What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-04 · 339 added, 480 removed, 433 unchanged (65% of the section changed)

4 unchanged sentences

(in thousands, except per share amounts)

September 30, 2021

March 31, 2022

December 31, 2021

19 unchanged sentences

Accrued expenses and other current liabilities

Finance lease liability

Operating lease liability

Finance lease liabilities

Operating lease liabilities

Acquisition-related contingent consideration obligation

1 unchanged sentence

Noncurrent Liabilities:

Finance lease liability

Operating lease liability

Finance lease liabilities

Operating lease liabilities

Acquisition-related contingent consideration obligation

6 unchanged sentences

Preferred stock, par value $ .000001 , 25,000 shares authorized, none issued

Common stock, par value $ .000001 , 120,000 shares authorized, 72,038 and 71,738 shares

issued and outstanding

Common stock, par value $ .000001 , 120,000 shares authorized, 72,307 and 72,069 shares issued and outstanding

Additional paid-in capital

8 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

NET REVENUES:

7 unchanged sentences

Operating income (loss)

OTHER INCOME (LOSS)

Income (loss) before income taxes

8 unchanged sentences

(in thousands)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

NET INCOME (LOSS)

1 unchanged sentence

Currency translation adjustments

Unrealized gain (loss) on marketable securities

Unrealized gain on marketable securities

COMPREHENSIVE INCOME (LOSS)

4 unchanged sentences

(in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Net income (loss)

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation

2 unchanged sentences

Provision for doubtful accounts

Unrealized foreign currency gain

Inventory reserve

Unrealized foreign currency (gain) loss

Interest expense on finance leases

Deferred income taxes

Loss on sale of fixed assets

Loss on disposal of fixed assets

Change in the estimated fair value of acquisition-related contingent consideration

6 unchanged sentences

Accrued expenses and other liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

INVESTING ACTIVITIES:

Purchases of investments

Proceeds from maturities and redemptions of investments

Purchases of property and equipment

Proceeds from escrow associated with business acquisitions

Acquisition of businesses, net of cash acquired

Purchase price adjustment related to business acquisition

Purchase of patent and product rights

Purchase of property and equipment under government contracts

Proceeds from funding under government contract

Other investing activities

Net cash (used in) provided by investing activities

1 unchanged sentence

Cash payments for lease liabilities

Payment of acquisition-related contingent consideration

Issuance of common stock in connection with public offering, net

Proceeds from exercise of stock options

Payment of acquisition-related contingent consideration

Repurchase of common stock

Net cash (used in) provided by financing activities

Net cash used in financing activities

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

4 unchanged sentences

Accrued property and equipment purchases

Unrealized gain (loss) on marketable securities

Accrued property and equipment purchases under government contracts

Unrealized gain on marketable securities

See accompanying notes to the consolidated financial statements.

1 unchanged sentence

AND SUBSIDIARIES

Notes to the Consolidate d Financial Statements

Notes to the Consolidated Financial Statements

(in thousands, except per share amounts, unless otherwise indicated)

The overall goal of OraSure Technologies, Inc.

(“OraSure”

or “the Company”) is to empower the global community to improve health and wellness by providing access to accurate essential information.

Our business consists of two segments:

our “Diagnostics”

segment, and our “Molecular Solutions”

Our Diagnostics business primarily consists of the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types.

The Diagnostics business includes tests for diseases including HIV and Hepatitis C that are performed on a rapid basis at the point of care and tests that are processed in a laboratory.

These products are sold in the United States and internationally to various clinical laboratories, hospitals, clinics, community-based organizations, and other public health organizations, distributors, government agencies, physicians’

offices, and commercial and industrial entities.

Our HIV product is also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S.

and as a self-test to individuals in a number of other countries.

Our Diagnostics business includes the operations of UrSure, Inc.

(“UrSure”), which was acquired and merged into OraSure in 2020.

This part of the Diagnostics business develops and commercializes products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP, the daily medication to prevent HIV, and anti-retroviral medications to suppress HIV.

These products include laboratory-based tests that can measure levels of the medications in a patient’s urine or blood, as well as point-of-care products currently in development.

In 2020, we began developing a rapid antigen self-test for COVID-19 and a COVID-19 antibody enzyme-linked immunosorbent assay (“ELISA”) for use in laboratory settings.

In June 2021, we received three Emergency Use Authorizations ("EUA") from the U.S.

Food and Drug Administration ("FDA") for our InteliSwab TM COVID-19 Rapid Antigen Tests for non-prescription OTC, professional point-of-care and prescription use.

We began recording revenues on the sales of our InteliSwab TM COVID-19 Rapid Antigen Tests during the third quarter of 2021.

Following discussions with the FDA and their de-prioritization of antibody testing in the U.S., we decided to no longer pursue EUAs for the ELISA test.

We have, however, continued to offer the product for research use to labs and other parties interested in COVID antibody surveillance and research applications.

Our Molecular Solutions business is operated by our subsidiaries, DNA Genotek Inc.

(“DNAG”), Diversigen, Inc.

(“Diversigen”), and Novosanis NV (“Novosanis”).

In our DNAG business, we manufacture and sell kits that are used to collect, stabilize, transport and store a biological sample of genetic material for molecular testing.

Our products are used for academic research and commercial applications, including ancestry, disease risk management, lifestyle and animal testing.

Three of our collection devices are used in connection with COVID-19 molecular testing.

We also sell research-use-only collection products into the microbiome market.

We offer our customers a suite of genomics and microbiome services that range from package customization and study design optimization to extraction, analysis and reporting services.

The microbiome laboratory and bioinformatics services are provided by Diversigen, which includes the operations of CoreBiome, Inc.

(“CoreBiome”), a subsidiary we acquired in early 2019.

CoreBiome and Diversigen were merged together in 2020.

Novosanis manufactures and sells the Colli-Pee® collection device for the volumetric collection of first-void urine for use in research, screening and diagnostics in the liquid biopsy and sexually transmitted infection markets.

Our Molecular Solutions business serves customers in many countries worldwide, including many leading research universities and hospitals.

Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation .

The accompanying interim unaudited consolidated financial statements include the accounts of OraSure and its wholly-owned subsidiaries, DNAG, Diversigen and Novosanis.

The accompanying interim unaudited consolidated financial statements include the accounts of OraSure Technologies, Inc.

(“OraSure”) and its wholly-owned subsidiaries, DNA Genotek Inc.

(“DNAG”), Diversigen, Inc.

(“Diversigen”), and Novosanis NV (“Novosanis”) .

All intercompany transactions and balances have been eliminated.

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These financial statements should be read in conjunction with the financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results of operations expected for the full year.

Results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations expected for the full year.

Summary of Significant Accounting Policies .

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When evaluating an investment for impairment, we review factors such as the severity of the impairment, changes in underlying credit ratings, forecasted recovery, the Company’s intent to sell or the likelihood that it would be required to sell the investment before its anticipated recovery in market value and the probability that the scheduled cash payments will continue to be made.

As of September 30, 2021, we determined that the decline in the market value of our available-for-sale investment was not due to credit-related factors and as such no allowance for credit-loss was necessary.

The following is a summary of our available-for-sale securities as of September 30, 2021 and December 31, 2020:

September 30, 2021

During the three months ended March 31, 2022 , we recognized a provision for expected credit losses for our available-for-sale securities of $ 65 .

The following is a summary of our available-for-sale securities as of March 31, 2022 and December 31, 2021:

March 31, 2022

Guaranteed investment certificates

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Total available-for-sale securities

At September 30, 2021, maturities of our available-for-sale

At March 31, 2022, maturities of our available-for-sale

securities were as follows:

2 unchanged sentences

Fair Value of Financial Instruments .

As of September 30, 2021 and December 31, 2020, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature.

As of March 31, 2022 and December 31, 2021, the carrying values of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses approximate their respective fair values based on their short-term nature.

Fair value measurements of all financial assets and liabilities that are being measured and reported on a fair value basis are required to be classified and disclosed in one of the following three categories:

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Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

All of our available-for-sale debt securities are measured as Level 2 instruments as of September 30, 2021 and December 31, 2020.

Our available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of September 30, 2021 and December 31, 2020.

Included in cash and cash equivalents at September 30, 2021 and December 31, 2020, was $ 23,862 and $ 71,489 invested in government money market funds.

All of our available-for-sale debt securities are measured as Level 2 instruments as of March 31, 2022 and December 31, 2021.

Our available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of March 31, 2022 and December 31, 2021.

Included in cash and cash equivalents at March 31, 2022 and December 31, 2021, was $ 2,386 and $ 1,160 invested in government money market funds.

These funds have investments in government securities and are measured as Level 1 instruments.

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The assets of the plan are held in mutual funds and company stock.

The fair value of the plan assets as of September 30, 2021 and December 31, 2020 was $ 2,503 and $ 2,565 , respectively, and was calculated using the quoted market prices of the assets as of those dates.

The fair value of the plan assets as of March 31, 2022 and December 31, 2021 was $ 1,660 and $ 1,763 , respectively, and was calculated using the quoted market prices of the assets as of those dates.

All investments in the plan are classified as trading securities and measured as Level 1 instruments.

The fair value of plan assets is included in both current assets and noncurrent assets with the same amount included in accrued expenses and other noncurrent liabilities in the accompanying consolidated balance sheets.

Accounts Receivable.

Accounts receivable have been reduced by an estimated allowance for amounts that may become uncollectible in the future.

This estimated allowance is based primarily on management’s evaluation of specific balances as they become past due, the financial condition of our customers and our historical experience related to write-offs.

Inventories are stated at the lower of cost or net realizable value, with cost determined on a first-in, first-out basis, and include the cost of raw materials, labor and overhead.

The majority of our inventories are subject to expiration dating, which can be extended in certain circumstances.

We continually evaluate quantities on hand and the carrying value of our inventories to determine the need for reserves for excess and obsolete inventories, based on prior experience as well as estimated forecasts of product sales.

We reserve for unidentified scrap or spoilage based on historical write-off rates.

We also consider items identified through specific identification procedures in assessing the adequacy of our reserve.

When factors indicate that impairment has occurred, either a reserve is established against the inventories’

carrying value or the inventories are completely written off, as in the case of lapsing expiration dates.

During the third quarter of 2021, we reserved $ 1,750 of COVID-19 antibody inventory, which we do not believe we can sell as a result of the decision to no longer pursue EUAs for the ELISA test.

Property, Plant and Equipment .

2 unchanged sentences

Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets.

Buildings are depreciated over twenty to forty years , while computer equipment, machinery and equipment, and furniture and fixtures are depreciated over two to ten years .

Buildings are depreciated over twenty years , while computer equipment, machinery and equipment, and furniture and fixtures are depreciated over two to ten years .

Building improvements are amortized over their estimated useful lives.

When assets are sold, retired, or discarded, the related property amounts are relieved from the accounts, and any gain or loss is recorded in the consolidated statements of operations.

Accumulated depreciation of property, plant and equipment as of September 30, 2021 and December 31, 2020 was $ 58,755 and $ 53,604 , respectively.

Accumulated depreciation of property, plant and equipment as of March 31, 2022 and December 31, 2021 was $ 63,984 and $ 61,157 , respectively.

Intangible Assets .

2 unchanged sentences

Intangible assets are amortized using the straight-line method over their estimated useful lives of five to fifteen years .

Accumulated amortization of intangible assets as of September 30, 2021 and December 31, 2020 was $ 29,554 and $ 27,107 , respectively.

The decrease in intangibles from $ 17,904 as of December 31, 2020 to $ 15,221 as of September 30, 2021 was due to $ 2,455 in amortization expense and foreign currency translation losses of $ 228 .

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.

Goodwill is not amortized but rather is tested annually for impairment or more frequently if we believe that indicators of impairment exist.

Current generally accepted accounting principles (“GAAP”) permit us to make a qualitative evaluation about the likelihood of goodwill impairment.

If we conclude that it is more likely than not that the carrying value of a reporting unit is greater than its fair value, then we would be required to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, provided the impairment charge does not exceed the total amount of goodwill allocated to the reporting unit.

The decrease in goodwill from $ 40,351 as of December 31, 2020 to $ 40,264 as of September 30, 2021 was a result of an adjustment of $ 105 associated with foreign currency translation and a purchase price adjustment of $ 18 related to a business acquisition.

Accumulated amortization of intangible assets as of March 31, 2022 and December 31, 2021 was $ 31,142 and $ 30,412 , respectively.

The decrease in intangible assets from $ 14,343 as of December 31, 2021 to $ 13,692 as of March 31, 2022 was due to $ 568 in amortization expense and foreign currency translation losses of $ 83 .

Foreign Currency Translation .

3 unchanged sentences

Transaction gains and losses resulting from exchange rate changes on transactions denominated in currencies other than a functional currency are included in our consolidated statements of income in the period in which the change occurs.

Net foreign exchange gains resulting from foreign currency transactions that are included in other income in our consolidated statements of income were $ 7 and $ 70 for the three months ended September 30, 2021 and 2020 , respectively.

Net foreign exchange gains (losses) were $( 371 ) and $ 563 for the nine months ended September 30, 2021 and 2020 .

Accumulated Other Comprehensive Income (Loss) .

We classify items of other comprehensive income (loss) by their nature and disclose the accumulated balance of other comprehensive loss separately from accumulated deficit and additional paid-in capital in the stockholders’

Net foreign exchange losses resulting from foreign currency transactions that are included in other income (loss) in our consolidated statements of income were $ 729 and $ 576 for the three months ended March 31, 2022 and 2021 , respectively.

Accumulated Other Comprehensive Loss .

We classify items of other comprehensive loss by their nature and disclose the accumulated balance of other comprehensive loss separately from accumulated deficit and additional paid-in capital in the stockholders’

equity section of our consolidated balance sheets.

2 unchanged sentences

dollars, which is the reporting currency of the Company.

Accumulated other comprehensive loss at September 30, 2021 consisted of $ 10,111 of currency translation adjustments and $ 610 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our

investment portfolio.

Accumulated other comprehensive loss at March 31, 2022 consisted of $ 7,888 of currency translation adjustments and $ 359 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investment portfolio.

Accumulated other comprehensive loss at December 31, 2021 consists of $ 9,643 of currency translation adjustments and $ 434 of net unrealized losses on marketable securities, which represents the fair market value adjustment for our investments portfolio.

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The purpose of this update is to provide optional guidance for a limited time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The amendments provide optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments provide

optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.

The amendments in this update are elective and are effective upon issuance for all entities.

Management is evaluating the impact of this ASU and does not expect this update to have a material impact on the Company's Consolidated Financial Statements .

Business Combinations

On July 22, 2020, the Company acquired all of the outstanding capital stock of UrSure, Inc.

(“UrSure”), pursuant to the terms of a merger agreement.

The initial aggregate purchase price of this transaction was $ 3,000 , adjusted for certain transaction costs, indebtedness, and holdback amounts, and was funded with cash on hand.

A portion of the purchase price was deposited into an escrow account for a limited period after closing, pursuant to indemnification obligations under the merger agreement.

During the nine months ended September 30, 2020 , we incurred acquisition related costs of $ 393 including accounting, legal, and other professional fees, all of which were expensed and reported as a component of general and administrative expense in the consolidated statement of operations.

No such costs were incurred for the nine months ended September 30, 2021.

Pursuant to our merger agreement, we were to pay up to an additional $ 28,000 of contingent consideration over the three years following the acquisition date based on the achievement of certain performance criteria as defined under the agreements, including generating certain revenue dollars, and the achievement of certain clinical milestones associated with the development of certain new technology.

The Company, with the assistance of an independent valuation specialist, determines the estimated fair value of the contingent consideration.

The fair value is determined using a probability-weighted model based on our assessment of the likelihood that the benchmarks will be achieved.

The probability-weighted payments were then discounted using a discount rate based on an internal rate of return analysis using the probability-weighted cash flows.

The fair value measurement is based on significant inputs, including the likelihood of the achievement of clinical milestones and revenue forecasts, not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy.

The following table represents the change in contingent consideration:

Balance as of December 31, 2020

Payments made during the period

Change in fair value during the period

Balance as of September 30, 2021

The change in fair value during the nine months ended September 30, 2021 is as a result of delays in achieving certain product development milestones and a decrease in associated revenue forecasts as a result of these delays.

Revenues from UrSure primarily consist of grant money received to fund the development of certain new technology.

Effective as of July 22, 2020, the financial results of UrSure are included in our Diagnostics segment.

September 30,

Government Capital Contracts

In September 2021, we entered into an agreement for $ 109,000 in funding from the U.S.

Department of Defense (the “DOD”), in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for our InteliSwab ® COVID-19 Rapid Tests as part of the nation’s pandemic preparedness plan.

Funding will be paid to the Company based on achievement of milestones through March 2024 for the design, acquisition, installation, qualification and acceptance of the manufacturing equipment, as set forth in the agreement.

In accordance with the milestone payment schedule, 15 % of the total will not be funded until the completion of the final equipment validation, which is scheduled to occur in late 2023 or early 2024.

We began making payments to vendors for the capital project during the fourth quarter of 2021 and began receiving funds from the DOD in January 2022.

Additionally, during 2021, we received $ 531 in funding from the Commonwealth of Pennsylvania, acting through the Department of Community and Economic Development, for the purchase of machinery and equipment as part of an expansion of manufacturing operations in Pennsylvania.

All related purchases were completed in 2021.

Activity for these capital contracts is accounted for pursuant to International Accounting Standard ("IAS") 20, Accounting for Government Grants and Disclosure of Government Assistance.

Funding earned in relation to capital-related costs incurred for government contracts is recorded as a reduction to the cost of property, plant and equipment and reflected within investing activities in the consolidated statements of cash flows;

and associated unpaid liabilities and government proceeds receivable are considered non-cash changes in such balances within the operating section of the consolidated statements of cash flows.

Amounts earned in excess of our expected cost of the project for project management are recognized straight-line in other income over the term of the government contract.

We recognized $ 561 of such income, which is reported as other income (loss) in our consolidated statement of operations for the three months ended March 31, 2022.

The balances corresponding to government contracts included in our consolidated balance sheet are as follows:

March 31, 2022

December 31, 2021

Other current assets:

Billed receivables

Unbilled receivables

Total other current assets

Property, plant and equipment, net:

Cost of assets

Reduction for funding earned, not yet received

Reduction for funding received

Total property, plant and equipment, net

Accrued expenses and other current liabilities

March 31, 2022

December 31, 2021

Raw materials

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Diluted earnings (loss) per share is computed in a manner similar to basic earnings (loss) per share except that the weighted-average number of shares outstanding is increased to include incremental shares from the assumed vesting or exercise of dilutive securities, such as common stock options, unvested restricted stock or performance stock units, unless the impact is antidilutive.

The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period.

The number of incremental shares is calculated by assuming that outstanding stock options were exercised and unvested restricted shares and performance stock units were

vested, and the proceeds from such exercises or vesting were used to acquire shares of common stock at the average market price during the reporting period.

Basic and dilutive computations of net loss per share are the same in periods in which a net loss exists as the dilutive effects of excluded items would be anti-dilutive.

The computations of basic and diluted earnings (loss) per share are as follows:

Ended September 30,

Three Months Ended March 31,

Net income (loss)

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Earnings (loss) per share:

For the three months ended September 30, 2021 , outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 859 shares were excluded from the computation of diluted loss per share.

For the three months ended September 30, 2020, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 136 shares were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the nine months ended September 30, 2021 and 2020, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 847 and 917 shares, respectively, were excluded from the computation of diluted loss per share.

For the three months ended March 31, 2022 , outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 463 shares were excluded from the computation of diluted loss per share.

For the three months ended March 31, 2021, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 421 shares were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

Revenues by product line .

The following table represents total net revenues by product line:

Three Months Ended September 30,

Nine Months Ended September 30,

Infectious disease testing

Risk assessment testing

Three Months Ended March 31,

Substance abuse

Microbiome (1)

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Other revenues

(1) 2020 Genomics, Microbiome, and COVID-19 revenues were reclassified to reflect the correct classification of the product line sales.

The reclassification increased (decreased) the product line revenues for the three months ended September 30, 2020 by $( 65 ), $( 298 ), and $ 363 , respectively and increased (decreased) the product line revenue for the nine months ended September 30, 2020 by $( 157 ), $( 390 ), and $ 547 , respectively.

(1) 2021 COVID-19, Genomics and Microbiome revenues were reclassified to reflect the correct classification of the product line sales.

The reclassification increased (decreased) the product line revenues for the three months ended March 31, 2021 by $ 583 , $( 246 ) and $( 337 ), respectively.

Revenues by geographic area .

The following table represents total net revenues by geographic area, based on the location of the customer:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

United States

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Customer and Vendor Concentrations .

At September 30, 2021, one customer accounted for 13 % of our accounts receivable.

Another customer accounted for 11 % of our accounts receivable as of December 31, 2020 .

One customer accounted for 14 % of net consolidated revenues for the three months ended September 30, 2021 .

Another customer accounted for 10 % of net consolidated revenues for the nine months ended September 30, 2021.

One customer accounted for 11 % of net consolidated revenues for the three months ended September 30, 2020.

At March 31, 2022 , one non-commercial customer accounted for 21 % of our accounts receivable.

No customers accounted for more than 10 % of our accounts receivable as of December 31, 2021 .

One non-commercial customer accounted for 18 % of net consolidated revenues for the three months ended March 31, 2022 .

Another customer accounted for 17 % of net consolidated revenues for the three months ended March 31, 2021.

We currently purchase certain products and critical components of our products from sole-supply vendors.

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We record deferred revenue when funds are received prior to the recognition of the associated revenue.

Deferred revenue as of September 30, 2021 and December 31, 2020 includes customer prepayments of $ 2,340 and $ 3,216 , respectively.

Deferred revenue as of September 30, 2021 and December 31, 2020 also includes $ 1,148 and $ 1,595 , respectively, associated with a long-term contract that has variable pricing based on volume.

Deferred revenue as of March 31, 2022 and December 31, 2021 includes customer prepayments of $ 1,900 and $ 1,843 , respectively.

Deferred revenue as of March 31, 2022 and December 31, 2021 also includes $ 1,006 and $ 1,093 , respectively, associated with a long-term contract that has variable pricing based on volume.

The average price over the life of the contract was determined and revenue is recognized at that average price.

Accrued Expenses and other current liabilities

September 30, 2021

December 31, 2020

Payroll and related benefits

Commitment to purchase under government contract

Deferred income for government contract

Professional fees

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We have operating and finance leases for corporate offices, warehouse space and equipment (including vehicles).

As of September 30, 2021 , we are the lessee in all agreements.

As of March 31, 2022 , we are the lessee in all agreements.

Our leases have remaining lease terms of 1 to 11 years , some of which include options to extend the leases based on agreed upon terms, and some of which include options to terminate the leases within 1 year .

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The components of lease expense are as follows:

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating lease cost

Variable and short-term lease cost

Finance lease cost:

2 unchanged sentences

Total finance lease cost

Total lease cost

Supplemental cash flow information related to leases is as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

Cash paid for amounts included in the measurement of lease liabilities:

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Supplemental balance sheet information related to leases is as follows:

September 30, 2021

March 31, 2022

December 31, 2021

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Right-of-use assets

Lease liabilities:

Current lease liabilities

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Right-of-use assets

Lease liabilities:

Current lease liabilities

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Weighted-average discount rate—finance leases

As of September 30, 2021, minimum lease payments by period are expected to be as follows:

2021 (excluding the nine months ended September 30, 2021)

As of March 31, 2022, minimum lease payments by period are expected to be as follows:

2022 (excluding the three months ended March 31, 2022)

Total minimum lease payments

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Stockholders’

Reconciliation of the changes in stockholders' equity for the three and nine months ended September 30, 2021 and 2020

Reconciliation of the changes in stockholders' equity for the three months ended March 31, 2022 and 2021

Comprehensive

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Balance at March 31, 2022

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Stock-based compensation

Currency translation adjustments

Unrealized loss on marketable securities

Balance at June 30, 2021

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Stock-based compensation

Currency translation adjustments

Unrealized loss on marketable securities

Balance at September 30, 2021

Comprehensive

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Currency translation adjustments

Unrealized loss on marketable securities

Balance at March 31, 2020

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Issuance of common stock in connection with public offering, net of commissions and expenses of $ 6,200

Stock-based compensation

Currency translation adjustments

Unrealized gain on marketable securities

Balance at June 30, 2020

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Stock-based compensation

Currency translation adjustments

Unrealized loss on marketable securities

Balance at September 30, 2020

Balance at March 31, 2021

Stock-Based Awards

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To satisfy the exercise of options, issuance of restricted stock, or redemption of performance-based restricted stock units, we issue new shares rather than shares purchased on the open market.

Total compensation cost related to stock options for the nine months ended September 30, 2021 and 2020 was $ 793 and $ 683 , respectively.

Compensation cost of $ 2,891 and $ 3,329 related to restricted shares was recognized during the nine months ended September 30, 2021 and 2020, respectively.

Total compensation expense related to stock options for the three months ended March 31, 2022 and 2021 was $ 348 and $ 250 , respectively.

The following table summarizes the stock option activity for the three months ended March 31, 2022:

Outstanding on January 1, 2022

Outstanding on March 31, 2022

Compensation expense of $ 2,706 and $ 1,036 related to restricted shares was recognized during the three months ended March 31, 2022 and 2021, respectively.

The following table summarizes time-vested restricted stock award and restricted stock unit activity for the three months ended March 31, 2022:

Issued and unvested, January 1, 2022

Issued and unvested, March 31, 2022

We grant performance-based restricted stock units (“PSUs”) to certain executives.

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PSUs are converted into shares of our common stock once vested.

Compensation cost of $ 1,471 and $ 1,901 related to PSUs was recognized during the nine months ended September 30, 2021 and 2020, respectively.

Public Offering

On June 1, 2020, we entered into an underwriting agreement with J.P.

Morgan Securities LLC, Citigroup Global Markets Inc.

and Evercore Group LLC, as representatives of several underwriters, relating to the issuance and sale of 8,000 shares of our common stock.

The price to the public in the offering was $ 11.00 per share.

Under the terms of the underwriting agreement, we also granted the underwriters an option, exercisable for 30 days , to purchase up to an additional 1,200 shares of common stock.

On June 3, 2020, we announced the full exercise by the underwriters of their option to purchase these additional shares.

The offering was made pursuant to an effective registration statement on Form S-3 (File No.

333-228877) we had previously filed with the SEC, and a prospectus supplement thereunder.

The net proceeds from the offering were approximately $ 95,000 after deducting underwriting discounts and offering expenses paid by the Company.

Compensation expense of $ 470 and $ 178 related to PSUs was recognized during the three months ended March 31, 2022 and 2021, respectively.

The following table summarizes the PSU activity for the three months ended March 31, 2022:

Issued and unvested, January 1, 2022

Performance adjustment (2)

Issued and unvested, March 31, 2022

(1) Grant activity for all PSUs disclosed at target

(2) Reflects the performance adjustment based on actual performance measured at the end of the performance period

Stock Repurchase Program

On August 5, 2008, our Board of Directors approved a share repurchase program pursuant to which we are permitted to acquire up to $ 25,000 of our outstanding common shares.

No shares were purchased and retired during the nine months ended September 30, 2021 and 2020.

During the three and nine months ended September 30, 2021 , we recorded income tax expense of $ 2,102 and $ 12,241 , respectively, which primarily consisted of foreign tax expense.

During the three and nine months ended September 30, 2020 , we recorded income tax expense of $ 3,659 and $ 5,680 , respectively, which also primarily consisted of a foreign tax expense.

No shares were purchased and retired during the three months ended March 31, 2022 and 2021.

Transition costs

On December 31, 2021, the Company's Board of Directors approved the termination of Stephen S.

Tang, the Company’s former President and Chief Executive Officer, without cause under his existing employment agreement with the Company, with such termination effective as of March 31, 2022.

On January 2, 2022, Dr.

Tang and the Company entered into a transition agreement ("Transition Agreement") providing for the terms of the cessation of Dr.

Tang’s employment with the Company, including the cessation of his service as President and Chief Executive Officer of the Company and as a member of the Board.

Tang’s service to the Company in all capacities ended on March 31, 2022.

Pursuant to the Transition Agreement, Dr.

Tang received severance of $ 1,569 , which was accrued in the consolidated financial statements at December 31, 2021 and paid in April 2022.

Additionally, in accordance with his Transition Agreement, certain of his unvested time-vesting restricted stock awards and unvested PSUs that were outstanding at March 31, 2022 vested on April 8, 2022.

His remaining unvested time-vesting restricted stock awards and PSUs totaling were forfeited on March 31, 2022.

These payments, rights and benefits are substantially similar to the severance benefits contemplated by his previous employment agreement in respect to a termination without cause thereunder.

In aggregate, we recognized a net $ 1,380 of expense in relation to Dr.

Tang's stock compensation during the three months ended March 31, 2022.

On April 1, 2022 the Company's Board of Directors appointed Nancy J.

Gagliano, M.D., M.B.A., to serve as the Company’s Interim Chief Executive Officer.

In connection therewith, the Company and Dr.

Gagliano entered into an employment agreement, dated as of March 21, 2022 (the “Employment Agreement”).

Pursuant to the Employment Agreement, starting on April 1, 2022, Dr.

Gagliano began receiving a monthly base salary of $ 56 per month.

Additionally, she was granted a one-time award of fully vested shares of the Company’s common stock with a

grant date fair value of $ 100 and a one-time restricted stock unit award with a grant date fair value of $ 670 , which vest in twelve equal monthly installments (with the first installment vesting on April 30, 2022 and subsequent installments vesting on the last day of the following eleven calendar months), subject to Dr.

Gagliano’s continued employment as Interim Chief Executive Officer through the applicable vesting dates.

During the three months ended March 31, 2022 and 2021, we recorded income tax expense of $ 3,936 and $ 6,529 , respectively.

Tax expense for 2022 includes $ 1,702 of withholding tax due on the repatriation of $ 65,000 of unremitted earnings from Canada to the United States.

The remaining balance of $ 2,234 for the first quarter of 2022 primarily consisted of foreign tax expense.

Income taxes for the first quarter of 2021 also primarily consisted of foreign tax expense.

Tax expense reflects taxes due to the taxing authorities and the tax effects of temporary differences between the basis of assets and liabilities recognized for financial reporting and tax purposes, and net operating loss and tax credit carryforwards.

The significant components of our total deferred tax liability as of September 30, 2021 and December 31, 2020 relate to the tax effects of the basis difference between the intangible assets acquired in our acquisitions for financial reporting and for tax purposes along with basis differences arising from accelerated tax depreciation of fixed assets.

The significant components of our total deferred tax liability as of March 31, 2022 and December 31, 2021 relate to the tax effects of the basis difference between the intangible assets acquired in our acquisitions for financial reporting and for tax purposes along with basis differences arising from accelerated tax depreciation of fixed assets.

In 2008, we established a full valuation allowance against our U.S.

deferred tax asset.

Management believes the full valuation allowance is still appropriate at both September 30, 2021 and December 31, 2020 since the facts and circumstances necessitating the allowance have not changed.

Management believes the full valuation allowance is still appropriate at both March 31, 2022 and December 31, 2021 since the facts and circumstances necessitating the allowance have not changed.

Commitments and Contingencies

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Spectrum responded to our amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation.

We believe Spectrum's counterclaims are without merit and we filed a motion to dismiss both claims in October 2021.

We are seeking injunctive relief and damages in this matter.

As of September 30, 2021 , we have entered in several new contracts associated with the manufacture and supply of our COVID-19 antigen products and our molecular collection solutions products that include unconditional commitments to purchase certain materials through the latest of the first quarter of 2026 in the aggregate amount of $ 126,499 .

DNAG filed a motion to dismiss Spectrum’s counterclaims in October 2021, which was denied by the Court on March 30, 2022.

On April 8, 2022, the Court assigned a new judge to preside over the matter, which vacated all dates for the trial.

We await new dates to be set by the Court.

Business Segment Information

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our “Diagnostics”

business, which primarily consists of the development, manufacture, marketing and sale of oral fluid diagnostic products and specimen collection devices using our proprietary technologies, other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types.

Our Diagnostics segment includes the financial results of UrSure.

business, which primarily consists of the development, manufacture, and sale of rapid diagnostic tests used to determine if a person has a variety of infectious diseases including, HIV, HCV, and COVID-19.

The Diagnostic business also manufactures and sells oral fluid substance abuse testing products.

Our “Molecular Solutions”

business consists of the development, manufacture, marketing and sale of specimen collection kits that are used to collect, stabilize, transport and store samples of genetic material for molecular testing.

Our collection kits are also used for the collection of first-void urine for liquid biopsy in the prostate and bladder cancer markets;

and in the sexually transmitted infection screening market.

In addition, our Molecular Solutions business provides microbiome laboratory services that accelerate research and discovery for customers in the pharmaceutical, agricultural, and academic research markets.

Financial results of Diversigen and Novosanis are included in our Molecular Solutions segment.

business is operated by our wholly-owned subsidiaries DNAG, Diversigen, and Novosanis.

This segment of the business consists of the development, manufacture, and sale of kits that are used to collect, stabilize, transport and store a biological sample of genetic material for molecular testing.

In addition, our Molecular Solutions business provides microbiome laboratory services.

We organized our operating segments according to the nature of the products included in those segments.

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Reportable segments have no inter-segment revenues and inter-segment expenses have been eliminated.

The following table summarizes operating segment information for the three and nine months ended September 30, 2021 and 2020, and asset information as of September 30, 2021 and December 31, 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table summarizes operating segment information for the three months ended March 31, 2022 and 2020, and asset information as of March 31, 2022 and December 31, 2021:

Three Months Ended March 31,

Net revenues:

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Capital expenditures:

Diagnostics (1)

Molecular Solutions

September 30, 2021

December 31, 2020

(1) Excludes $28,188 for purchases of property and equipment under government contracts for the three months ended March 31, 2022.

Total assets:

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Known and unknown factors that could cause actual performance or results to be materially different from those expressed or implied in these statements include, but are not limited to:

ability of the Company to manufacture sufficient quantities of the Inteliswab TM COVID-19 rapid test and resolve manufacturing challenges and the expected time frame for doing so;

ability to successfully manage and integrate acquisitions of other companies in a manner that complements or leverages our existing business, or otherwise expands or enhances our portfolio of products and our end-to-end service offerings, and the diversion of management’s attention from our ongoing business and regular business responsibilities to effect such integration;

the expected economic benefits of acquisitions (and increased returns for our stockholders), including that the anticipated synergies, revenue enhancement strategies and other benefits from the acquisitions may not be fully realized or may take longer to realize than expected and our actual integration costs may exceed our estimates;

impact of increased or different risks arising from the acquisition of companies located in foreign countries;

ability to market and sell products, whether through our internal, direct sales force or third parties;

risk that our exploration of strategic alternatives may not result in any definitive transaction or enhance stockholder value and may create a distraction or uncertainty that may adversely affect operating results, business or investor perceptions.

the diversion of management’s attention from our ongoing business and regular business responsibilities and due to our exploration of strategic alternatives;

our ability to market and sell products, whether through our internal, direct sales force or third parties;

Our ability to fulfill our commitments under our contracts with the U.S.

government for InteliSwab ® COVID-19 Rapid Tests;

impact of significant customer concentration in the genomics business;

our ability to successfully scale-up our manufacturing for InteliSwab ® COVID-19 Rapid Tests;

failure of distributors or other customers to meet purchase forecasts, historic purchase levels or minimum purchase requirements for our products;

ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;

ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products;

ability to comply with applicable regulatory requirements;

ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S.

Food and Drug Administration (“FDA”) or other regulators;

the impact of the novel coronavirus (“COVID-19”) pandemic on our business and our ability to successfully develop new products, validate the expanded use of existing collection products, receive necessary regulatory approvals and authorizations and commercialize such products for COVID-19 testing;

our ability to manufacture products in accordance with applicable specifications, performance standards and quality requirements;

our ability to obtain, and timing and cost of obtaining, necessary regulatory approvals for new products or new indications or applications for existing products;

our ability to comply with applicable regulatory requirements;

our ability to effectively resolve warning letters, audit observations and other findings or comments from the U.S.

Food and Drug Administration (or “FDA”), or other regulators;

the impact of the COVID-19 pandemic on our business and labor force;

the impact of COVID-19 on our supply chain;

our ability to successfully develop new products, validate the expanded use of existing collector products, receive necessary regulatory approvals and authorizations, transport work-in-process goods and finished products and commercialize such products for COVID-19 testing;

changes in relationships, including disputes or disagreements, with strategic partners or other parties and reliance on strategic partners for the performance of critical activities under collaborative arrangements;

ability to meet increased demand for the Company’s products;

impact of replacing distributors;

our ability to meet increased demand for our products;

our ability to diversify our customer base;

the impact of replacing distributors on our business;

inventory levels at distributors and other customers;

ability of the Company to achieve its financial and strategic objectives and continue to increase its revenues, including the ability to expand international sales;

ability to identify, complete, integrate and realize the full benefits of future acquisitions;

impact of competitors, competing products and technology changes;

our ability to achieve our financial and strategic objectives and continue to increase our revenues, including the ability to expand international sales;

the impact of competitors, competing products and technology changes on our business;

reduction or deferral of public funding available to customers;

competition from new or better technology or lower cost products;

ability to develop, commercialize and market new products;

our ability to develop, commercialize and market new products;

market acceptance of oral fluid or urine testing, collection or other products;

market acceptance and uptake of microbiome informatics, microbial genetics technology and related analytics services;

changes in market acceptance of products based on product performance or other factors, including changes in testing guidelines, algorithms or other recommendations by the Centers for Disease Control and Prevention (“CDC”) or other agencies;

or other agencies;

ability to fund research and development and other products and operations;

ability to obtain and maintain new or existing product distribution channels;

our ability to obtain and maintain new or existing product distribution channels;

reliance on sole supply sources for critical products and components;

availability of related products produced by third parties or products required for use of our products;

impact of contracting with the U.S.

impact of negative economic conditions;

ability to maintain sustained profitability;

ability to utilize net operating loss carry forwards or other deferred tax assets;

volatility of the Company’s stock price;

the impact of contracting with the U.S.

government on our business;

the impact of negative economic conditions on our business;

including as a result of hostilities or war;

our ability to maintain sustained profitability;

our ability to increase our gross margins;

the ability to utilize net operating loss carry forwards or other deferred tax assets;

volatility of our stock price;

uncertainty relating to patent protection and potential patent infringement claims;

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obstacles to international marketing and manufacturing of products;

ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms;

our ability to sell products internationally, including the impact of changes in international funding sources and testing algorithms;

adverse movements in foreign currency exchange rates;

loss or impairment of sources of capital;

ability to attract and retain qualified personnel;

exposure to product liability and other types of litigation;

our ability to attract and retain qualified personnel;

our exposure to product liability and other types of litigation;

changes in international, federal or state laws and regulations;

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equipment failures and ability to obtain needed raw materials and components;

the impact of terrorist attacks and civil unrest;

and general political, business and economic conditions.

the impact of terrorist attacks, civil unrest, hostilities and war;

general political, business and economic conditions.

These and other factors that could affect our results are discussed more fully in our Securities and Exchange Commission (“SEC”) filings, including our registration statements, Annual Report on Form 10-K for the year ended December 31, 2021, Quarterly Reports on Form 10-Q, and other filings with the SEC.

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segment and our “Molecular Solutions”

The Diagnostics business includes tests for diseases including HIV and Hepatitis C that are performed on a rapid basis at the point of care and tests that are processed in a laboratory.

Our Diagnostics business primarily consists of the development, manufacture, marketing and sale of simple, easy to use diagnostic products and specimen collection devices using our proprietary technologies, as well as other diagnostic products including immunoassays and other in vitro diagnostic tests that are used on other specimen types.

The Diagnostics business includes tests for diseases including COVID-19, HIV and Hepatitis C that are performed on a rapid basis at the point of care, and tests for drugs of abuse that are processed in a laboratory.

offices, and commercial and industrial entities.

Our HIV product is also sold in a consumer-friendly format in the OTC market in the U.S.

and as a self-test to individuals in a number of other countries.

Our Diagnostics business includes the operations of UrSure, which was acquired and merged into OraSure in 2020.

These products include laboratory-based tests that can measure levels of the medication in a patient’s urine or blood, as well as point- of-care products currently in development.

Our Molecular Solutions business is operated by our subsidiaries, DNAG, Diversigen and Novosanis.

In this business, we manufacture and sell kits that are used to collect, stabilize, transport and store a biological sample of genetic material for molecular testing.

Our products are used for academic research and commercial applications, including ancestry, disease risk management, lifestyle and animal testing.

Included in the disease risk management area are pharmacogenomics testing, hereditary disease screening, prenatal or cancer screening, population health initiatives and other molecular testing using DNA or RNA for diagnosis of acute disease.

We also sell research-use-only collection products into the microbiome market.

We offer our customers a suite of genomics and microbiome services that range from package customization and study design optimization to extraction, analysis and reporting services.

The microbiome laboratory and bioinformatics services are provided by Diversigen, which includes the operations of CoreBiome, a subsidiary we acquired in early 2019.

CoreBiome and Diversigen were merged together in 2020.

Our Molecular Solutions business serves customers in many countries worldwide, including many leading research universities and hospitals.

Our COVID-19 and HIV products are also sold in a consumer-friendly format in the over-the-counter (“OTC”) market in the U.S.

and, in the case of the HIV product, as a self-test to individuals in a number of other countries.

Through our Diagnostics business we are also developing and commercializing products that measure adherence to HIV medications including pre-exposure prophylaxis or PrEP, the daily medication to prevent HIV, and anti-retroviral medications to suppress HIV.

These products include laboratory-based tests that can measure levels of the medications in a patient’s urine or blood, as well as point-of-care products currently in development.

We began recording revenues on the sales of our InteliSwab ® COVID-19 Rapid Tests during the third quarter of 2021.

Our Molecular Solutions business is operated by our wholly-owned subsidiaries, DNA Genotek, Inc.

("DNAG"), Diversigen, Inc.

('Diversigen"), and Novosanis NV ("Novosanis").

Our Molecular Solutions business sells its products and services directly to its customers, primarily through its internal sales force in the U.S.

domestic market, and in many international markets, also through distributors.

Our products primarily consist of collection kits and services used by clinical laboratories, direct-to-consumer laboratories, researchers, pharmaceutical companies, and animal health service and product providers.

Most of our Molecular Solutions revenues are derived from product sales to commercial customers and sales into the academic and research markets.

A significant portion of our total sales is from repeat customers in both markets.

Molecular Solutions customers span the disease risk management, diagnostics, pharmaceutical, biotech, companion animal and environmental markets.

We have expanded the market focus of our Molecular Solutions business by selling existing collection products for use with COVID-19 tests.

We have also developed new collection devices for the emerging microbiome market, which focuses on studying microbes and their effect on human health.

Our primary product offering in the microbiome market, OMNIgene® GUT, is focused on the human gut microbiome (microbes living in human stool).

In 2021, the OMNIgene® GUT collection device (OMD-200) was granted “FDA De Novo classification for the preservation and stabilization of the relative abundance of microbial nucleic acids in clinical samples.”

We leverage our existing sales force and global research connections to engage microbiome customers worldwide to establish ourselves among the leaders in ease-of-collection, stabilization, and transport of this challenging sample type.

Our Molecular Solutions segment includes the Colli-Pee® device, developed and sold by our Novosanis subsidiary, for the volumetric collection of first void urine.

This product is in its early stages, and initial sales are occurring primarily through distributors and collaborations in the liquid biopsy and sexually transmitted disease markets.

Our Molecular Solutions business also offers laboratory and analytical services for both genomics and microbiome customers to more fully meet their needs.

These services are primarily provided to pharmaceutical, biotech companies, and research institutions.

Recent Developments

Impact of COVID-19

The COVID-19 pandemic continues to impact our business operations and it is not possible for us to predict the duration or magnitude of the outbreak’s effects on our business or results of operations.

During 2020, traditional HIV and HCV testing programs and drug testing in the workplace market were reduced or terminated as a result of the various “stay-at-home”

orders and social distancing guidelines issued by federal, state and local governments to contain the spread of the COVID-19 pandemic and we continued to see this impact our business in early 2021.

However, during the second and third quarters of 2021, we saw a resumption of HIV and HCV testing in the U.S.

as domestic sales of our non-COVID diagnostic products began returning to pre-pandemic levels.

On the international front, professional HIV and HCV testing in Europe and Asia also started to pick up.

However, more recently we have experienced reductions and stoppages of HIV self-testing in Southern and Eastern African countries due to the COVID-19 pandemic.

In our Molecular Solutions segment, COVID-related disruption in clinical and research work, particularly in the academic market, had reduced demand for our products in 2020 and early 2021, but demand levels started to return to normal in the second and third quarters of 2021.

Although the negative trends that materially impacted our results of operations during 2020 and early 2021 are starting to abate, it is impossible to predict if this improvement will continue and these negative trends may adversely impact certain parts of our business in future periods and for an indeterminate time period, depending on the duration and severity of the COVID-19 pandemic, the impact of COVID-19 variants and the scope and success of vaccination programs globally.

We also have experienced significant opportunities, and continue to believe there are potentially more significant opportunities, for increased revenues as a result of the COVID-19 pandemic.

In 2020, we began selling our saliva collection devices for use in molecular COVID-19 testing.

In the first nine months of 2021, we generated revenues of approximately $46.2 million from sales of our molecular collection devices related to COVID-19 testing.

In the U.S., public health customers purchased increased quantities of our OraQuick ® In-Home HIV Test in order to permit continued HIV testing while allowing clients and patients to adhere to “stay-at-home”

and social distancing requirements.

In addition, we saw increased demand for our molecular collection products from customers who conduct both saliva and blood-based testing.

As it became more difficult to collect blood in clinics or healthcare settings, these customers increasingly relied on the saliva collection alternative.

However, demand for molecular COVID-19 testing during the second and third quarters of 2021 began to decline primarily due to the availability of vaccines.

We believe this trend will continue in future periods.

In June 2021, we received three Emergency Use Authorizations ("EUAs") from the U.S.

Food and Drug Administration ("FDA") for our InteliSwab TM COVID-19 Rapid Tests for non-prescription OTC, professional point-of-care and prescription use.

These lateral flow, rapid antigen

diagnostic tests are designed to detect active COVID-19 infection with a simple, easy-to-use workflow, using samples self-collected from the lower nostrils.

After users swab their lower nostrils, the test stick is swirled in a pre-measured buffer solution.

No instrumentation, batteries, smart phone or laboratory analysis is needed to read the result, which appears on the test stick a short time later.

During the third quarter of 2021 and for nine-month period ending September 30, 2021, we recorded $7.7 million of InteliSwab TM sales.

Following discussions with the FDA and their de-prioritization of antibody testing in the U.S., we decided to no longer pursue EUAs for a COVID-19 antibody enzyme-linked immunosorbent assay ("ELISA") for use in laboratory settings.

We are, however, continuing to offer this product for research use only to labs and other parties interested in COVID antibody surveillance and research applications.

DLA Procurement Contract

In September 2021, we entered into a contract with the Defense Logistics Agency ("DLA") for the procurement of our InteliSwab COVID-19 Rapid Test for OTC use, which the DLA estimated to have a value of $205 million.

Under the terms of the contract, the Company will provide its InteliSwab COVID-19 Rapid Test to up to 25,000 sites throughout the United States.

The contract will run from October 2021 through September 2022.

BARDA 510(k) funding

In September 2021, we entered into an agreement with the Biomedical Advanced Research Development Authority (“BARDA”), which is part of the office of the Assistant Secretary for Preparedness and Response at the U.S.

Department of Health and Human Services (“HHS”), pursuant to which BARDA will provide up to $13.6 million in funding for us to obtain 510(k) clearance and Clinical Laboratory Improvement Amendments (“CLIA”) waiver of our InteliSwab COVID-19 rapid test from the U.S.

Food and Drug Administration (“FDA”).

DOD Manufacturing Capacity funding

In September 2021, we also entered into an agreement for $109 million in funding from the U.S.

Department of Defense (the “DOD”), in coordination with the Department of Health and Human Services, to build additional manufacturing capacity in the United States for our InteliSwab COVID-19 rapid tests as part of the nation’s pandemic preparedness plan.

Under this agreement, the funding will be used to expand our production capacity by 100 million tests annually.

An existing Company location in Bethlehem, PA will be retrofitted to accommodate increased manufacturing and an additional new facility will be added in another U.S.

location to be determined.

As COVID-19 continues to impact the economy of the United States and other countries around the world, we are committed to being a part of the response to this unprecedented challenge.

We have made substantial investments to expand our operations in order to manufacture product used for COVID-19 testing in the United States.

Due to COVID-19, we have experienced volatility, including periods of material decline compared to prior year periods in testing volume of our base business (which excludes COVID-19 testing) and periods of significant demand for COVID-19 testing product, with demand generally fluctuating in line with changes in prevalence of the virus and related variants.

It is difficult for us to predict the duration or magnitude of the outbreak’s effects on our business or results of operations.

Exploration of Strategic Alternatives

The COVID-19 pandemic has provided us an opportunity to fundamentally transform into a higher growth, more innovative and efficient organization with broader customer reach, both within and outside the United States.

We believe we are well positioned to address current public health challenges and capitalize on diagnostic trends in the market and enhance its operational and competitive profile.

Against this backdrop, our Board of Directors is exploring and evaluating a broad range of strategic alternatives with the goal of maximizing value for stockholders.

There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms.

CEO Recruitment

We have hired an external search firm and are in the process of looking for a permanent full time Chief Executive Officer.

Gagliano has been appointed as interim President and CEO by our Board of Directors but is not a candidate for the full-time position.

Current Consolidated Financial Results

During the nine months ended September 30, 2021, our consolidated net revenues increased 56% to $170.1 million, compared to $108.9 million for the nine months ended September 30, 2020.

Net product and services revenues during the nine months ended September 30, 2021 increased 56% when compared to the same period of 2020, largely due to increased revenues across all products lines, other than our international HIV self-test.

The biggest contributors to the increased revenues for the period were higher sales of our genomics products and our molecular sample collection kits for COVID-19 testing and the first time inclusion of sales of our InteliSwab TM COVID-19 rapid tests.

Other revenues for the nine months ended September 30, 2021 were $4.6 million compared to $2.9 million in the same period of 2020.

This increase was largely due to increased research and development funding for the development of our COVID-19 tests and higher royalty income.

Our consolidated net loss for the nine months ended September 30, 2021 was $12.6 million, or $0.18 per share on a fully diluted basis, compared to a consolidated net loss of $16.8 million, or $0.25 per share on a fully diluted basis, for the nine months ended September 30, 2020.

Results for the nine months ended September 30, 2021 included a $1.5 million non-cash pre-tax benefit associated with the change in the fair value of acquisition-related contingent consideration which accounted for approximately $0.02 per share.

Results for the nine months ended September 30, 2020 included a $390,000 non-cash pre-tax charge associated with the change in the fair value of acquisition-related contingent consideration and $393,000 of acquisition related transaction costs associated with the UrSure acquisition, which together accounted for approximately $0.01 per share.

Cash used in operating activities during the nine months ended September 30, 2021 was $22.6 million.

Cash provided by operating activities during the nine months ended September 30, 2020 was $2.2 million.

As of September 30, 2021, we had $202.3 million in cash, cash equivalents, and available-for-sale securities, compared to $257.1 million at December 31, 2020.

During the three months ended March 31, 2022, our consolidated net revenues increased 16% to $67.7 million, compared to $58.6 million for the three months ended March 31, 2021.

Net product and services revenues during the three months ended March 31, 2022 increased 15% when compared to the same period of 2021, largely due to the inclusion of $22.1 million of InteliSwab ® COVID-19 rapid test revenues.

We began selling this product in August of 2021 resulting in no comparable revenues in the first quarter of 2021.

Also contributing to the increase in revenues was higher genomics sales and increased international sales of our HIV product.

Declines in sales of our molecular sample collection kits for COVID-19 testing and in domestic sales of our HIV products partially offset these positive drivers of revenue.

Other revenues for the three months ended March 31, 2022 were $2.5 million compared to $2.0 million in the same period of 2021.

This increase was largely due to research and development funding for 510(k) clearance and CLIA waiver of our InteliSwab ® COVID-19 rapid test partially offset by lower royalty income.

Our consolidated net loss for the three months ended March 31, 2022 was $20.0 million, or $(0.28) per share on a fully diluted basis, compared to consolidated net income of $3.8 million, or $0.05 per share on a fully diluted basis, for the three months ended March 31, 2021.

Results for the three months ended March 31, 2022 were impacted by lower gross margins rates caused by manufacturing inefficiencies and nonrecurring costs associated with our strategic alternatives process and our CEO transition.

Cash used in operating activities during the three months ended March 31, 2022 was $35.8 million.

Cash used in operating activities during the three months ended March 31, 2021 was $4.4 million.

During the first quarter of 2022, our cash flow used in operating activities increased significantly as a result of our net loss, increased receivables due from the U.S government for end of quarter shipments, and increased investment in building InteliSwab ® inventory levels to support expected demand.

As of March 31, 2022, we had $112.2 million in cash, cash equivalents and available-for-sale securities.

Results of Operations

Three months ended September 30, 2021 compared to September 30, 2020

Three months ended March 31, 2022 compared to March 31, 2021

CONSOLIDATED NET REVENUES

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the three months ended September 30, 2021 and 2020.

Three Months Ended September 30,

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the three months ended March 31, 2022 and 2021.

For the Three Months Ended March 31,

Percentage of Total Net Revenues

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Net product and services revenues

Consolidated net product and services revenues increased 14% to $53.2 million for the three months ended September 30, 2021 from $46.7 million for the three months ended September 30, 2020.

The increase in revenues was largely driven by increased genomic product sales and the first time inclusion of s ales of our InteliSwab TM COVID-19 rapid tests , partially offset by a decline in sales of our molecular sample collection kits for COVID-19 testing.

Other revenues for the three months ended September 30, 2021 decreased 45% to $688,000 from $1.3 million for the three months ended September 30, 2020 due to expected lower research and development funding for the development of our COVID-19 tests and our HIV medication adherence tests .

Consolidated net revenues derived from products sold to customers outside of the United States were $10.9 million and $9.4 million, or 20% of total net revenues in each period, for the three months ended September 30, 2021 and 2020, respectively.

Consolidated net product and services revenues increased 15% to $65.2 million for the three months ended March 31, 2022 from $56.6 million for the three months ended March 31, 2021.

The increase in revenues is largely due to the inclusion of $22.1 million of InteliSwab ® COVID-19 rapid test revenues.

We began selling this product in August of 2021 resulting in no comparable revenues in the first quarter of 2021.

Also contributing to the increase in revenues was higher genomics sales and increased international sales of our HIV product.

Declines in sales of our molecular sample collection kits for COVID-19 testing and in domestic sales of our HIV products partially offset these positive drivers of revenue.

Other revenues for the three months ended March 31, 2022 increased 23% to $2.5 million from $2.0 million for the three months ended March 31, 2021 due to research and development funding for 510(k) clearance and CLIA waiver of our InteliSwab ® COVID-19 rapid test partially offset by lower royalty income.

Consolidated net revenues derived from products sold to customers outside of the United States were $9.7 million and $9.5 million, or 14% and 16% of total net revenues, for the three months ended March 31, 2022 and 2021, respectively.

Because the majority of our international sales are denominated in U.S.

2 unchanged sentences

Diagnostics Segment

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the three months ended September 30, 2021 and 2020.

Three Months Ended September 30,

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the three months ended March 31, 2022 and 2021.

For the Three Months Ended March 31,

Percentage of Total Net Revenues

Infectious disease testing:

Risk assessment testing

Total infectious disease testing

Substance abuse testing

Net product revenues

1 unchanged sentence

Infectious Disease Testing Market

Sales to the infectious disease testing market decreased 2% to $12.9 million for the three months ended September 30, 2021 from $13.2 million for the three months ended September 30, 2020.

This decrease resulted from lower world-wide OraQuick ® HIV and international OraQuick ® HCV product sales, partially offset by higher domestic OraQuick ® HCV product sales.

The table below shows a breakdown of our total net OraQuick ® HIV and HCV product revenues (dollars in thousands) during the three months ended September 30, 2021 and 2020.

Three Months Ended September 30,

COVID-19 revenues were $22.1 million for the three months ended March 31, 2022, driven by sales of our InteliSwab ® COVID-19 rapid test.

We first began selling this product in August of 2021 and there are no comparable sales in the first quarter of 2021.

Sales to the other infectious disease testing markets increased 3% to $11.7 million for the three months ended March 31, 2022 from $11.4 million for the three months ended March 31, 2021.

This increase resulted from higher international OraQuick ® HIV and world-wide OraQuick ® HCV product sales, partially offset by lower domestic OraQuick ® HIV sales.

The table below shows a breakdown of our total net OraQuick ® HIV and HCV product revenues (dollars in thousands) during the three months ended March 31, 2022 and 2021.

For the Three Months Ended March 31,

International HIV

3 unchanged sentences

Net OraQuick® revenues

Domestic OraQuick ® HIV sales decreased 12% to $3.4 million for the three months ended September 30, 2021 from $3.9 million for the three months ended September 30, 2020, primarily as a result of the timing of orders placed for our OraQuick ® In-Home test.

International sales of our OraQuick ® HIV tests decreased 4% to $6.6 million for the three months ended September 30, 2021 from $6.9 million for the three months ended September 30, 2020.

This decline in revenues was primarily due to lower subsidies for the international sale of our HIV Self-Test under the charitable support agreement with the Gates Foundation.

The Gates agreement and subsidy provided thereunder expired on June 30, 2021.

Domestic OraQuick ® HCV sales increased 54% to $1.8 million for the three months ended September 30, 2021 from $1.2 million for the three months ended September 30, 2020, due to the re-opening of testing programs previously closed as a result of the COVID-19 pandemic and as resources used for COVID-19 testing and vaccinations were redirected back to HCV testing.

International OraQuick ® HCV sales decreased 14% to $888,000 for the three months ended September 30, 2021 from $1.0 million for the three months ended September 30, 2020 due to customer ordering patterns.

COVID-19 Testing Market

During the three months ended September 30, 2021, COVID-19 revenues were $7.7 million, driven by the first time sales of our InteliSwab TM COVID-19 rapid test which were limited by manufacturing constraints in the quarter.

Risk Assessment Market

Sales to the risk assessment market increased 19% to $2.7 million for the three months ended September 30, 2021 compared to $2.3 million for the three months ended September 30, 2020 due to hiring increases driven by the economic recovery from the COVID-19 pandemic.

Domestic OraQuick ® HIV sales decreased 29% to $3.8 million for the three months ended March 31, 2022 from $5.3 million for the three months ended March 31, 2021, primarily as a result of a large first quarter 2021 order of our OraQuick® In-Home HIV test shipped to the Center for Disease Control and Prevention ("CDC") and used in an initiative to drive increased in-home HIV testing.

A similar order did not occur in the first quarter of 2022.

International sales of our OraQuick ® HIV tests increased 26% to $4.4 million for the three months ended March 31, 2022 from $3.5 million for the three months ended March 31, 2021 due to customer ordering patterns and increased sales into Africa as the COVID-19 impact lessens.

These increases to revenues were partially offset by the absence of the Gates Foundation subsidy which expired in June 2021 and is not included in revenues in the first quarter of 2022.

Domestic OraQuick ® HCV sales increased 72% to $2.0 million for the three months ended March 31, 2022 from $1.2 million for the three months ended March 31, 2021, driven by the timing of certain orders which occurred in the first quarter of 2022, compared to the second quarter of 2021.

International OraQuick ® HCV sales remained largely flat at $1.2 million for both the three months ended March 31, 2022 and 2021.

Substance Abuse Testing Market

Sales to the substance abuse testing assessment market increased 30% to $2.6 million for the three months ended March 31, 2022 compared to $2.0 million for the three months ended March 31, 2021 due to market share gains.

Other Revenues

Other revenues for the three months ended September 30, 2021 decreased to $230,000 from $774,000 for the three months ended September 30, 2020, due to lower research and development funding for the development of our COVID-19 tests and our HIV medication adherence tests .

Other revenues for the three months ended March 31, 2022 increased to $1.9 million from $1.2 million for the three months ended March 31, 2021, due to research and development funding for 510(k) clearance and CLIA waiver of our InteliSwab ® COVID-19 rapid test partially offset by lower royalty income.

Molecular Solutions Segment

The table below shows a breakdown of our total net revenues (dollars in thousands) during the three months ended September 30, 2021 and 2020.

Three Months Ended September 30,

The table below shows a breakdown of our total net revenues (dollars in thousands) during the three months ended March 31, 2022 and 2021.

For the Three Months Ended March 31,

Laboratory services

1 unchanged sentence

Net molecular product and services revenues

Sales of our genomics products increased 125% to $19.0 million for the three months ended September 30, 2021 compared to $8.5 million for the three months ended September 30, 2020, as this product line experienced a strong rebound from the impact of the COVID-19 pandemic in the prior period and benefited from ordering patterns of our larger customers.

Microbiome kit sales increased 11% to $1.7 million for the three months ended September 30, 2021 compared to $1.5 million for the three months ended September 30, 2020, due to customer ordering patterns.

Sales of our molecular sample collection kits for COVID-19 testing decreased 67% to $6.3 million for the three months ended September 30, 2021 compared to $18.8 million during the comparable period in 2020 due to lower COVID-19 PCR testing demand and the impact of the wider availability of vaccines.

Laboratory services revenues increased 6% to $2.4 million for the three months ended September 30, 2021 compared to $2.3 million for the three months ended September 30, 2020 due to customers resuming activities delayed by the COVID-19 pandemic .

Other product and service revenues increased 309% to $576,000 for the three months ended September 30, 2021 compared to $141,000 for the three months ended September 30, 2020 due to increased sales of our Colli-Pee® collection device.

Other revenues for the three months ended September 30, 2021 decreased 6% to $458,000 from $488,000 the three months ended September 30, 2020, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

Consolidated gross profit percentage was 40% for the three months ended September 30, 2021 compared to 63% for the three months ended September 30, 2020.

The decrease in gross profit percentage was primarily due to a less favorable product mix, increased scrap expense, lower absorption of labor, and lower subsidies for the international sale of our HIV Self-Test under the charitable support agreement with the Gates Foundation .

Consolidated operating loss for the three months ended September 30, 2021 was $13.0 million, a $17.4 million decrease from the $4.4 million operating income reported for the three months ended September 30, 2020.

Results for the three months ended September 30, 2021 were negatively impacted by the lower gross profit percentage and an increase in operating expenses.

OPERATING INCOME (LOSS) BY SEGMENT

We evaluate performance of our operating segments based on revenue and operating income.

Reportable segments have no inter-segment revenue and inter-segment expenses are eliminated in consolidation, including the fees associated with an intercompany service agreement between Diagnostics and Molecular Solutions.

Diagnostics Segment

The gross profit percentage for the Diagnostics segment was 16% for the three months ended September 30, 2021 compared to 44% for the three months ended September 30, 2020.

This decrease is due to an increase in scrap costs associated with the production of our InteliSwab TM test, and the recording of a reserve for COVID-19 antibody inventory, lower absorption of labor costs as we have increased headcount in anticipation of higher production demands, and lower subsidies for the international sale of our HIV Self-Test under the charitable support agreement with the Gates Foundation .

Research and development expenses increased 3% to $5.9 million for the three months ended September 30, 2021 compared to $5.7 million for the three months ended September 30, 2020 largely due to higher staffing costs and increased spend to investigate InteliSwab TM manufacturing issues, partially offset by a decline in COVID-19 lab supply costs associated with reduced product development activities from the prior year period.

Sales and marketing expenses increased 83% to $9.0 million for three months ended September 30, 2021 from $4.9 million for the three months ended September 30, 2020 due to an increase in advertising spend associated with the introduction of our InteliSwab TM test into the market, higher commissions associated with the revenue increase, and increased consulting expense associated with business strategy planning .

General and administrative expenses increased 24% to $8.0 million for the three months ended September 30, 2021 from $6.5 million for the three months ended September 30, 2020 largely due to increased business development consulting spend, increased staffing costs associated with increased headcount and higher recruiting expenses.

We are anticipating higher operating expenses in the fourth quarter of 2021 as several of our on-going InteliSwab TM post marketing clinical studies will lead to higher research and development expenses.

In addition, we expect higher sales and marketing and general and administrative costs as we prepare for significant commercial ramp up of our InteliSwab TM business in 2022.

All of the above contributed to the Diagnostics segment’s operating loss of $18.6 million for the three months ended September 30, 2021, which included non-cash charges of $1.1 million for depreciation and amortization and $1.9 million for stock-based compensation.

The Diagnostics

segment operating loss also included a non-cash pre-tax benefit of $500,000 associated with the change in the fair value of acquisition-related contingent consideration.

Molecular Solutions Segment

The gross profit percentage for the Molecular Solutions segment was 58% for the three months ended September 30, 2021 compared to 73% for the three months ended September 30, 2020.

This decrease was due to a less favorable product mix associated with the higher sales of lower gross profit percentage product and an increase in costs at our third party contract manufacturers resulting from the capacity expansion at those vendors.

Research and development expenses increased 17% to $2.7 million for the three months ended September 30, 2021 from $2.3 million for the three months ended September 30, 2020 due to higher staffing costs.

Sales and marketing expenses increased 67% to $4.9 million for the three months ended September 30, 2021 from $2.9 million for the three months ended September 30, 2020 due to increased consulting expense associated with business strategy planning, an increase in our reserve for uncollectible accounts, and higher staffing costs .

General and administrative expenses increased 23% to $4.4 million for the three months ended September 30, 2021 from $3.6 million for the three months ended September 30, 2020 due to increased legal fees and staffing costs.

All of the above contributed to the Molecular Solutions segment’s operating income of $5.6 million for the three months ended September 30, 2021, which included $2.2 million for depreciation and amortization and $301,000 for stock-based compensation.

CONSOLIDATED INCOME TAXES

We continue to believe the full valuation allowance established against our total U.S.

deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed.

For the three months ended September 30, 2021, we recorded a U.S.

state tax benefit of $102,000 compared to a $629,000 state income tax benefit for the three months ended September 30, 2020.

For the three months ended September 30, 2021, we recorded foreign tax expense of $2.2 million compared to foreign tax expense of $4.3 million for the three months ended September 30, 2020.

The overall decrease in tax expense is largely a result of the decrease in income before taxes generated by our Canadian subsidiary.

Nine months ended September 30, 2021 compared to September 30, 2020

CONSOLIDATED NET REVENUES

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments for the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,

Percentage of Total Net Revenues

Molecular Solutions

Net product and services revenues

Consolidated net product and services revenues increased 56% to $165.5 million for the nine months ended September 30, 2021 from $106.0 million for the comparable period of 2020, largely due to increased revenues across all products lines, other than our international HIV self-test.

Other revenues for the nine months ended September 30, 2021 increased 57% to $4.6 million from $2.9 million for the nine months ended September 30, 2020.

This increase was largely due to increased research and development funding for the development of our COVID-19 tests and higher royalty income.

Consolidated net revenues derived from products sold to customers outside of the United States were $30.4 million and $26.7 million, or 18% and 25% of total net revenues, in the first nine months of 2021 and 2020, respectively.

Because the majority of our international sales are denominated in U.S.

dollars, the impact of fluctuating foreign currency exchange rates was not material to our total consolidated net revenues.

Net Revenues by Segment

Diagnostics Segment

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,

Percentage of Total Net Revenues

Infectious disease testing

Risk assessment testing

Net product revenues

NM - not meaningful

Infectious Disease Testing Market

Sales to the infectious disease testing market increased 8% to $39.7 million for the nine months ended September 30, 2021 from $36.6 million for the nine months ended September 30, 2020.

This increase resulted from higher domestic sales of our OraQuick ® HIV and HCV products and higher international OraQuick ® H VC product sales, partially offset by lower sales of our international OraQuick ® HIV Self-Test s.

The table below shows a breakdown of our total net OraQuick ® HIV and HCV product revenues (dollars in thousands) during the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,

International HIV

Net HIV revenues

International HCV

Net HCV revenues

Net OraQuick® revenues

Domestic OraQuick ® HIV sales increased 10% to $12.5 million for the nine months ended September 30, 2021 from $11.3 million for the nine months ended September 30, 2020.

This increase was primarily the result of higher sales of our OraQuick ® In-Home HIV test used in a Centers for Disease Control and Prevention ("CDC") initiative to drive increased in-home HIV testing .

International sales of our OraQuick ® HIV tests decreased 2% to $17.3 million for the nine months ended September 30, 2021 from $17.7 million for the nine months ended September 30, 2020 largely due to pricing associated with the expiration of the Gates Foundation subsidy for certain international tests.

Domestic OraQuick ® HCV sales increased 62% to $5.6 million for the nine months ended September 30, 2021 from $3.4 million for the nine months ended September 30, 2020 due to the re-opening of testing programs previously closed as a result of the COVID-19 pandemic and as resources used for COVID-19 testing and vaccinations were redirected back to HCV testing.

International OraQuick ® HCV sales increased 37% to $3.8 million for the nine months ended September 30, 2021 from $2.8 million for the nine months ended September 30, 2020 as sales into certain international markets continued to return to pre-pandemic levels.

COVID-19 Testing Market

During the nine months ended September 30, 2021, COVID-19 revenues were $7.9 million, driven by the first time sales of our InteliSwab TM COVID-19 rapid antigen test which began in the third quarter of 2021.

Risk Assessment Market

Sales to the risk assessment market increased 7% to $7.3 million for the nine months ended September 30, 2021 compared to $6.8 million for the nine months ended September 30, 2020 due to hiring increases driven by the economic recovery from the COVID-19 pandemic.

Other Revenues

Other revenues for the nine months ended September 30, 2021 increased to $2.5 million from $1.1 million for the nine months ended September 30, 2020, largely due higher research and development funding for our COVID-19 tests and the inclusion of royalty income under the terms of a new licensing agreement related to our proprietary buffer solution used for the preservation and stabilization of oral fluid specimens.

Molecular Solutions Segment

The table below shows a breakdown of our total net revenues (dollars in thousands) during the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,

Laboratory services

Other product revenues

Net molecular product and services revenues

Sales of our genomics products increased 112% to $49.3 million for the nine months ended September 30, 2021 compared to $23.2 million for the nine months ended September 30, 2020 as we continued to see our customers' businesses recover from the COVID-19 pandemic and strong organic growth from customers in the commercial animal markets.

Microbiome kit sales increased 52% to $5.9 million for the nine months ended September 30, 2021 compared to $3.9 million for the nine months ended September 30, 2020 due to a recovery in the market from the COVID-19 pandemic.

Sales of our molecular sample collection kits for COVID-19 testing increased 66% to $46.2 million for the nine months ended September 30, 2021 compared to $27.9 million during the comparable period in 2020 due to increased demand as the COVID-19 pandemic began late in the first quarter of 2020 and testing ramped up in the second and third quarters of 2020 and continued into the first half of 2021 contributing to the revenue growth for the nine month period.

Laboratory services revenues increased 18% to $8.0 million for the nine months ended September 30, 2021 compared to $6.8 million for the nine months ended September 30, 2020, due to customers resuming activities delayed by the COVID-19 pandemic.

Other product and service revenues increased 64% to $1.2 million for the nine months ended September 30, 2021 compared to $752,000 for the nine months ended September 30, 2020 due to increased sales of our Colli-Pee® collection device.

Other revenues for the nine months ended September 30, 2021 increased 12% to $2.1 million from $1.8 million for the nine months ended September 30, 2020 largely as a result of higher royalty income received under a litigation settlement agreement.

Net molecular revenues

Sales of our genomics products increased 40% to $15.1 million for the three months ended March 31, 2022, compared to $10.8 million for the three months ended March 31, 2021, as result of increased sales to several commercial customers due to customer ordering patterns, organic growth, and a return to pre-COVID-19 ordering levels.

Microbiome kit sales increased 14% to $2.0 million for the three months ended March 31, 2022 compared to $1.8 million for the three months ended March 31, 2021, as the company has expanded the number of customers and clinical research studies it is supporting.

Sales of our molecular sample collection kits for COVID-19 testing decreased 68% to $8.9 million for the three months ended March 31, 2022 compared to $28.0 million during the comparable period in 2021 due to lower COVID-19 PCR testing sales to our core customers, driven by the availability of antigen tests, the wider availability of vaccines and high inventory levels held by some of those customers.

Laboratory services revenues declined 31% to $1.7 million for the three months ended March 31, 2022 compared to $2.5 million for the three months ended March 31, 2021 as the business continues to be impacted by delays in customer clinical trials due to COVID-19.

Other product and service revenues increased 442% to $1.1 million for the three months ended March 31, 2022 compared to $208,000 for the three months ended March 31, 2021 largely due to increased sales by our Novosanis subsidiary.

Other revenues for the three months ended March 31, 2022 decreased 29% to $557,000 from $790,000 for the three months ended March 31, 2021, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

Consolidated gross profit percentage was 53% for the nine months ended September 30, 2021 compared to 59% for the nine months ended September 30, 2020.

Gross profit percentage for the nine months ended September 30, 2021 declined as a result of increased scrap expense, lower absorption of labor costs, and lower subsidies under the charitable support agreement with the Gates Foundation, partially offset by an improved product mix associated with an increase in higher gross profit percentage product sales.

Consolidated operating loss for the nine months ended September 30, 2021 was $793,000 a $12.3 million improvement from the $13.1 million operating loss reported for the nine months ended September 30, 2020.

Results for the nine months ended September 30, 2021 were positively

impacted by the increased revenues and the inclusion of an $1.5 million non-cash benefit related to the fair value change in acquisition-related contingent consideration partially offset by the lower gross profit percentage and increased operating expenses.

Consolidated gross profit margins were 36% for the three months ended March 31, 2022 compared to 65% for the three months ended March 31, 2021.

The decrease in gross profit margins was primarily due to a less favorable product mix, increased scrap expense, lower absorption of labor, and no subsidies for the international sale of our HIV Self-Test under the charitable support agreement with the Gates Foundation which expired in June 2021.

Consolidated operating loss for the three months ended March 31, 2022 was $16.0 million, a $26.4 million decrease from the $10.4 million operating income reported for the three months ended March 31, 2021.

Results for the three months ended March 31, 2022 were negatively impacted by the lower gross profit margin described above coupled with an increase in operating expenses as described below.

OPERATING INCOME (LOSS) BY SEGMENT

We evaluate performance of our operating segments based on revenue and operating income.

Reportable segments have no inter-segment revenue and inter-segment expenses are eliminated in consolidation, including the fees associated with an intercompany service agreement between the U.S.

and Canadian entities.

Diagnostics Segment

The gross profit percentage for the Diagnostics segment was 29% for the nine months ended September 30, 2021 compared to 43% for the nine months ended September 30, 2020.

This decrease was due to an increase in scrap costs associated with the production of our InteliSwab TM test and the recording of a reserve for COVID-19 antibody inventory, and lower absorption of labor costs as we have increased headcount in anticipation of higher production demands .

Research and development expenses increased 29% to $17.4 million for the nine months ended September 30, 2021 from $13.5 million for the nine months ended September 30, 2020, largely due to higher staffing costs and increased COVID-19 product development expenses.

Sales and marketing expenses increased 35% to $21.7 million for the nine months ended September 30, 2021 from $16.1 million for the nine months ended September 30, 2020, due to higher market research and advertising spending associated with the introduction of our InteliSwab TM test into the market , higher commissions directly related to the increase in revenues and increased consulting costs associated with business strategy planning.

General and administrative expenses increased 4% to $21.6 million for the nine months ended September 30, 2021 from $20.7 million for the nine months ended September 30, 2020 due to higher staffing costs associated with increased headcount, and higher business development consulting costs, partially offset by lower legal fees, a lower allocation of building costs as administrative space was repurposed for manufacturing, and increased intercompany service fees allocated to the Molecular Solutions segment.

All of the above contributed to the Diagnostics segment’s operating loss of $42.8 million for the nine months ended September 30, 2021, which included non-cash charges of $3.0 million for depreciation and amortization and $4.7 million for stock-based compensation.

The Diagnostics segment operating loss also included a non-cash pre-tax benefit of $1.5 million associated with the change in the fair value of acquisition-related contingent consideration.

The gross profit margin for the Diagnostics segment was 19% for the three months ended March 31, 2022 compared to 43% for the three months ended March 31, 2021.

This decrease is due to inefficiencies in our InteliSwab ® manufacturing process including high scrap rates at the beginning of 2022 and under-absorption of labor costs as well a less favorable product mix and the June 2021 expiration of subsidies under the support agreement with the Gates Foundation.

The inefficiencies in our InteliSwab ® manufacturing process were largely corrected by the end of the first quarter of 2022.

Research and development expenses decreased 16% to $5.5 million for the three months ended March 31, 2022 compared to $6.6 million for the three months ended March 31, 2021 largely due to clinical study activities in the first quarter of 2021 related to our InteliSwab ® rapid test which did not repeat in the first quarter of 2022 as we received EUA authorization in June 2021.

Sales and marketing expenses increased 30% to $8.1 million for three months ended March 31, 2022 from $6.2 million for the three months ended March 31, 2021 due to an increase in spend associated with our InteliSwab ® test, increased staffing costs associated with higher head count, and increased travel expenses as travel has resumed as COVID-19 restrictions have been lifted.

These increases in spend were partially offset by a decline in reserves for uncollectible accounts .

General and administrative expenses increased 112% to $13.7 million for the three months ended March 31, 2022 from $6.4 million for the three months ended March 31, 2021 largely due to increased consulting costs, higher stock compensation expense associated with accelerated vesting of shares under our former CEO's employment agreement, increased legal costs, higher staffing costs associated with increased head count, and higher recruitment expense largely associated with our CEO search.

All of the above contributed to the Diagnostics segment’s operating loss of $19.8 million for the three months ended March 31, 2022, which included non-cash charges of $1.7 million for depreciation and amortization and $3.1 million for stock-based compensation.

The Diagnostics segment operating loss also included a non-cash pre-tax benefit of $36,000 associated with the change in the fair value of acquisition-related contingent consideration.

This is in comparison to an $806,000 benefit recorded in the first quarter of 2021.

Molecular Solutions Segment

The gross profit percentage for the Molecular Solutions segment was 66% for the nine months ended September 30, 2021 compared to 69% for the nine months ended September 30, 2020.

This decrease is due a less favorable product mix associated with increased sales of lower gross profit percentage product and increased cost s at our third party contract manufacturers.

Research and development expenses increased 11% to $7.9 million for the nine months ended September 30, 2021 from $7.1 million for the nine months ended September 30, 2020 due to increased staffing and consulting costs.

Sales and marketing expenses increased 31% to $12.1 million for the nine months ended September 30, 2021 from $9.2 million for the nine months ended September 30, 2020 due to higher staffing costs, increased consulting costs associated with business strategy planning, and an increase in our reserve for uncollectible accounts .

General and administrative expenses increased 24% to $12.1 million for the nine months ended September 30, 2021 from $9.7 million for the nine months ended September 30, 2020 due to increased intercompany service fees allocated from the Diagnostics segment, estimated penalties incurred on delinquent sales tax filings that were not recognized in the prior year period, higher staffing costs, and increased legal fees.

All of the above contributed to the Molecular Solutions segment’s operating income of $42.0 million for the nine months ended September 30, 2021, which included $5.5 million for depreciation and amortization and $496,000 for stock-based compensation.

The gross profit margins for the Molecular Solutions segment was 58% for the three months ended March 31, 2022 compared to 73% for the three months ended March 31, 2021.

This decrease was due to a less favorable product mix.

Research and development expenses increased 20% to $2.9 million for the three months ended March 31, 2022 from $2.4 million for the three months ended March 31, 2021 due to higher staffing costs.

Sales and marketing expenses increased 39% to $4.6 million for the three months ended March 31, 2022 from $3.3 million for the three months ended March 31, 2021 due to higher staffing costs related to increased head count, increased consulting expense associated with business strategy planning, and an increase in our reserve for uncollectible accounts.

These increases in expenses were partially offset by lower amortization expense associated with an intangible asset that was fully amortized at the end of 2021.

General and administrative expenses increased 47% to $5.5 million for the three months ended March 31, 2022 from $3.7 million for the three months ended March 31, 2021 due to increased legal fees and staffing costs.

All of the above contributed to the Molecular Solutions segment’s operating income of $3.8 million for the three months ended March 31, 2022, which included $2.0 million for depreciation and amortization and $396,000 for stock-based compensation.

CONSOLIDATED INCOME TAXES

1 unchanged sentence

deferred tax asset is appropriate as the facts and circumstances necessitating the allowance have not changed.

For the nine months ended September 30, 2021, we recorded U.S.

state tax expense of $13,000 compared to $612,000 of state income tax benefit for the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, we recorded foreign tax expense of $12.2 million compared to foreign tax expense of $6.3 million for the nine months ended September 30, 2020.

The overall increase in tax expense is largely a result of the increase in income before taxes generated by our Canadian subsidiary.

For the three months ended March 31, 2022, we recorded U.S.

state tax expense of $216,000 compared to $169,000 of state income tax expense for the three months ended March 31, 2021.

Additionally, in the first quarter of 2022, we recorded approximately $1.7 million of withholding taxes due to the Canada Revenue Agency associated with our repatriation of $65.0 million of cash from Canada to the United States.

For the three months ended March 31, 2022, we recorded foreign tax expense of $2.0 million compared to foreign tax expense of $6.4 million for the three months ended March 31, 2021.

This overall decrease in foreign tax expense is largely a result of the decrease in income before taxes generated by our Canadian subsidiary.

Liquidity and Capital Resources

September 30,

(In thousands)

2 unchanged sentences

Working capital

Our cash and cash equivalents and available-for-sale securities decreased to $202.3 million at September 30, 2021 from $257.1 million at December 31, 2020.

Our working capital decreased to $235.1 million at September 30, 2021 from $242.4 million at December 31, 2020.

During the nine months ended September 30, 2021, net cash used in operating activities was $22.6 million.

Our net loss of $12.6 million included non-cash charges for depreciation and amortization expense of $8.5 million, stock-based compensation expense of $5.2 million, a provision for doubtful accounts of $1.2 million, and other non-cash expense of $105,000.

Operating activities also included a benefit for the change in the estimated fair value of acquisition-related contingent consideration of $1.5 million and a $142,000 contingent consideration payment representing the excess of the total contingent consideration payment made during the nine months ended September 30, 2021 over the fair value of the liability estimated at the time of acquisition.

Sources of cash generated from our working capital accounts included a $2.8 million increase in accounts payable due to the timing of invoices received and payments made and an increase in accrued expenses and other liabilities of $982,000 associated with increased accruals for professional fees and higher sales tax payable .

Offsetting these sources of cash were an increase in inventory of $21.7 million to meet anticipated demand to support COVID-19 testing programs, an increase in accounts receivable of $2.1 million due to orders placed late in the quarter, an increase in prepaid expenses and other assets of $1.9 million due to prepayments made on a manufacturing contract and a decrease in deferred revenue of $1.3 million due to the recognition of revenue from customer prepayments.

Net cash provided by investing activities was $776,000 for the nine months ended September 30, 2021, which reflects proceeds from the maturities and redemptions of investments of $53.8 million offset by $27.5 million used to acquire property and equipment largely to increase our manufacturing capacity and $25.5 million used to purchase investments.

Net cash used in financing activities was $3.1 million for the nine months ended September 30, 2021, which reflects $1.9 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to our employees, payments of lease liabilities of $1.1 million and $264,000 used for payment of our contingent consideration obligation, partially offset by proceeds from stock option exercises of $247,000.

Our cash and cash equivalents and available-for-sale securities decreased to $112.2 million at March 31, 2022 from $170.1 million at December 31, 2021.

Our working capital decreased to $212.8 million at March 31, 2022 from $220.4 million at December 31, 2021.

During the three months ended March 31, 2022, net cash used in operating activities was $35.8 million.

Our net loss of $20.0 million included non-cash charges for depreciation and amortization expense of $3.7 million, stock-based compensation expense of $3.5 million, an inventory reserve of $1.1 million, and other non-cash expense of $1.5 million.

Cash used to fund our working capital accounts included an increase in accounts receivable of $15.3 million largely associated with end of the quarter shipments of product to the U.S.

government, an increase in inventory of $9.4 million to meet anticipated demand to support COVD-19 testing programs, and a $4.6 million decrease in accrued expenses and other liabilities largely due to payment of our 2021 bonuses.

Offsetting these uses of cash was a $4.4 million increase in accounts payable due to the timing of invoices received and payments made.

Net cash used in investing activities was $9.9 million for the three months ended March 31, 2022, which reflects proceeds from the maturities and redemptions of investments of $12.1 million.

This was offset by $20.2 million to acquire property and equipment largely to increase our manufacturing capacity.

Cash used in investing activities also reflects net cash used of $1.8 million to build additional manufacturing capacity as required by our $109 million agreement with the U.S.

Department of Defense (the “DOD”) , which is expected to be reimbursed in the second quarter of 2022.

Net cash used in financing activities was $1.4 million for the three months ended March 31, 2022, which is largely comprised of $1.0 million used for the repurchase of common stock to satisfy withholding taxes related to the vesting of restricted shares awarded to our employees.

We expect current balances of cash and cash equivalents and available-for-sale securities to be sufficient to fund our current and foreseeable operating and capital needs.

Our cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the scope and timing of future strategic acquisitions, the progress of our research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures including continued investment to expand our capacity to manufacture products for COVID-19 testing, changes in existing and potential relationships with business partners, the timing and cost of obtaining regulatory approvals, the timing and cost of future stock purchases, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, market acceptance of new products, competing technological and market developments, the impact of the current economic environment and other factors.

Our cash requirements, however, may vary materially from those now planned due to many factors, including, but not limited to, the timing of reimbursement under our $109 million DOD contract, the scope and timing of future strategic acquisitions, the progress of our research and development programs, the scope and results of clinical testing, the cost of any future litigation, the magnitude of capital expenditures, changes in existing and potential relationships with business partners, the timing and cost of obtaining regulatory approvals, the timing and cost of future stock purchases, the costs involved in obtaining and enforcing patents, proprietary rights and any necessary licenses, the cost and timing of expansion of sales and marketing activities, market acceptance of new products, competing technological and market developments, the impact of the current economic environment and other factors.

In addition, $72.7 million or 65% of our $112.2 million in cash, cash equivalents and available-for-sale securities belongs to our Canadian subsidiary.

Repatriation of such cash into the United States exceeding certain levels could have adverse tax consequences.

In the first quarter of 2022, we repatriated $65.0 million of cash from Canada into the United States and incurred approximately $1.7 million of Canadian withholding tax.

Further repatriation of cash from Canada into the United States could have additional adverse tax consequences.

It is our intention going forward to continue to permanently reinvest the historical undistributed earnings of our foreign subsidiaries.

A summary of our obligations to make future payments under contracts existing at December 31, 2021 is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2021.

As of September 30, 2021, except as described in note 11 within the notes to the consolidated financial statements, there were no significant changes to this information.

As of March 31, 2022, there were no significant changes to this information.

Critical Accounting Policies and Estimates

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A more detailed review of our critical accounting policies is contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC.

During the first nine months of 2021, there were no material changes to our critical accounting policies.

During the first three months of 2022, there were no material changes to our critical accounting policies.

QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK

We do not hold any amounts of derivative financial instruments or derivative commodity instruments and, accordingly, we have no material derivative risk to report under this Item.

As of September 30, 2021, we did not have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows.

Sales denominated in foreign currencies comprised 5.2% of our total revenues for the nine months ended September 30, 2021.

As of March 31, 2022, we did not have any foreign currency exchange contracts or purchase currency options to hedge local currency cash flows.

Sales denominated in foreign currencies comprised 5.1% of our total revenues for the three months ended March 31, 2022.

We do have foreign currency exchange risk related to our operating subsidiaries in Canada and in Belgium.

3 unchanged sentences

Our foreign subsidiaries had net assets, subject to translation, of $139.4 million in U.S.

Dollars, which are included in the Company’s consolidated balance sheet as of September 30, 2021.

Dollars, which are included in the Company’s consolidated balance sheet as of March 31, 2022.

A 10% unfavorable change in the Canadian-to-U.S.

dollar and Euro-to-U.S.

dollar exchange rates would have decreased our comprehensive income by approximately $16.8 million in the nine months ended September 30, 2021.

dollar exchange rates would have decreased our comprehensive income by approximately $13.9 million in the three months ended March 31, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements