
Part I - Financial Information Item 1 - Condensed Consolidated Financial Statements (unaudited) Unaudited financials for March 31, 2023, show decreased assets and equity, with revenue declines from reduced COVID-19 testing demand Condensed Consolidated Balance Sheets As of March 31, 2023, total assets decreased to $19.2 million from $22.3 million at September 30, 2022, primarily due to reduced cash, while total equity declined Condensed Consolidated Balance Sheet Highlights (in USD) | Metric | March 31, 2023 (unaudited) | September 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $12,287,228 | $15,215,285 | | Total current assets | $15,379,553 | $19,943,129 | | Total assets | $19,175,477 | $22,265,114 | | Liabilities & Equity | | | | Total current liabilities | $3,655,378 | $4,185,308 | | Total liabilities | $9,207,256 | $9,356,175 | | Total equity | $9,968,221 | $12,908,939 | Condensed Consolidated Statements of Operations For the three months ended March 31, 2023, revenues decreased to $4.4 million, with a net income of $0.55 million due to a non-cash gain, while the six-month net loss narrowed to $3.3 million Statements of Operations Summary (Three Months Ended March 31, in USD) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $4,407,614 | $6,147,283 | -28.3% | | Gross Profit | $1,807,435 | $2,488,485 | -27.4% | | Loss from Operations | ($2,704,024) | ($2,154,236) | +25.5% | | Net Income (Loss) | $551,176 | ($1,759,797) | N/A | | Diluted EPS | $0.05 | ($0.23) | N/A | Statements of Operations Summary (Six Months Ended March 31, in USD) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Total Revenues | $9,670,366 | $10,312,989 | -6.2% | | Gross Profit | $4,185,118 | $3,597,623 | +16.3% | | Loss from Operations | ($3,923,002) | ($6,860,813) | -42.8% | | Net Loss | ($3,293,070) | ($6,480,708) | -49.2% | | Diluted EPS | ($0.25) | ($0.85) | N/A | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2023, net cash used in operating activities improved to $2.2 million, with no financing activities, resulting in a $2.2 million decrease in cash Cash Flow Summary (Six Months Ended March 31, in USD) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,168,718) | ($3,963,780) | | Net cash used in investing activities | ($9,339) | ($170,217) | | Net cash provided by financing activities | $0 | $4,091,833 | | Net decrease in cash | ($2,178,057) | ($42,164) | Notes to Condensed Consolidated Financial Statements Notes detail business structure and financial condition, highlighting going concern, significant customer concentration, and segment profitability where only MDx Testing Services is profitable - The company operates in three primary markets: Therapeutic DNA Production Services, MDx Testing Services (including COVID-19 testing), and DNA Tagging and Security Products21 - The company faces significant liquidity risk due to recurring net losses and an accumulated deficit of $295.8 million. A market decrease in COVID-19 testing demand and the termination of its contract with CUNY (its largest customer) by June 30, 2023, are expected to result in significantly lower revenues2528 - For the three months ended March 31, 2023, two customers within the MDx Testing Services segment accounted for an aggregate of 85% of total revenues52 Segment Operating Income (Loss) (Three Months Ended March 31, 2023, in USD) | Segment | Operating Income (Loss) | | :--- | :--- | | Therapeutic DNA Production | ($1,054,123) | | MDx Testing Services | $492,288 | | DNA Tagging and Security | ($914,736) | Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic focus on Therapeutic DNA Production, anticipating significant revenue decline from MDx Testing due to CUNY contract termination Business Overview and Strategy The company focuses its growth strategy on Therapeutic DNA Production Services, while anticipating a significant revenue downturn in MDx Testing due to the CUNY contract termination, which represented 58% of fiscal 2022 revenues - The company's current growth strategy is to primarily focus resources on the further development and commercialization of its Therapeutic DNA Production Services114 - The company anticipates significantly lower revenues from its safeCircle COVID-19 testing solutions due to a market decrease in demand and the termination of its contract with CUNY, its largest customer128 - The CUNY COVID-19 contract represented 58% of the company's revenues for fiscal 2022128 Results of Operations For the three months ended March 31, 2023, revenues fell 27% year-over-year, while six-month gross profit margin improved to 43% and SG&A expenses decreased by 26% - Three-month revenue decreased by 27% YoY, primarily due to a $1.5 million (28%) decrease in clinical laboratory service revenues from lower demand for COVID-19 testing140 - Six-month gross profit percentage increased to 43% from 35% in the prior year, mainly from improved margins on MDx testing services due to cost management efforts151 - Six-month SG&A expenses decreased by $2.2 million (26%), primarily due to a $1.6 million reduction in stock-based compensation expense152 Liquidity and Capital Resources As of March 31, 2023, the company had $11.7 million in working capital, used $2.2 million in cash for operating activities, and estimates sufficient cash for the next twelve months - The company had working capital of $11,724,175 as of March 31, 2023, and used $2,168,718 in cash for operating activities in the six-month period159 - Management estimates that the company will have sufficient cash and cash equivalents to fund operations for the next twelve months from the filing date of this report161 - The company warns that if revenues are insufficient to cover operating expenses and additional financing is not obtained, it will likely be forced to reduce operations162 Item 3 - Quantitative and Qualitative Disclosures About Market Risk This item is not applicable as the company is a smaller reporting company and has elected to use scaled disclosure requirements - The company, as a smaller reporting company, has elected scaled disclosure and is not required to provide information for this item176 Item 4 - Controls and Procedures As of March 31, 2023, disclosure controls were deemed ineffective due to a material weakness in accounting for complex financial instruments, with a remediation plan underway - The CEO and CFO concluded that as of March 31, 2023, disclosure controls and procedures were not effective177 - The ineffectiveness is due to a material weakness in internal control over financial reporting concerning the accounting for complex financial instruments (warrants) and the related tax impact179 - A remediation plan is being implemented to improve the review process for complex financial instruments, involving both internal personnel and third-party professionals180 Part II - Other Information Item 1 – Legal Proceedings The company reports no legal proceedings during the period - There are no legal proceedings to report183 Item 1A – Risk Factors The company highlights a new risk regarding potential FDA regulation of its pharmacogenetic testing services, which could disrupt business and revenue streams - A key risk highlighted is the potential for the FDA to regulate the company's pharmacogenetic tests, which are currently offered as Laboratory-Developed Tests (LDTs). This could disrupt the business and impact revenues from this service184 Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities during the period - None185 Item 6 – Exhibits This section lists all exhibits filed with the Form 10-Q, including lease agreements, officer certifications, and XBRL data files - Lists exhibits filed with the report, such as amended lease agreements, officer certifications, and interactive data files186187