What changed in this filing

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Item 1. Financial Statements

2022-08-09 compared with 2022-05-10 · 368 added, 196 removed, 576 unchanged (49% of the section changed)

4 unchanged sentences

(in thousands, except per share amounts)

March 31, 2022

June 30, 2022

December 31, 2021

45 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

NET REVENUES:

5 unchanged sentences

General and administrative

Loss on impairment

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

Operating income (loss)

OTHER INCOME (LOSS)

Income (loss) before income taxes

INCOME TAX EXPENSE

INCOME TAX EXPENSE (BENEFIT)

NET INCOME (LOSS)

6 unchanged sentences

(in thousands)

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

NET INCOME (LOSS)

1 unchanged sentence

Currency translation adjustments

Unrealized gain on marketable securities

Unrealized gain (loss) on marketable securities

COMPREHENSIVE INCOME (LOSS)

4 unchanged sentences

(in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

OPERATING ACTIVITIES:

Net income (loss)

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

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

Stock-based compensation

Depreciation and amortization

Loss on impairment

Other non-cash amortization

1 unchanged sentence

Inventory reserve

Unrealized foreign currency (gain) loss

Unrealized foreign currency gain

Interest expense on finance leases

11 unchanged sentences

INVESTING ACTIVITIES:

Purchases of investments

Proceeds from maturities and redemptions of investments

11 unchanged sentences

EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

NET DECREASE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

5 unchanged sentences

Accrued property and equipment purchases under government contracts

Unrealized gain on marketable securities

Unrealized gain (loss) on marketable securities

See accompanying notes to the consolidated financial statements.

17 unchanged sentences

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

Results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results of operations expected for the full year.

Summary of Significant Accounting Policies .

2 unchanged sentences

We consider all investments in debt securities to be available-for-sale securities.

These securities consist of guaranteed investment certificates and corporate bonds with purchased maturities greater than ninety days.

These securities consist of guaranteed investment certificates and corporate bonds purchased with maturities greater than ninety days.

Available-for-sale securities are carried at fair value, based upon quoted market prices, with unrealized gains and losses, if any, reported in stockholders’

2 unchanged sentences

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.

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

During the six months ended June 30, 2022 , we recognized a provision for expected credit losses for our available-for-sale securities of $ 72 .

The following is a summary of our available-for-sale securities as of June 30, 2022 and December 31, 2021:

June 30, 2022

Guaranteed investment certificates

5 unchanged sentences

Total available-for-sale securities

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

At June 30, 2022, maturities of our available-for-sale

securities were as follows:

2 unchanged sentences

Fair Value of Financial Instruments .

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.

As of June 30, 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:

2 unchanged sentences

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 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.

All of our available-for-sale debt securities are measured as Level 2 instruments as of June 30, 2022 and December 31, 2021.

Our available-for-sale guaranteed investment certificates are measured as Level 1 instruments as of June 30, 2022 and December 31, 2021.

Included in cash and cash equivalents at June 30, 2022 and December 31, 2021, was $ 5,636 and $ 1,160 invested in government money market funds.

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

3 unchanged sentences

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

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.

The fair value of the plan assets as of June 30, 2022 and December 31, 2021 was $ 1,576 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.

7 unchanged sentences

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 March 31, 2022 and December 31, 2021 was $ 63,984 and $ 61,157 , respectively.

Accumulated depreciation of property, plant and equipment as of June 30, 2022 and December 31, 2021 was $ 66,468 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 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 .

Accumulated amortization of intangible assets as of June 30, 2022 and December 31, 2021 was $ 30,988 and $ 30,412 , respectively.

The decrease in intangible assets from $ 14,343 as of December 31, 2021 to $ 12,851 as of June 30, 2022 was due to $ 1,120 in amortization expense and foreign currency translation losses of $ 372 .

Impairment of Long-Lived Assets .

Long-lived assets, which include property and equipment and definite-lived intangible assets, are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.

We assess the recoverability of our long-lived assets by determining whether the carrying value of such assets can be recovered through the sum of the undiscounted future cash flows generated from the use and eventual disposition of the asset.

If indicators of impairment exist, we measure the amount of such impairment by comparing the carrying value of the assets to the fair value of these assets, which is generally determined based on the present value of the expected future cash flows associated with the use of the assets.

Expected future cash flows reflect our assumptions about selling prices, volumes, costs and market conditions over a reasonable period of time.

During the three months ended June 30, 2022 , management decided to move three idle manufacturing cells to storage due to changes in forecasted demand for the products the cells are intended to produce.

As a result of this decision, we determined that the carrying values of the equipment is not recoverable and recorded an aggregate pre-tax asset impairment charge of $ 6,938 during the three months ended June 30, 2022 to write the assets down their estimated fair values.

This charge is reported within loss on impairments in the consolidated statement of operations.

We estimated the fair value of the impaired long-lived assets using a market approach, which required us to estimate the value that would be received for the equipment in the principal or most advantageous market for that equipment in an orderly transaction between market participants.

Due to the extremely specialized nature of the manufacturing equipment and various market data points, the estimated fair value was not significant.

Our fair value estimates were representative of Level 3 measurements within the fair value hierarchy due to the significant level of estimation involved and the lack of transparency as to the inputs used.

Foreign Currency Translation .

2 unchanged sentences

Resulting translation adjustments are reflected in accumulated other comprehensive loss, which is a separate component of stockholders’

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 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.

Net foreign exchange gains resulting from

foreign currency transactions that are included in other income (loss) in our consolidated statements of operations were $ 783 and $ 198 for the three months ended June 30, 2022 and 2021 , respectively.

Net foreign exchange gains (losses) were $ 54 and $( 379 ) for the six months ended June 30, 2022 and 2021 , respectively.

Accumulated Other Comprehensive Loss .

4 unchanged sentences

dollars, which is the reporting currency of the Company.

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 June 30, 2022 consisted of $ 12,236 of currency translation adjustments and $ 278 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.

3 unchanged sentences

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 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 .

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 ASU were effective upon issuance and could be applied prospectively through December 31, 2022.

The FASB issued a proposed amendment to the ASU in April 2022 which, if approved, will extend the date for prospective application to December 31, 2024.

Management has evaluated this ASU and concluded that it will not have a material impact on the Company's Consolidated Financial Statements .

Government Capital Contracts

10 unchanged sentences

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.

We recognized $ 561 and $ 1,123 of such income for the three and six months ended June 30, 2022, respectively, which is reported as other income (loss) in our consolidated statement of operations.

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

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

Property, plant and equipment, net:

Cost of assets

Reduction for funding earned, not yet received

Reduction for funding received

Cost of assets, cumulative

Reduction for funding earned to date, not yet received

Reduction for funding received to date

Total property, plant and equipment, net

Accrued expenses and other current liabilities

March 31, 2022

June 30, 2022

December 31, 2021

5 unchanged sentences

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:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

2 unchanged sentences

Earnings (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.

For the three months ended June 30, 2022, three months ended June 30, 2021 and six months ended June 30, 2022 , outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 226 , 603 , and 381 shares, respectively, were excluded from the computation of diluted loss per share.

For the six months ended June 30, 2021, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 604 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Substance abuse

7 unchanged sentences

(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.

The reclassification increased (decreased) the product line revenues for the three months ended June 30, 2021 by $ 490 , $( 84 ) and $( 406 ), respectively.

The reclassification increased (decreased) the product line revenues for the six months ended June 30, 2021 by $ 1,073 , $( 330 ) and $( 743 ), 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

United States

1 unchanged sentence

Customer and Vendor Concentrations .

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

At June 30, 2022 , one non-commercial customer accounted for 48 % of our accounts receivable and another commercial customer accounted for 10 % 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.

One non-commercial customer accounted for 56 % and 39 % of net consolidated revenues for the three and six months ended June 30, 2022 .

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

Another customer accounted for 10 % and 14 %, respectively, of net consolidated revenues for the three and six months ended June 30, 2021.

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

4 unchanged sentences

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

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.

Deferred revenue as of June 30, 2022 and December 31, 2021 includes customer prepayments of $ 1,746 and $ 1,843 , respectively.

Deferred revenue as of June 30, 2022 and December 31, 2021 also includes $ 914 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.

The following table represents the changes in goodwill by operating segment for the six months ended June 30, 2022:

June 30, 2022

Molecular Solutions

Balance as of January 1

Change related to foreign currency translation

Balance as of June 30

We perform an annual goodwill impairment assessment as of July 31 each year by comparing the estimated fair values of our reporting units to their respective carrying values.

A more frequent evaluation is performed if an event occurs or circumstances change between annual tests that could more likely than not reduce the fair value of a reporting unit below its carrying amount.

During the three months ended June 30, 2022, we determined that a triggering event occurred in relation to the depressed market price of the Company's common stock and corresponding significant decline in our market capitalization.

As a result, we performed an interim goodwill impairment test and concluded that the carrying value of our Diagnostics reporting unit exceeded its estimated fair value and the goodwill balance for that segment was fully impaired.

Thus, we recognized a pre-tax impairment charge of $ 3.6 million during the three months ended June 30, 2022, which is reported in loss on impairments in our condensed consolidated statement of operations.

We estimated fair values of both of our reporting units using a combined income-based approach and market-based approach.

O ur income approach utilized projected future cash flows that were discounted at a rate of 22 % for the Diagnostic reporting unit and 20 % for the Molecular Solutions reporting unit based on a weighted-average cost of capital analysis that reflected current market conditions.

The market comparable approach primarily considered earnings, revenue and other multiples of comparable companies and applied those multiples to certain key drivers of the reporting units.

This market approach utilized a revenue multiple weighted by year for the Diagnostics reporting unit and both a revenue and EBITDA multiple for the Molecular Solutions reporting unit.

We assigned a weight of 75 % to the results of our income-based approach and 25 % to the results from the market-based approach for estimation of the reporting units' fair value.

Our fair value estimates utilize significant unobservable inputs and thus represent Level 3 fair value measurements.

Accrued Expenses and other current liabilities

6 unchanged sentences

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

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

As of June 30, 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 .

3 unchanged sentences

The components of lease expense are as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Operating lease cost

6 unchanged sentences

Supplemental cash flow information related to leases is as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

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

6 unchanged sentences

Supplemental balance sheet information related to leases is as follows:

March 31, 2022

June 30, 2022

December 31, 2021

17 unchanged sentences

Weighted-average discount rate—finance leases

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)

As of June 30, 2022, minimum lease payments by period are expected to be as follows:

2022 (excluding the six months ended June 30, 2022)

Total minimum lease payments

2 unchanged sentences

Stockholders’

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

Reconciliation of the changes in stockholders' equity for the three and six months ended June 30, 2022 and 2021

Comprehensive

7 unchanged sentences

Balance at March 31, 2022

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Stock-based compensation

Currency translation adjustments

Unrealized gain on marketable securities

Balance at June 30, 2022

Comprehensive

7 unchanged sentences

Balance at March 31, 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 June 30, 2021

Stock-Based Awards

8 unchanged sentences

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 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:

Total compensation expense related to stock options for the six months ended June 30, 2022 and 2021 was $ 879 and $ 521 , respectively.

The following table summarizes the stock option activity for the six months ended June 30, 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:

Outstanding on June 30, 2022

Compensation expense of $ 5,071 and $ 2,066 related to restricted shares was recognized during the six months ended June 30, 2022 and 2021, respectively.

The following table summarizes time-vested restricted stock award and restricted stock unit activity for the six months ended June 30, 2022:

Issued and unvested, January 1, 2022

Issued and unvested, March 31, 2022

Issued and unvested, June 30, 2022

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

4 unchanged sentences

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

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:

Compensation expense of $ 854 and $ 350 related to PSUs was recognized during the six months ended June 30, 2022 and 2021, respectively.

The following table summarizes the PSU activity for the six months ended June 30, 2022:

Issued and unvested, January 1, 2022

Performance adjustment (2)

Issued and unvested, March 31, 2022

Issued and unvested, June 30, 2022

(1) Grant activity for all PSUs disclosed at target

2 unchanged sentences

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 three months ended March 31, 2022 and 2021.

No shares were purchased and retired during the six months ended June 30, 2022 and 2021.

Transition costs

8 unchanged sentences

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.

His remaining unvested time-vesting restricted stock awards and PSUs 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.

In aggregate, we recognized a net $ 128 and $ 1,508 of expense in relation to Dr.

Tang's stock compensation during the three and six months ended June 30, 2022, respectively.

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

2 unchanged sentences

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.

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

Gagliano began receiving a monthly base salary of $ 56 per month and was also granted a one-time award of fully vested shares of the Company’s common stock with a grant date fair value of $ 100 .

Additionally, she was granted a one-time restricted stock unit award with a grant date fair value of $ 670 scheduled to vest in twelve equal monthly installments starting in April through her employment term, of which $ 168 vested during the three months ended June 30, 2022 and the remainder was forfeited when her employment ceased in June 2022.

On May 20, 2022, the Company entered into an employment agreement with Carrie Eglinton Manner, and in connection therewith, the Company's Board of Directors appointed Ms.

Eglinton Manner as the Company’s President and Chief Executive Officer, effective June 4, 2022 (the “Effective Date”).

Pursuant to the Employment Agreement, Ms.

Eglinton Manner’s initial annual base salary is $ 700 and she will participate in the Company’s annual incentive plan with a target annual incentive amount of at least 100 % of her annual base salary.

Additionally, she received inducement grants comprised of (i) a restricted stock unit award with a grant date fair value of $ 4,000 , which vests on the second anniversary of the Effective Date (ii) a restricted stock award with a grant date fair value of $ 1,600 , which vests annually starting on the first anniversary of the Effective Date and (iii) a PSU award with a grant date fair value of $ 1,600 , which will be subject to the same vesting and performance conditions as are applicable to the 2022 performance-based restricted stock unit awards granted to the Company’s other executive officers.

During the three and six months ended June 30, 2022 , we recorded an income tax expense (benefit) of $( 1,169 ) and $ 2,767 , 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.

The remaining tax expense for the first half of 2022 is comprised of U.S.

state income taxes of $ 400 and foreign taxes of $ 665 .

During the three and six months ended June 30, 2021, we recorded income tax expense of $ 3,610 and $ 10,139 , which primarily consists 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 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.

The significant components of our total deferred tax liability as of June 30, 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 March 31, 2022 and December 31, 2021 since the facts and circumstances necessitating the allowance have not changed.

Management believes the full valuation allowance is still appropriate at both June 30, 2022 and December 31, 2021 since the facts and circumstances necessitating the allowance have not changed.

Commitments and Contingencies

6 unchanged sentences

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.

The final pretrial conference is set for September 7, 2023.

Business Segment Information

12 unchanged sentences

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

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,

The following table summarizes operating segment information for the three and six months ended June 30, 2022 and 2021, and asset information as of June 30, 2022 and December 31, 2021:

Three Months Ended June 30,

Six Months Ended June 30,

Net revenues:

4 unchanged sentences

Molecular Solutions

Loss on impairment:

Molecular Solutions

Capital expenditures:

1 unchanged sentence

Molecular Solutions

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

(1) Excludes $ 5,615 and $ 33,803 for purchases of property and equipment under government contracts for the three and six months ended June 30, 2022, respectively.

Total assets:

17 unchanged sentences

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:

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;

1 unchanged sentence

government for InteliSwab ® COVID-19 Rapid Tests;

impact of significant customer concentration in the genomics business;

the impact of significant customer concentration in the genomics business;

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

5 unchanged sentences

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;

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

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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, or “CDC”

or other agencies;

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

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;

our reliance on sole supply sources for critical products and components;

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

the impact of contracting with the U.S.

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the impact of negative economic conditions on our business;

including as a result of hostilities or war;

our ability to maintain sustained profitability;

including as a result of inflation, hostilities or war;

our ability to achieve and 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;

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

the volatility of our stock price;

uncertainty relating to patent protection and potential patent infringement claims;

uncertainty and costs of litigation relating to patents and other intellectual property;

availability of licenses to patents or other technology;

ability to enter into international manufacturing agreements;

the availability of licenses to patents or other technology;

our ability to enter into international manufacturing agreements;

obstacles to international marketing and manufacturing of products;

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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.

Through our Diagnostics business we are also developing and commercializing products that measure adherence to HIV medications including pre-exposure prophylaxis ("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.

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

Demand for COVID-19 PCR testing has declined driven by the availability of antigen tests and the wider availability of vaccines, thereby negatively impacting the sales of the collection products.

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

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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.

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 our 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.

Appointment of New CEO

Carrie Eglinton Manner was appointed President and Chief Executive Officer, effective June 4, 2022.

Eglinton Manner also joined the OraSure Board of Directors (the "Board").

She succeeded Dr.

Nancy Gagliano, who was appointed interim CEO in March 2022.

Gagliano continues to serve on the OraSure Board.

Eglinton Manner, age 48, has years of leadership experience across multiple disciplines.

Prior to joining the Company, Ms.

Eglinton Manner served as Senior Vice President, Advanced & General Diagnostic and Clinical Solutions at Quest Diagnostics since January 2017.

Prior to Quest, Ms.

Eglinton Manner spent over 20 years in various leadership roles in healthcare businesses at GE Healthcare.

From 2009 through 2016, she served as President & CEO of four distinct GE Healthcare global businesses in the areas of diagnostic imaging, lab services and medical devices.

She has served as a director of Repligen Corporation since June 2020.

Eglinton Manner holds a B.S.

in mechanical engineering from the University of Notre Dame.

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.

Eglinton Manner’s appointment as CEO came in tandem with a decision by the OraSure Board to conclude its previously announced review of strategic alternatives and for the Company to move forward under her leadership.

Market conditions and the Board’s belief in the Company’s ability to further build upon recent operational successes with Ms.

Eglinton Manner’s leadership were factors in the decision.

Current Consolidated Financial Results

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.

During the six months ended June 30, 2022, our consolidated net revenues increased 27% to $147.9 million, compared to $116.2 million for the six months ended June 30, 2021.

Net product and services revenues during the six months ended June 30, 2022 increased 29% when compared to the same period of 2021, largely due to the inclusion of $65.3 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 half of 2021.

Declines in sales of our molecular sample collection kits for COVID-19 testing, lower laboratory services revenues, and a decline in domestic sales of our HIV products partially offset this positive driver of revenue.

Other revenues for the six months ended June 30, 2022 were $3.5 million compared to $3.9 million in the same period of 2021.

This decrease was largely due to lower royalty income.

Our consolidated net loss for the six months ended June 30, 2022 was $38.8 million, or $0.54 per share on a fully diluted basis, compared to consolidated net income of $2.4 million, or $0.03 per share on a fully diluted basis, for the six months ended June 30, 2021.

Results for the six months ended June 30, 2022 were impacted by lower gross margins rates caused by an unfavorable product mix of higher sales of lower margin products, increases in inventory reserves associated with excess inventory levels and manufacturing inefficiencies that occurred in the first quarter of 2022, lower absorption of labor costs and the absence of the Gates subsidy which expired in June 2021.

Also contributing to our net loss is an increase in operating expense as a result of impairment charges taken in the second quarter of 2022 on idle manufacturing lines and goodwill, severance charges and accelerated stock compensation expense associated with our CEO transition and termination of our general counsel, and nonrecurring costs associated with our strategic alternatives process.

Cash used in operating activities during the six months ended June 30, 2022 was $45.5 million.

Cash used in operating activities during the six months ended June 30, 2021 was $3.5 million.

During the first half of 2022, our cash flow used in operating activities increased significantly as a result of our net loss and increased working capital requirements we scale our InteliSwab® manufacturing capacity to meet higher demand.

As of June 30, 2022, we had $95.8 million in cash, cash equivalents and available-for-sale securities.

Results of Operations

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

Three months ended June 30, 2022 compared to June 30, 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 March 31, 2022 and 2021.

For the Three Months Ended March 31,

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 June 30, 2022 and 2021.

For the Three Months Ended June 30,

Percentage of Total Net Revenues

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Net product and services revenues

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.

Consolidated net product and services revenues increased 42% to $79.2 million for the three months ended June 30, 2022 from $55.7 million for the three months ended June 30, 2021.

The increase in revenues is largely due to the inclusion of $43.1 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.

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

revenues across all other product line partially offset this positive driver of revenue.

Other revenues for the three months ended June 30, 2022 decreased 43% to $1.1 million from $1.9 million for the three months ended June 30, 2021 due to lower research and development funding associated with the development of our InteliSwab ® COVID-19 rapid test and lower royalty income.

Consolidated net revenues derived from products sold to customers outside of the United States were $9.9 million and $10.0 million, or 12% and 17% of total net revenues, for the three months ended June 30, 2022 and 2021, respectively.

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

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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 March 31, 2022 and 2021.

For the Three Months Ended March 31,

The table below shows a breakdown of total net revenues (dollars in thousands) generated by our Diagnostics segment during the three months ended June 30, 2022 and 2021.

For the Three Months Ended June 30,

Percentage of Total Net Revenues

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Infectious Disease Testing Market

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,

COVID-19 revenues were $43.1 million for the three months ended June 30, 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 second quarter of 2021.

Sales to the other infectious disease testing markets decreased 8% to $14.2 million for the three months ended June 30, 2022 from $15.5 million for the three months ended June 30, 2021.

This decrease resulted from lower worldwide OraQuick ® HIV and international 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 June 30, 2022 and 2021.

For the Three Months Ended June 30,

International HIV

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Net OraQuick® revenues

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.

Domestic OraQuick ® HIV sales decreased 10% to $3.7 million for the three months ended June 30, 2022 from $4.1 million for the three months ended June 30, 2021, primarily as a result of a large second quarter 2021 order of our OraQuick® In-Home HIV test shipped to the CDC and used in an initiative to drive increased in-home HIV testing.

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

International sales of our OraQuick ® HIV tests decreased 3% to $6.6 million for the three months ended June 30, 2022 from $6.8 million for the three months ended June 30, 2021 due to the absence of the Gates Foundation subsidy which expired in June 2021 and is not included in revenues in the second quarter of 2022, initial stocking orders into Asia that did not recur in 2022, and the impact of the Russian and Ukraine war.

These decline in revenues were partially offset by increased sales into Africa as the COVID-19 impact lessens.

Domestic OraQuick ® HCV sales remained largely flat at $2.5 million for the three months ended June 30, 2022 compared to $2.6 million for the three months ended June 30, 2021.

International OraQuick ® HCV sales decreased 33 % to $1.2 million for the three months ended June 30, 2022 compared to $1.7 million for the three months ended June 30, 2021 due to a stock order into Korea which did no repeat in 2022.

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.

Sales to the substance abuse testing assessment market remained flat at $2.6 million for both the three months ended June 30, 2022 and 2021.

Other Revenues

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.

Other revenues for the three months ended June 30, 2022 decreased 55% to $479,000 from $1.1 million for the three months ended June 30, 2021, due to lower research and development funding associated with our InteliSwab ® COVID-19 rapid test.

Molecular Solutions Segment

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,

The table below shows a breakdown of our total net revenues (dollars in thousands) during the three months ended June 30, 2022 and 2021.

For the Three Months Ended June 30,

Laboratory services

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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.

Sales of our genomics products decreased 21% to $15.5 million for the three months ended June 30, 2022, compared to $19.5 million for the three months ended June 30, 2021, as result of customer ordering patterns.

Microbiome kit sales decreased 25% to $1.8 million for the three months ended June 30, 2022 compared to $2.4 million for the three months ended June 30, 2021, due to lower sales to certain Clinical Research Organizations ("CROs") as a result of delays in microbiome clinical studies.

Sales of our molecular sample collection kits for COVID-19 testing decreased 98% to $264,000 for the three months ended June 30, 2022 compared to $12.0 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 and the termination of public funding for PCR testing.

Laboratory services revenues declined 61% to $1.2 million for the three months ended June 30, 2022 compared to $3.1 million for the three months ended June 30, 2021 as a result of a large customer ceasing its operations and due to timing of clinical trials.

Other product and service revenues remained largely unchanged at $405,000 in the second quarter of 2022 compared to $449,000 in the second quarter of 2021.

Other revenues for the three months ended June 30, 2022 decreased 28% to $585,000 from $807,000 for the three months ended June 30, 2021, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

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.

Consolidated gross profit margins were 34% for the three months ended June 30, 2022 compared to 53% for the three months ended June 30, 2021.

The decrease in gross profit margins was primarily due to a less favorable product mix and increased scrap expense associated with reserves for excess inventory.

Consolidated operating loss for the three months ended June 30, 2022 was $21.3 million, a $23.1 million decrease from the $1.8 million operating income reported for the three months ended June 30, 2021.

Results for the three months ended June 30, 2022 were negatively impacted by the

lower gross profit margin described above coupled with an increase in operating expenses as described below, including an aggregate impairment charge of $10.5 million.

OPERATING INCOME (LOSS) BY SEGMENT

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Diagnostics Segment

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 gross profit margin for the Diagnostics segment was 36% for the three months ended June 30, 2022 compared to 34% for the three months ended June 30, 2021.

This increase is due to improved product mix of higher margin product sales partially offset by the June 2021 expiration of subsidies under the support agreement with the Gates Foundation.

Research and development expenses increased 26% to $6.3 million for the three months ended June 30, 2022 compared to $5.0 million for the three months ended June 30, 2021 largely due to increased staffing costs associated with higher head count, increased clinical study activities related to obtaining CE mark for our InteliSwab ® rapid test and higher subscription costs associated with our new quality system.

Sales and marketing expenses increased 19% to $7.8 million for three months ended June 30, 2022 from $6.6 million for the three months ended June 30, 2021 due to increased staffing costs associated with higher head count and increased travel, trade show, and annual meetings expenses as travel and in person events have resumed as COVID-19 restrictions have been lifted.

These increases in spend were partially offset by a decline in advertising and market research costs associated with our InteliSwab ® test.

General and administrative expenses increased 54% to $11.0 million for the three months ended June 30, 2022 from $7.1 million for the three months ended June 30, 2021 largely due to severance costs and accelerated stock compensation expense associated with our former general counsel's employment and termination agreements, stock compensation costs associated with restricted stock awards granted to certain board members with immediate vesting provisions, and higher legal, accounting, and information technologies contract fees.

Operating expenses for the Diagnostic segment also include an impairment charge of $4.9 million associated with an idle manufacturing line for which it has no projected cash flow and minimal resale or salvage value.

Diagnostic operating expenses also included a goodwill impairment charge of $3.6 million.

The decline in the Company's stock price was identified as a triggering event which required the Company to perform an quantitative goodwill impairment analysis.

The results of this analysis indicated the Diagnostic segment's goodwill was impaired and was written down to $0.

All of the above contributed to the Diagnostics segment’s operating loss of $11.8 million for the three months ended June 30, 2022, which included the non-cash impairment charges of $8.5 million, non-cash charges of $1.9 million for depreciation and amortization and $2.8 million for stock-based compensation.

The Diagnostics segment operating loss in the second quarter of 2021 included a $220,000 non-cash pre-tax benefit associated with the change in the fair value of acquisition-related contingent consideration.

There was no similar benefit recorded in the second quarter of 2022.

Molecular Solutions Segment

The gross profit margin for the Molecular Solutions segment was 31% for the three months ended June 30, 2022 compared to 63% for the three months ended June 30, 2021.

This decrease was due to an increase in reserves for excess inventory as result of a forecasted decline in demand of certain products used in COVID PCR testing and a less favorable product mix.

Research and development expenses remained relatively flat at $2.8 for the three months ended June 30, 2022 from $2.7 million for the three months ended June 30, 2021 .

Sales and marketing expenses also remained flat at $3.9 million for the three months ended June 30, 2022 and 2021.

General and administrative expenses increased 70% to $6.6 million for the three months ended June 30, 2022 from $3.9 million for the three months ended June 30, 2021 due to increased legal fees.

Operating expenses for the Molecular segment also include an impairment charge of $2.0 million for the three months ended June 30, 2022 associated with two idle manufacturing lines for which there are no projected cash flow and minimal resale or salvage value.

All of the above contributed to the Molecular Solutions segment’s operating loss of $9.5 million for the three months ended June 30, 2022, which included the non-cash impairment charge of $2.0 million, non-cash charges of $1.9 million for depreciation and amortization and $529,000 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 June 30, 2022, we recorded U.S.

state tax expense of $183,000 compared to $54,000 of state income tax benefit for the three months ended June 30, 2021.

For the three months ended June 30, 2022, we recorded a foreign tax benefit of $1.3 million compared to foreign tax expense of $3.7 million for the three months ended June 30, 2021.

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

Six months ended June 30, 2022 compared to June 30, 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 six months ended June 30, 2022 and 2021.

For the Six Months Ended June 30,

Percentage of Total Net Revenues

Molecular Solutions

Net product and services revenues

Consolidated net product and services revenues increased 29% to $144.4 million for the six months ended June 30, 2022 from $112.3 million for the six months ended June 30, 2021.

The increase in revenues is largely due to the inclusion of $65.3 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 half of 2021.

Declines in sales of our molecular sample collection kits for COVID-19 testing partially offset this positive driver of revenue.

Other revenues for the six months ended June 30, 2022 decreased 9% to $3.5 million from $3.9 million for the six months ended June 30, 2021 largely due to lower royalty income.

Consolidated net revenues derived from products sold to customers outside of the United States were $19.6 million and $19.5 million, or 13% and 17% of total net revenues, for the six months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021.

For the Six Months Ended June 30,

Percentage of Total Net Revenues

Infectious disease testing:

Total infectious disease testing

Substance abuse testing

Net product revenues

NM - not meaningful

Infectious Disease Testing Market

COVID-19 revenues were $65.3 million for the six months ended June 30, 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 half of 2021.

Sales to the other infectious disease testing markets decreased 3% to $25.9 million for the six months ended June 30, 2022 from $26.7 million for the six months ended June 30, 2021.

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

The table below shows a breakdown of our total net OraQuick ® HIV and HCV product revenues (dollars in thousands) during the six months ended June 30, 2022 and 2021.

Six Months Ended June 30,

International HIV

Net HIV revenues

International HCV

Net HCV revenues

Net OraQuick® revenues

Domestic OraQuick ® HIV sales decreased 17% to $7.5 million for the six months ended June 30, 2022 from $9.1 million for the six months ended June 30, 2021, primarily as a result of a large order fulfilled in the first half of 2021 for our OraQuick® In-Home HIV test shipped to the CDC and used in an initiative to drive increased in-home HIV testing.

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

International sales of our OraQuick ® HIV tests increased 3% to $11.0 million for the six months ended June 30, 2022 from $10.7 million for the six months ended June 30, 2021 due to increased sales into Africa as the COVID-19 impact lessens.

This increase to revenues was 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, as well as the impact of the Russia and Ukraine war.

Domestic OraQuick ® HCV sales increased 22% to $4.6 million for the six months ended June 30, 2022 from $3.8 million for the six months ended June 30, 2021, driven by new funding granted by certain state governments, increased legislation regarding drug testing and rise in drug use requiring more testing.

International OraQuick ® HCV sales decreased 19% to $2.4 million for the six months ended June 30, 2022 from $2.9 million for the six months ended June 30, 2021 due to large stock ordering shipped to Korea that did not repeat in 2022.

Sales to the substance abuse testing assessment market increased 13% to $5.2 million for the six months ended June 30, 2022 compared to $4.6 million for the six months ended June 30, 2021 due to market share gains.

Other Revenues

Other revenues for the six months ended June 30, 2022 increased minimally to $2.4 million from $2.3 million for the six months ended June 30, 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 six months ended June 30, 2022 and 2021.

Six Months Ended June 30,

Laboratory services

Other product revenues

Net molecular product and services revenues

Sales of our genomics products remained largely flat and increased only 1% to $30.6 million for the six months ended June 30, 2022, compared to $30.3 million for the six months ended June 30, 2021.

Microbiome kit sales decreased 9% to $3.8 million for the six months ended June 30, 2022 compared to $4.2 million for the six months ended June 30, 2021, due to a decline in revenues to CROs driven by the timing of microbiome clinical studies.

Sales of our molecular sample collection kits for COVID-19 testing decreased 77% to $9.2 million for the six months ended June 30, 2022 compared to $40.0 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, lower public funding for PCR testing, and high inventory levels held by some of those customers.

Laboratory services revenues declined 48% to $2.9 million for the six months ended June 30, 2022 compared to $5.6 million for the six months ended June 30, 2021 as a result of a large customer ceasing its operations and a slowdown in clinical trials.

Other product and service revenues increased 133% to $1.5 million for the six months ended June 30, 2022 compared to $657,000 for the six months ended June 30, 2021 largely due to increased sales by our Novosanis subsidiary.

Other revenues for the six months ended June 30, 2022 decreased 28% to $1.1 million from $1.6 million for the six months ended June 30, 2021, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

Consolidated gross profit margins were 35% for the six months ended June 30, 2022 compared to 59% for the six months ended June 30, 2021.

The decrease in gross profit margins was caused by an unfavorable product mix of higher sales of lower margin product, increases in inventory reserves associated with excess inventory levels and manufacturing inefficiencies that occurred in the first quarter of 2022, lower absorption of labor costs and the absence of the Gates subsidy which expired in June 2021.

Consolidated operating loss for the six months ended June 30, 2022 was $37.3 million, a $49.5 million decrease from the $12.2 million operating income reported for the six months ended June 30, 2021.

Results for the six months ended June 30, 2022 were negatively impacted by the lower gross profit margin described above coupled with an increase in operating expenses as described below, including an aggregate impairment charge of $10.5 million.

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 margin for the Diagnostics segment was 29% for the six months ended June 30, 2022 compared to 38% for the six months ended June 30, 2021.

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

Research and development expenses increased 2% to $11.8 million for the six months ended June 30, 2022 compared to $11.5 million for the six months ended June 30, 2021 largely due to higher staffing costs associated with increased head count offset by lower product development activities related to our InteliSwab ® rapid test which did not repeat in the first half of 2022 as we received EUA authorization in June 2021.

Sales and marketing expenses increased 25% to $15.9 million for six months ended June 30, 2022 from $12.8 million for the six months ended June 30, 2021 due to increased staffing costs associated with higher head count, increased travel and annual meetings expenses as travel and in person events have resumed as COVID-19 restrictions have been lifted, increased consultant costs, higher advertising and market research expenses and higher subscription costs associated with our new CRM system.

This increase in spending was partially offset by a decline in our reserve for uncollectible accounts, lower recruiting fees and a decrease in commission expense.

General and administrative expenses increased 82% to $24.7 million for the six months ended June 30, 2022 from $13.6 million for the six months ended June 30, 2021 largely due to increased consulting costs, higher stock compensation expense associated with accelerated vesting of shares under our former CEO's and general counsel's employment agreements, higher staffing costs associated with increased head count, increased legal costs, severance costs associated with our former general counsel, increased accounting fees, and higher recruitment expense largely associated with our CEO search.

Diagnostic operating expenses also included a goodwill impairment charge of $3.6 million.

The decline in the Company's stock price was identified as a triggering event which required the Company to perform an quantitative goodwill impairment analysis.

The results of this analysis indicated the Diagnostic segment's goodwill was impaired and was written down to $0.

All of the above contributed to the Diagnostics segment’s operating loss of $31.6 million for the six months ended June 30, 2022, which included the non-cash impairment charge of $8.5 million, non-cash charges of $3.6 million for depreciation and amortization and $5.9 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.

This is in comparison to an $1.0 million benefit recorded in the first half of 2021.

Molecular Solutions Segment

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.

The gross profit margin for the Molecular Solutions segment was 47% for the six months ended June 30, 2022 compared to 68% for the six months ended June 30, 2021.

This decrease was due to an increase in reserves for excess inventory as result of a forecasted decline in demand and a less favorable product mix.

Research and development expenses increased 11% to $5.7 million for the six months ended June 30, 2022 from $5.1 million for the six months ended June 30, 2021 due to higher staffing costs.

Sales and marketing expenses increased 18% to $8.5 million for the six months ended June 30, 2022 from $7.2 million for the six months ended June 30, 2021 due to higher staffing costs related to increased head count, increased consulting expense associated with business strategy planning, and an increase in travel costs as COVID-19 restrictions are lifted.

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.

General and administrative expenses increased 58% to $12.1 million for the six months ended June 30, 2022 from $7.6 million for the six months ended June 30, 2021 due to increased legal fees and staffing costs.

Operating expenses for the Molecular segment also includes an impairment charge of $2.0 million for the six months ended June 30, 2022 associated with two idle manufacturing lines for which there are no projected cash flow and minimal resale or salvage value.

All of the above contributed to the Molecular Solutions segment’s operating loss of $5.7 million for the six months ended June 30, 2022, which included the non-cash impairment charge of $2.0 million, $3.8 million for depreciation and amortization and $924,000 for stock-based compensation.

CONSOLIDATED INCOME TAXES

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

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.

For the six months ended June 30, 2022, we recorded U.S.

state tax expense of $400,000 compared to $115,000 of state income tax expense for the six months ended June 30, 2021.

Additionally, in the first half 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 six months ended June 30, 2022, we recorded foreign tax expense of $665,000 compared to foreign tax expense of $10.0 million for the six months ended June 30, 2021.

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

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Working capital

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.

Our cash and cash equivalents and available-for-sale securities decreased to $95.8 million at June 30, 2022 from $170.1 million at December 31, 2021.

Our working capital decreased to $201.8 million at June 30, 2022 from $220.4 million at December 31, 2021.

During the six months ended June 30, 2022, net cash used in operating activities was $45.5 million.

Our net loss of $38.8 million included non-cash charges of $10.5 million associated with impairment charges taken against idle manufacturing lines and goodwill, depreciation and amortization expense of $7.5 million, stock-based compensation expense of $6.8 million, an inventory reserve of $2.0 million, and other non-cash expense of $1.2 million.

Cash used to fund our working capital accounts included an increase in inventory of $20.4 million to meet

anticipated demand to support COVID-19 testing program, an increase in accounts receivable of $18.6 million largely associated with product shipped to the U.S.

government, a $4.1 million increase in prepaid expenses and other assets associated with tax installments made to the Canadian Revenue Agency and a $2.9 million decrease in accrued expenses and other liabilities largely due to payment of our 2021 bonuses and severance payments to our former CEO.

Offsetting these uses of cash was a $11.9 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.

Net cash used in investing activities was $2.3 million for the six months ended June 30, 2022, which reflects proceeds from the maturities and redemptions of investments of $23.0 million.

This was offset by $25.4 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.

Net cash used in financing activities was $2.5 million for the six months ended June 30, 2022, which is largely comprised of $2.0 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 operating and capital needs as well as those arising over the next twelve months.

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.

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

As of June 30, 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 three months of 2022, there were no material changes to our critical accounting policies.

Except as presented below, no material changes have been made to such critical accounting policies during the six months ended June 30, 2022.

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 permit us to make a qualitative evaluation about the likelihood of goodwill impairment and If it is determined that it is more likely than not that the fair value does not exceed the carrying amount, then a quantitative test is performed.

The quantitative goodwill impairment test involves a comparison of the estimated fair value of the reporting unit to the respective carrying amount.

An impairment charge is recognized in 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 process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment, including the identification of reporting units, qualitative evaluation of events and circumstances to determine if it is more likely than not that an impairment exists, and, if necessary, the estimation of the fair value of the applicable reporting unit.

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 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.

As of June 30, 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 3.5% of our total revenues for the six months ended June 30, 2022.

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

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Our foreign subsidiaries had net assets, subject to translation, of $130.9 million in U.S.

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

Dollars, which are included in the Company’s consolidated balance sheet as of June 30, 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 $13.9 million in the three months ended March 31, 2022.

dollar exchange rates would have decreased our comprehensive income by approximately $13.1 million in the six months ended June 30, 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