What changed in this filing

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Item 1. Financial Statements

2022-11-08 compared with 2022-08-09 · 284 added, 274 removed, 670 unchanged (45% of the section changed)

4 unchanged sentences

(in thousands, except per share amounts)

June 30, 2022

September 30, 2022

December 31, 2021

45 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

NET REVENUES:

16 unchanged sentences

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

NET INCOME (LOSS)

OTHER COMPREHENSIVE INCOME (LOSS)

OTHER COMPREHENSIVE LOSS

Currency translation adjustments

Unrealized gain (loss) on marketable securities

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE LOSS

See accompanying notes to the consolidated financial statements.

3 unchanged sentences

(in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

OPERATING ACTIVITIES:

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

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

Summary of Significant Accounting Policies .

7 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 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

During the nine months ended September 30, 2022, we recognized a provision for expected credit losses for our available-for-sale securities of $ 56 .

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

September 30, 2022

Guaranteed investment certificates

5 unchanged sentences

Total available-for-sale securities

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

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

securities were as follows:

2 unchanged sentences

Fair Value of Financial Instruments .

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.

As of September 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 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.

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

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

Included in cash and cash equivalents at September 30, 2022 and December 31, 2021, was $ 1,717 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 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.

The fair value of the plan assets as of September 30, 2022 and December 31, 2021 was $ 1,599 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 June 30, 2022 and December 31, 2021 was $ 66,468 and $ 61,157 , respectively.

Accumulated depreciation of property, plant and equipment as of September 30, 2022 and December 31, 2021 was $ 68,626 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 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 .

Accumulated amortization of intangible assets as of September 30, 2022 and December 31, 2021 was $ 29,943 and $ 30,412 , respectively.

The decrease in intangible assets from $ 14,343 as of December 31, 2021 to $ 11,919 as of September 30, 2022 was due to $ 1,617 in amortization expense and foreign currency translation losses of $ 807 .

Impairment of Long-Lived Assets .

3 unchanged sentences

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.

During the three months ended September 30, 2022, management determined several manufacturing lines and associated supporting assets will not be utilized due to changes in forecasted demand for the products the lines 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 $ 6,559 during the three months ended September 30, 2022 to write the assets down to their estimated fair values.

This charge is reported within loss on impairment 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 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.

5 unchanged sentences

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

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.

Net foreign exchange gains resulting from foreign currency transactions that are included in other income in our consolidated statements of operations were $ 2,342 and $ 7 for the three months ended September 30, 2022 and 2021, respectively.

Net foreign exchange gains (losses) were $ 2,396 and $( 371 ) f or the nine months ended September 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 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 September 30, 2022 consisted of $ 22,064 of currency translation adjustments and $ 267 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.

8 unchanged sentences

Government Capital Contracts

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

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

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

2 unchanged sentences

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

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

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

All related purchases were completed in 2021.

3 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 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.

We recognized $ 561 and $ 1,684 of such income for the three and nine months ended September 30, 2022, respectively, which is reported as other income in our consolidated statement of operations.

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

June 30, 2022

September 30, 2022

December 31, 2021

8 unchanged sentences

Total property, plant and equipment, net

Other non-current assets - unbilled receivables

Accrued expenses and other current liabilities

June 30, 2022

September 30, 2022

December 31, 2021

8 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Net income (loss)

2 unchanged sentences

Earnings (loss) per share:

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 .

For the three months ended September 30,2022, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 1,734 shares were excluded from the computation of diluted earnings per share as their inclusion would have been anti-dilutive.

For the nine months ended September 30, 2022, and the three and nine months ended September 30, 2021, outstanding common stock options, unvested restricted stock, and unvested performance stock units representing 383 , 859 , and 847 shares, respectively, were excluded from the computation of diluted loss per share.

Revenues by product line .

The following table represents total net revenues by product line:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Substance abuse

Microbiome (1)

Laboratory services

4 unchanged sentences

Other revenues

(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 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 .

* Other non-product revenues include funded research and development under our BARDA contracts and other grant revenues.

Revenues by geographic area .

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

United States

1 unchanged sentence

Customer and Vendor Concentrations .

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.

At September 30, 2022 , one non-commercial customer accounted for 47 % 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 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.

One non-commercial customer accounted for 69 % and 53 % of net consolidated revenues for the three and nine months ended September 30, 2022 , respectively.

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

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

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 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.

Deferred revenue as of September 30, 2022 and December 31, 2021 includes customer prepayments of $ 1,762 and $ 1,843 , respectively.

Deferred revenue as of September 30, 2022 and December 31, 2021 also include s $ 774 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

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

Molecular Solutions

1 unchanged sentence

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.

Balance as of September 30, 2022

During the second quarter of 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.

In the second quarter, 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.

3 unchanged sentences

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

We perform an annual goodwill impairment assessment as of July 31 each year.

Historically this involved a qualitative analysis that resulted in a conclusion that it was more likely than not that the fair value of our reporting units is greater than their carrying value.

In 2022, as a result of the depressed market price of the Company's common stock and corresponding significant decline in our market capitalization, we performed a quantitative analysis by comparing the estimated fair values of our reporting units to their respective carrying values.

Our quantitative goodwill impairment test assessment as of July 31, 2022 concluded that the carrying value of our Molecular Solutions reporting unit exceeded its estimated fair value and no impairment of the related goodwill exists.

Accrued Expenses and other current liabilities

September 30,

Payroll and related benefits

Commitment to purchase under government contract

Deferred income for government contract

Professional fees

2 unchanged sentences

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

As of June 30, 2022 , we are the lessee in all agreements.

As of September 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 June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease cost

6 unchanged sentences

Supplemental cash flow information related to leases is as follows:

Three Months Ended June 30,

Six Months Ended June 30,

Nine Months Ended September 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:

June 30, 2022

September 30, 2022

December 31, 2021

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Weighted-average discount rate—finance leases

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)

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

2022 (excluding the nine months ended September 30, 2022)

Total minimum lease payments

1 unchanged sentence

Present value of lease liabilities

On October 19, 2022, the Company entered into a termination agreement for a warehouse entered into on January 3, 2022, related to its 96,010 square foot facility in York, Pennsylvania.

Pursuant to the terms of the termination agreement, the lease terminated, effective on October 31, 2022 .

The Company is not required to pay a termination fee, and has been released from all further rent obligations under the lease, resulting in ongoing annual cash savings of approximately $ 735 .

Termination will result in an operating right-of-use assets and lease liabilities reduction of $ 4,927 and $ 5,146 , respectively.

Stockholders’

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

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

Comprehensive

7 unchanged sentences

Balance at March 31, 2022

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

4 unchanged sentences

Balance at June 30, 2022

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Stock-based compensation

Currency translation adjustments

Unrealized loss on marketable securities

Balance at September 30, 2022

Comprehensive

14 unchanged sentences

Balance at June 30, 2021

Common stock issued upon exercise of options

Vesting of restricted stock and performance stock units

Purchase and retirement of common shares

Stock-based compensation

Currency translation adjustments

Unrealized loss on marketable securities

Balance at September 30, 2021

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 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:

Total compensation expense related to stock options for the nine months ended September 30, 2022 and 2021 was $ 1,213 and $ 793 , respectively.

The following table summarizes the stock option activity for the nine months ended September 30, 2022:

Outstanding on January 1, 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:

Outstanding on September 30, 2022

Compensation expense of $ 7,047 and $ 2,891 related to restricted shares was recognized during the nine months ended September 30, 2022 and 2021, respectively.

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

Issued and unvested, January 1, 2022

Issued and unvested, June 30, 2022

Issued and unvested, September 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 $ 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:

Compensation expense of $ 840 and $ 1,471 related to PSUs was recognized during the nine months ended September 30, 2022 and 2021, respectively.

The following table summarizes the PSU activity for the nine months ended September 30, 2022:

Issued and unvested, January 1, 2022

Performance adjustment (2)

Issued and unvested, June 30, 2022

Issued and unvested, September 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 six months ended June 30, 2022 and 2021.

No shares were purchased and retired during the nine months ended September 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 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 $ 0 and $ 1,508 of expense in relation to Dr.

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

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

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

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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 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.

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, 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 nine months ended September 30, 2022 , we recorded an income tax expense (benefit) of $( 1,143 ) and $ 1,624 , respectively.

Tax expense for the nine months ended September 30, 2022 includes $ 1,683 of withholding tax paid on the repatriation of $ 65,000 of unremitted earnings from Canada to the United States.

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

state income taxes of $ 379 and a foreign tax benefit of $ 438 .

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

The decline in foreign tax expense in both periods of 2022 compared to 2021 is a result of the decrease in income before taxes generated by our Canadian subsidiary.

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 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.

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

Commitments and Contingencies

4 unchanged sentences

In August 2021, we amended our complaint to add a second patent to this litigation.

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

Spectrum responded to our amended complaint and asserted counterclaims for inequitable conduct and antitrust violations with respect to one of the patents in the litigation and subsequently filed a request for review of the second patent at the Patent and Trademark Office.

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

Fact discovery is ongoing.

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

12 unchanged sentences

We do not allocate interest income, interest expense, other income, other expenses or income taxes to our operating segments.

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

The following table summarizes operating segment information for the three and 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,

Inter-segment revenues and expenses are eliminated.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Net revenues:

9 unchanged sentences

Molecular Solutions

(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.

(1) Excludes $ 4,902 and $ 38,705 for purchases of property and equipment under government contracts for the three and nine months ended September 30, 2022, respectively.

September 30,

Total assets:

28 unchanged sentences

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

the potential impact of healthcare reform in the United States, including the Inflation Reduction Act of 2022, and measures being taken worldwide designed to reduce healthcare costs;

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

38 unchanged sentences

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

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

general political, business and economic conditions.

32 unchanged sentences

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

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

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.

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

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

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

In 2020, we expanded the market focus of our Molecular Solutions business by selling existing collection products for use with COVID-19 tests.

In 2022, 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 collection devices for the emerging microbiome market, which focuses on studying microbiomes and their effect on human and animal health.

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

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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

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.

While demand for our COVID-19 PCR testing has declined in 2022, it is difficult for us to predict the duration or magnitude of the outbreak’s effects on our business or results of operations.

BARDA Funding for Ebola Product

In September 2022, we entered into an agreement with Biomedical Advanced Research and Development Authority ("BARDA"), which is part of the office of the Assistant Secretary for Preparedness and Response at the U.S.

Department of Health and Human Services ("HHS"), pursuant to which BARDA will provide up to $8.6 million in funding to us to develop a 2nd generation Ebola test on the OraQuick® testing platform.

Our current OraQuick® Ebola Rapid Antigen Test is de novo authorized for use with whole blood or cadaveric oral fluid.

The test received de novo authorization from the FDA in 2019, making it the first and only rapid antigen test to receive authorization for the detection of Ebola virus.

New Contract for In-Home HIV Tests

In September 2022, we were selected to provide our OraQuick® In-Home HIV tests in support of the Centers for Disease Control and Preventions (CDC) “Together Take Me Home,”

HIV self-test program.

Under the program, the CDC will provide $41.5 million over a five-year period to support community testing.

Emory University will manage the program and closely collaborate with a number of partner organizations, including OraSure, to supply tests to communities not equitably reached by HIV testing services across the United States.

Under the "Together Take Me Home" HIV self-test program, we will provide up to 1 million OraQuick® In-Home HIV tests over a five-year period.

Emory University and partner organizations will manage the program and provide logistical and distribution services for the tests.

A free HIV self-test will be mailed in discreet packages to people who enroll through its website.

The program will target populations that are disproportionately affected by HIV and less likely to have access to key prevention services.

Current Consolidated Financial Results

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.

During the nine months ended September 30, 2022, our consolidated net revenues increased 55% to $264.4 million, compared to $170.1 million for the nine months ended September 30, 2021.

Net product and services revenues during the nine months ended September 30, 2022 increased 55% when compared to the same period of 2021, largely due to $144.8 million of InteliSwab ® COVID-19 rapid test revenues recorded in the first nine months of 2022 compared to $7.9 million of revenue in the comparable period of 2021.

We first began selling this product in August of 2021.

Also contributing to the increased revenues were higher domestic sales of our HCV product and higher overall sales of our substance abuse testing and Colli-Pee® products.

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

Other revenues for the nine months ended September 30, 2022 were $7.2 million compared to $4.6 million in the same period of 2021.

This increase was largely due to higher research and development funding associated with our InteliSwab® COVID-19 rapid test offset by a decrease in royalty income.

Our consolidated net loss for the nine months ended September 30, 2022 was $33.5 million, or $0.46 per share on a fully diluted basis, compared to a consolidated net loss of $12.6 million, or $0.18 per share on a fully diluted basis, for the nine months ended September 30, 2021.

Results for the nine months ended September 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 that also occurred in the first half of 2022 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 on idle manufacturing lines and goodwill, higher legal fees, severance charges and accelerated stock compensation expense associated with our CEO transition and termination of our general counsel, increased staffing costs due to overall higher headcount, and nonrecurring costs associated with our strategic alternatives process.

Cash used in operating activities during the nine months ended September 30, 2022 was $29.2 million compared to cash used in operating activities during the nine months ended September 30, 2021 of $22.6 million.

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

As of September 30, 2022, we had $101.6 million in cash, cash equivalents and available-for-sale securities.

Results of Operations

Three months ended June 30, 2022 compared to June 30, 2021

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

For the Three Months Ended June 30,

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the three months ended September 30, 2022 and 2021.

For the Three Months Ended September 30,

Percentage of Total Net Revenues

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Net product and services revenues

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 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.

Consolidated net product and services revenues increased 112% to $112.8 million for the three months ended September 30, 2022 from $53.2 million for the three months ended September 30, 2021.

The increase in revenues is largely due to $79.6 million of InteliSwab ® COVID-19 rapid test revenues in the third quarter of 2022 compared to $7.7 million in the third quarter of 2021.

We first began selling this product in August of 2021.

Higher sales of our HCV product also contributed to the increased revenues.

Declines in revenues across all other product lines partially

offset this positive driver of revenue.

Other revenues for the three months ended September 30, 2022 increased 429% to $3.6 million from $688,000 for the three months ended September 30, 2021 due to higher research and development funding associated with the development of our InteliSwab ® COVID-19 rapid test.

Consolidated net revenues derived from products sold to customers outside of the United States were $7.5 million and $10.9 million, or 6% and 20% of total net revenues, for the three months ended September 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 June 30, 2022 and 2021.

For the Three Months Ended June 30,

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

For the Three Months Ended September 30,

Percentage of Total Net Revenues

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Infectious Disease Testing Market

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,

COVID-19 revenues were $79.6 million for the three months ended September 30, 2022, driven by sales of our InteliSwab ® COVID-19 rapid test.

We first began selling this product in August of 2021.

Sales to the other infectious disease testing markets decreased 5% to $12.2 million for the three months ended September 30, 2022 from $12.9 million for the three months ended September 30, 2021.

This decrease resulted from lower international sales of our OraQuick ® HIV product offset by increased domestic sales of the same product and higher world-wide OraQuick ® HCV product sales.

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

For the Three Months Ended September 30,

International HIV

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Net OraQuick® revenues

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.

Domestic OraQuick ® HIV sales increased 34% to $4.6 million for the three months ended September 30, 2022 from $3.4 million for the three months ended September 30, 2021, primarily as a result of an increase in new customers driven by our distributor channel and an increase in sales of our OraQuick® In-Home HIV test sold to public health agencies as demand shifts from in-person testing to in-home testing.

International sales of our OraQuick ® HIV tests decreased 32% to $4.4 million for the three months ended September 30, 2022 from $6.6 million for the three months ended September 30, 2021 largely due to customer ordering patterns.

Domestic OraQuick ® HCV sales remained largely flat at $1.9 million for the three months ended September 30, 2022 compared to $1.8 million for the three months ended September 30, 2021.

International OraQuick ® HCV sales increased 54 % to $1.4 million for the three months ended September 30, 2022 compared to $888,000 for the three months ended September 30, 2021 due to a recovery in ordering by certain countries post the COVID-19 impact.

Substance Abuse Testing Market

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.

Sales to the substance abuse testing assessment market remained largely flat at $2.6 million for the three months ended September 30, 2022 compared to $2.7 million for the three months ended September 30, 2021.

Other Revenues

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.

Other revenues for the three months ended September 30, 2022 increased to $3.2 million from $230,000 for the three months ended September 30, 2021, due to higher 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 June 30, 2022 and 2021.

For the Three Months Ended June 30,

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

For the Three Months Ended September 30,

Laboratory services

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Net molecular revenues

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.

Sales of our genomics products decreased 26% to $14.0 million for the three months ended September 30, 2022, compared to $19.0 million for the three months ended September 30, 2021, as result of customer ordering patterns and a shift in market prioritization at our larger commercial customers.

Microbiome kit sales increased 4% to $1.8 million for the three months ended September 30, 2022 compared to $1.7 million for the three months ended September 30, 2021, due to renewal of clinical study activities, new customer accounts offset by other customer ordering patterns.

Sales of our molecular sample collection kits for COVID-19 testing decreased 94% to $0.3 million for the three months ended September 30, 2022 compared to $6.3 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 19% to $2.0 million for the three months ended September 30, 2022 compared to $2.4 million for the three months ended September 30, 2021 as a result of a large customer ceasing its operations and a decline in clinical trial work at certain pharmaceutical customers, partially offset by the addition of new customer accounts.

Other product and service revenues declined 38% to $0.3 million in the third quarter of 2022 compared to $576,000 in the third quarter of 2021 largely due to the timing of customer orders.

Other revenues for the three months ended September 30, 2022 decreased 14% to $0.4 million from $0.5 million for the three months ended September 30, 2021, largely as a result of lower royalty income received under a litigation settlement agreement.

CONSOLIDATED OPERATING RESULTS

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.

Consolidated gross profit margins remained flat at 40% for both the three months ended September 30, 2022 and 2021.

Consolidated operating income for the three months ended September 30, 2022 was $875 thousand, a $13.9 million increase from the $13.0 million operating loss reported for the three months ended September 30, 2021.

Results for the three months ended September 30, 2022 were positively impacted by the increase in revenues described above partially offset by impairment charges of $6.6 million associated with idle manufacturing lines associated with our molecular business and by an increase in operating expenses as described below.

OPERATING INCOME (LOSS) BY SEGMENT

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

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

Reportable segments have inter-segment revenue and expenses that 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 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.

The gross profit margin for the Diagnostics segment was 38% for the three months ended September 30, 2022 compared to 16% for the three months ended September 30, 2021.

This increase is due to improved product mix of higher margin product sales and the improved quality-yield experienced as compared to the scale-up and production issues experienced in the third quarter of 2021 related to the manufacturing of InteliSwab® tests which caused higher than normal scrap rates.

In addition, the third quarter of 2021 included a reserve for COVID-19 antibody inventory that did not recur in the third quarter of 2022.

Also contributing to the higher margins is the increase in non-product revenues which contributes 100% to the gross margin rate.

Research and development expenses increased 26% to $7.4 million for the three months ended September 30, 2022 compared to $5.9 million for the three months ended September 30, 2021 largely due to increased clinical study activities related to obtaining CE mark for our InteliSwab ® rapid test and increased staffing costs associated with higher head count.

Sales and marketing expenses increased 8% to $9.7 million for three months ended September 30, 2022 from $9.0 million for the three months ended September 30, 2021 due to an increase in our reserve for uncollectible accounts, increased staffing costs associated with higher head count and increased travel 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 consulting spend associated with business strategy work that occurred in 2021 and did not repeat in 2022 and lower advertising and market research costs associated with our InteliSwab ® test.

General and administrative expenses increased 5% to $8.9 million for the three months ended September 30, 2022 from $8.1 million for the three months ended September 30, 2021 largely due to increased staffing costs.

All of the above contributed to the Diagnostics segment’s operating income of $11.3 million for the three months ended September 30, 2022, which included the non-cash impairment charges of $8.5 million, non-cash charges of $2.1 million for depreciation and amortization and $1.6 million for stock-based compensation.

The Diagnostics segment operating loss in the third quarter of 2021 included a $1.5 million 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 third 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.

The gross profit margin for the Molecular Solutions segment was 49% for the three months ended September 30, 2022 compared to 58% for the three months ended September 30, 2021.

This decrease was due to a less favorable product mix.

Research and development expenses decreased 13% to $2.4 million for the three months ended September 30, 2022 from $2.7 million for the three months ended September 30, 2021 largely due to a decline in non-cash stock compensation expense.

Sales and marketing expenses decreased 23% to $3.8 million for the three months ended September 30, 2022 from $4.9 million for the three months ended September 30, 2021 largely due to a decline in consulting spend associated with business strategy work that occurred in 2021 and did not repeat in 2022, a decrease in expense related to the cancellation of a marketing loyalty program, and lower amortization expense as related intangibles were fully amortized at the end of 2021.

General and administrative expenses increased 58% to $7.0 million for the three months ended September 30, 2022 from $4.4 million for the three months ended September 30, 2021 largely due to higher legal fees, increased non-cash stock compensation costs, and penalties and interest recorded related to a sales tax audit that did not occur in 2021.

Operating expenses for the Molecular segment also include an impairment charge of $6.6 million for the three months ended September 30, 2022 associated with several 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 $10.4 million for the three months ended September 30, 2022, which included the non-cash impairment charge of $6.6 million, non-cash charges of $1.8 million for depreciation and amortization and $0.7 million 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 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.

For the three months ended September 30, 2022, we recorded a U.S.

state tax benefit of $40,000 compared to $102,000 for the three months ended September 30, 2021.

For the three months ended September 30, 2022, we recorded a foreign tax benefit of $1.1 million compared to foreign tax expense of $2.2 million for the three months ended September 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

Nine months ended September 30, 2022 compared to September 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,

The table below shows a breakdown of total consolidated net revenues (dollars in thousands) generated by each of our business segments during the nine months ended September 30, 2022 and 2021.

For the Nine Months Ended September 30,

Percentage of Total Net Revenues

1 unchanged sentence

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.

Consolidated net product and services revenues increased 55% to $257.2 million for the nine months ended September 30, 2022 from $165.5 million for the nine months ended September 30, 2021.

The increase in revenues is largely due to $144.8 million of InteliSwab ® COVID-19 rapid test revenues recorded in the first nine months of 2022 compared to $7.9 million of revenue in the comparable period of 2021.

We first began selling this product in August of 2021.

Also contributing to the increased revenues were higher domestic sales of our HCV product and higher overall sales of our substance abuse testing and Colli-Pee® products.

Other revenues for the nine months ended September 30, 2022 were $7.2 million compared to $4.6 million in the same period of 2021.

This increase was largely due to higher research and development funding associated with our InteliSwab® COVID-19 rapid test offset by a decrease in royalty income.

Consolidated net revenues derived from products sold to customers outside of the United States were $27.2 million and $30.4 million, or 10% and 18% of total net revenues, for the nine months ended September 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 six months ended June 30, 2022 and 2021.

For the Six Months Ended June 30,

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

For the Nine Months Ended September 30,

Percentage of Total Net Revenues

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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,

COVID-19 revenues were $144.8 million for the nine months ended September 30, 2022, compared to $7.9 million for the nine months ended September 30, 2021.

This increase was driven by sales of our InteliSwab ® COVID-19 rapid test which we first began selling in August of 2021.

Sales to the other infectious disease testing markets decreased 4% to $38.2 million for the nine months ended September 30, 2022 from $39.7 million for the nine months ended September 30, 2021.

This decrease resulted from lower world-wide OraQuick ® HIV and international OraQuick ® HCV product sales, partially offset by higher 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 nine months ended September 30, 2022 and 2021.

Nine Months Ended September 30,

International HIV

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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.

Domestic OraQuick ® HIV sales decreased 3% to $12.1 million for the nine months ended September 30, 2022 from $12.5 million for the nine months ended September 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 during the nine months ended September 30, 2022.

International sales of our OraQuick ® HIV tests decreased 10% to $15.5 million for the nine months ended September 30, 2022 from $17.3 million for the nine months ended September 30, 2021 due to customer ordering patterns and the absence of the Gates Foundation subsidy, which expired in June 2021 and is not included in revenues in 2022.

Domestic OraQuick ® HCV sales increased 15% to $6.4 million for the nine months ended September 30, 2022 from $5.6 million for the nine months ended September 30, 2021, driven by new funding granted by certain state governments, increased legislation regarding drug testing and a rise in drug use requiring more testing.

International OraQuick ® HCV sales remained largely flat at $3.7 million for the nine months ended September 30, 2022 compared to $3.8 million for the nine months ended September 30, 2021.

Sales to the substance abuse testing assessment market increased 7% to $7.8 million for the nine months ended September 30, 2022 compared to $7.3 million for the nine months ended September 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.

Other revenues for the nine months ended September 30, 2022 increased to $5.6 million from $2.5 million for the nine months ended September 30, 2021, due to higher 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,

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

Nine Months Ended September 30,

Laboratory services

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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.

Sales of our genomics products decreased 10% to $44.6 million for the nine months ended September 30, 2022, compared to $49.3 million for the nine months ended September 30, 2021 largely as a result of customer ordering patterns and a shift in market prioritization at our larger commercial customers.

Microbiome kit sales decreased 5% to $5.6 million for the nine months ended September 30, 2022 compared to $5.9 million for the nine months ended September 30, 2021, due to customer ordering patterns.

Sales of our molecular sample collection kits for COVID-19 testing decreased 79% to $9.5 million for the nine months ended September 30, 2022 compared to $46.2 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 39% to $4.9 million for the nine months ended September 30, 2022 compared to $8.0 million for the nine months ended September 30, 2021 as a result of a large customer ceasing its operations and a slowdown in clinical trials.

Other product and service revenues increased 53% to $1.9 million for the nine months ended September 30, 2022 compared to $1.2 million for the nine months ended September 30, 2021 largely due to increased sales by our Novosanis subsidiary.

Other revenues for the nine months ended September 30, 2022 decreased 25% to $1.5 million from $2.1 million for the nine months ended September 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.

Consolidated gross profit margins were 37% for the nine months ended September 30, 2022 compared to 53% for the nine months ended September 30, 2021.

The decrease in gross margins rates was 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 that also occurred in the first half of 2022 and the absence of the Gates Foundation subsidy which expired in June 2021.

Consolidated operating loss for the nine months ended September 30, 2022 was $36.4 million, a $35.6 million decrease from the $793 thousand recorded for the nine months ended September 30, 2021.

Results in 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 $17.1 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.

Reportable segments have inter-segment revenue and expenses that 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.

The gross profit margin for the Diagnostics segment was 33% for the nine months ended September 30, 2022 compared to 29% for the nine months ended September 30, 2021.

This improvement in margin is a result of a more favorable product mix, the increase in non-product revenues which contribute 100% to the gross margin rate partially offset by increases in scrap and lower absorption of labor costs associated with the manufacturing inefficiencies that occurred earlier in 2022 that have since been corrected and the June 2021 expiration of subsidies under the support agreement with the Gates Foundation.

Research and development expenses increased 10% to $19.2 million for the nine months ended September 30, 2022 compared to $17.4 million for the nine months ended September 30, 2021 largely due to higher staffing costs associated with increased head count, increased clinical study activities related to obtaining CE mark for our InteliSwab ® rapid test, partially offset by lower product development activities related to our InteliSwab ® rapid test as we received EUA authorization in June 2021.

Sales and marketing expenses increased 18% to $25.6 million for the nine months ended September 30, 2022 from $21.7 million for the nine months ended September 30, 2021 due to increased staffing costs associated with higher head count, increased travel and annual meeting expenses as travel and in person events have resumed as COVID-19 restrictions have been lifted, increased consultant costs, and an increase in our reserve for uncollectible accounts, partially offset by a decrease in commission expense.

General and administrative expenses increased 55% to $33.6 million for the nine months ended September 30, 2022 from $21.6 million for the nine months ended September 30, 2021 largely due to higher staffing costs associated with increased head count, higher stock compensation expense associated with accelerated vesting of shares under our former CEO's and general counsel's employment agreements, increased consulting costs, increased legal costs, higher severance costs, and increased accounting fees.

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 decline in the Company's stock price was identified as a triggering event which required the Company to perform a 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.

All of the above contributed to the Diagnostics segment’s operating loss of $20.3 million for the nine months ended September 30, 2022, which included the non-cash impairment charge of $8.5 million, non-cash charges of $5.7 million for depreciation and amortization and $7.5 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.

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Molecular Solutions Segment

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.

The gross profit margin for the Molecular Solutions segment was 47% for the nine months ended September 30, 2022 compared to 66% for the nine months ended September 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 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.

Research and development expenses increased 3% to $8.1 million for the nine months ended September 30, 2022 from $7.9 million for the nine months ended September 30, 2021 due to higher staffing costs.

Sales and marketing expenses increased 1% to $12.3 million for the nine months ended September 30, 2022 from $12.1 million for the nine months ended September 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, lower commission, and a decrease in expense related to the cancellation of a marketing loyalty program.

General and administrative expenses increased 53% to $18.6 million for the nine months ended September 30, 2022 from $12.1 million for the nine months ended September 30, 2021 due to increased legal fees, higher non-cash stock compensation expense and increased staffing costs.

Operating expenses for the Molecular Solutions segment also includes impairment charges of $8.6 million for the nine months ended September 30, 2022 associated with several idle manufacturing lines for which there are no projected cash flows and minimal resale or salvage value.

All of the above contributed to the Molecular Solutions segment’s operating loss of $16.1 million for the nine months ended September 30, 2022, which included the non-cash impairment charges of $8.6 million, $5.6 million for depreciation and amortization and $1.6 million 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 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.

For the nine months ended September 30, 2022, we recorded U.S.

state tax expense of $379,000 compared to $13,000 of state income tax expense for the nine months ended September 30, 2021.

Additionally, in the first nine months 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 nine months ended September 30, 2022, we recorded a foreign tax benefit of $438,000 compared to foreign tax expense of $12.2 million for the nine months ended September 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.

Liquidity and Capital Resources

September 30,

(In thousands)

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Working capital

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 $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.

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.

Our cash and cash equivalents and available-for-sale securities decreased to $101.6 million at September 30, 2022 from $170.1 million at December 31, 2021.

Our working capital decreased to $208.0 million at September 30, 2022 from $220.4 million at December 31, 2021.

During the nine months ended September 30, 2022, net cash used in operating activities was $29.2 million.

Our net loss of $33.5 million included non-cash charges of $17.1 million associated with impairment charges taken for idle manufacturing lines and goodwill, depreciation and amortization expense of $11.4 million, stock-based compensation expense of $9.1 million, an inventory reserve of $977,000, an increase in our reserve for uncollectible accounts of $974,000 and other non-cash expense of $1.3 million.

Cash used to fund our working capital accounts included an increase in inventory of $27.6 million to meet anticipated demand to support COVID-19 testing program, an increase in accounts receivable of $19.2 million largely associated with product shipped to the U.S.

government, a $6.0 million increase in prepaid expenses and other assets associated with tax installments made to the Canadian Revenue Agency.

Offsetting these uses of cash was $16.2 million increase in accounts payable due to the timing of invoices received and payments made.

Net cash used in investing activities was $4.5 million for the nine months ended September 30, 2022, which reflects proceeds from the maturities and redemptions of investments of $47.4 million.

This was offset by $28.1 million to acquire property and equipment largely to increase our manufacturing capacity and $22.9 million of investment purchases.

Net cash used in financing activities was $3.0 million for the nine months ended September 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.

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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 June 30, 2022, there were no significant changes to this information.

As of September 30, 2022, there were no significant changes to this information.

Critical Accounting Policies and Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

The preparation of these financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The preparation of these

financial statements requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

On an on-going basis, we evaluate our judgments and estimates, including those related to the bad debts, customer sales returns, inventories, intangible assets, income taxes, revenue recognition, performance-based compensation, contingencies and litigation.

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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.

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

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

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

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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 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.

As of September 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 2.7% of our total revenues for the nine months ended September 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 $117.2 million in U.S.

Dollars, which are included in the Company’s consolidated balance sheet as of June 30, 2022.

Dollars, which are included in the Company’s consolidated balance sheet as of September 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 $13.1 million in the six months ended June 30, 2022.

dollar exchange rates would have decreased our comprehensive income by approximately $11.7 million in the nine months ended September 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