategy represent a significant indicator for change in value of our long-lived assets. The original IPR&D balances were reassessed based on the updated long range plan, using the multi-period excess earnings method approach, the results of the valuation noted that the carrying value of certain IPR&D intangible assets was greater than the fair market value. Accordingly, we recorded an impairment of approximately $5.0 million as of March 31, 2023. We have not recorded any additional impairment adjustments as of September 30, 2024. For additional information, refer to Note 5 to our consolidated financial statements included elsewhere in this Report.

Previous wording

We assess the impairment of long-lived assets, which consists primarily of long-lived intangible assets, right-of-use assets, and machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount, we recognize an impairment based on the fair value of such assets. During the six months ended June 30, 2024 and 2023, we recognized impairment losses on held for sales assets of $169,000 and $1.3 million, respectively. For additional information, refer to Note 2, “Assets Held for Sale and Discontinued Operations,” to our consolidated financial statements included elsewhere in this Report.

Current wording

We assess the impairment of long-lived assets, which consists primarily of long-lived intangible assets, right-of-use assets, and machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. When such events or changes in circumstances are present, we estimate the future cash flows expected to result from the use of the asset (or asset group) and its eventual disposition. If the sum of the expected undiscounted future cash flows is less than the carrying amount, we recognize an impairment based on the fair value of such assets. During the nine months ended September 30, 2024 and 2023, we recognized impairment losses on held for sales assets of $169,000 and $1.3 million, respectively. For additional information, refer to Note 2, “Assets Held for Sale and Discontinued Operations,” to our consolidated financial statements included elsewhere in this Report.

Previous wording

We establish an allowance for credit losses based on the evaluation of the collectability of its Pharma Services accounts receivables after considering a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position, reasonable and supportable forecast that affect the collectability of the reported amount, and historical experience. We continuously monitor collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts, if any, based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the credit loss reserve accounts. As of June 30, 2024 and December 31, 2023, we had an allowance for credit losses of $1,000 and $5,000, respectively, related to Pharma Services.

Current wording

We establish an allowance for credit losses based on the evaluation of the collectability of its Pharma Services accounts receivables after considering a variety of factors, including the length of time receivables are past due, significant events that may impair the customer’s ability to pay, such as a bankruptcy filing or deterioration in the customer’s operating results or financial position, reasonable and supportable forecast that affect the collectability of the reported amount, and historical experience. We continuously monitor collections and payments from customers and maintains a provision for estimated credit losses and uncollectible accounts, if any, based upon its historical experience and any specific customer collection issues that have been identified. Amounts determined to be uncollectible are written off against the credit loss reserve accounts. As of September 30, 2024 and December 31, 2023, we had an allowance for credit losses of $2,000 and $5,000, respectively, related to Pharma Services.

Previous wording

We recognize compensation expense related to share-based payment awards made to employees, board directors and other non-employees based on estimated fair values. We estimate the fair value of stock-based payment awards on the grant date and recognize the resulting fair value over the requisite service period on a straight-line basis. For stock-based awards that vest only upon the attainment of one or more performance goals, compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be, or have been, achieved. For grants with market-based and time-based vesting conditions, the fair value is estimated using the Monte Carlo simulation model, which includes the estimated period to achievement of the performance and market conditions, which are subject to the achievement of the market-based goals established by us and continued employment. We utilize the Black-Scholes option pricing model for determining the fair value of standard time-based stock options. Our determination of fair value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We estimate the expected volatility using our own stock price volatility for a period equal to the expected term of the options. The expected term of options granted is based on our own experience. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Key inputs and assumptions may change as we continue to develop our own company estimates, experience and key inputs including our expected term, and stock price volatility based on the trading history of our stock in the public market. Changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements. During the six months ended June 30, 2024 and 2023, we recognized total stock-based compensation of $804,000 and $1.7 million, respectively. For additional information, refer to Note 8 to our consolidated financial statements included elsewhere in this Report.

Current wording

We recognize compensation expense related to share-based payment awards made to employees, board directors and other non-employees based on estimated fair values. We estimate the fair value of stock-based payment awards on the grant date and recognize the resulting fair value over the requisite service period on a straight-line basis. For stock-based awards that vest only upon the attainment of one or more performance goals, compensation cost is recognized if and when we determine that it is probable that the performance condition or conditions will be, or have been, achieved. For grants with market-based and time-based vesting conditions, the fair value is estimated using the Monte Carlo simulation model, which includes the estimated period to achievement of the performance and market conditions, which are subject to the achievement of the market-based goals established by us and continued employment. We utilize the Black-Scholes option pricing model for determining the fair value of standard time-based stock options. Our determination of fair value of share-based payment awards on the date of grant using an option pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. We estimate the expected volatility using our own stock price volatility for a period equal to the expected term of the options. The expected term of options granted is based on our own experience. The risk-free rate is based on the U.S. Treasury rates in effect during the corresponding period of grant. Key inputs and assumptions may change as we continue to develop our own company estimates, experience and key inputs including our expected term, and stock price volatility based on the trading history of our stock in the public market. Changes in these subjective assumptions can materially affect the estimated value of equity grants and the stock-based compensation that we record in our consolidated financial statements. During the nine months ended September 30, 2024 and 2023, we recognized total stock-based compensation of $1.3 million and $2.3 million, respectively. For additional information, refer to Note 8 to our consolidated financial statements included elsewhere in this Report.