This Quarterly Report on Form 10-Q (including but not limited to this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations") contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are intended to qualify for the "safe harbor" created by those sections. In addition, we may make forward-looking statements in other documents filed with or furnished to the Securities and Exchange Commission ("SEC"), and our management and other representatives may make forward-looking statements orally or in writing to analysts, investors, representatives of the media and others. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts and include, but are not limited to, statements using terminology such as "can", "may", "could", "should", "assume", "forecasts", "believe", "designed to", "will", "expect", "plan", "anticipate", "estimate", "potential", "position", "predicts", "strategy", "guidance", "intend", "seek", "budget", , "project" or "continue", or the negative thereof or other comparable terminology regarding beliefs, plans, expectations or intentions regarding the future. You should read statements that contain these words carefully because they:
? contain projections of our future results of operations or of our financial
We believe it is important to communicate our expectations. However, forward-looking statements are based on our current expectations, assumptions, estimates and projections about our business and our industry and are subject to known and unknown risks, uncertainties and other factors. Accordingly, our actual results and the timing of certain events may differ materially from those expressed or implied in such forward-looking statements due to a variety of factors and risks, including, but not limited to, those set forth in this Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and in our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report, those set forth from time to time in our other filings with the SEC, including our Annual Report on Form 10-K, for the fiscal year ended September 30, 2021, as amended, and the following factors and risks:
? our expectations of future revenues, expenditures, capital or other funding
? the adequacy of our cash and working capital to fund present and planned
? our business strategy and the timing of our expansion plans;
? demand for our Therapeutic DNA Production Services;
? our expectations concerning existing or potential development and license
agreements for third-party collaborations and joint ventures;
? regulatory approval and compliance for our Therapeutic DNA Production Services;
? the effect of governmental regulations generally;
? our expectations of when regulatory submissions may be filed or when regulatory
? our expectations concerning product candidates for our technologies; and
? our expectations of when or if we will become profitable.
Any or all of our forward-looking statements may turn out to be wrong. They may be affected by inaccurate assumptions that we might make or by known or unknown risks and uncertainties. Actual outcomes and results may differ materially from what is expressed or implied in our forward-looking statements. Among the factors that could affect future results are:
? the inherent uncertainties of product development based on our new and as yet
? the risks and uncertainties regarding the actual effect on humans of seemingly
safe and efficacious formulations and treatments when tested clinically;
? the inherent uncertainties associated with clinical trials of product
? the inherent uncertainties associated with the process of obtaining regulatory
clearance or approval to market product candidates;
? the inherent uncertainties associated with commercialization of products that
have received regulatory clearance or approval;
? economic and industry conditions generally and in our specific markets;
we may conduct a reverse stock split of our common stock to meet the
? requirements of Nasdaq which may adversely impact the market price and
liquidity of our common stock;
? the volatility of, and decline in, our stock price; and
our current lack of financing for operations and our ability to obtain the
? necessary financing to fund our operations and effect our strategic development
All forward-looking statements and risk factors included in this Quarterly Report are made as of the date hereof, in each case based on information available to us as of the date hereof, and we assume no obligations to update any forward-looking statement or risk factor, unless we are required to do so by law. If we do update one or more forward-looking statements, no inference should be drawn that we will make updates with respect to other forward-looking statements or that we will make any further updates to those forward-looking statements at any future time.
Forward-looking statements may include our plans and objectives for future operations, including plans and objectives relating to our products and our future economic performance, projections, business strategy and timing and likelihood of success. Assumptions relating to the forward-looking statements included in this Quarterly Report involve judgments with respect to, among other things, future economic, competitive and market conditions, future business decisions, and the time and money required to successfully complete development and commercialization of our technologies, all of which are difficult or impossible to predict accurately and many of which are beyond our control.
Any of the assumptions underlying the forward-looking statements contained in this Quarterly Report could prove inaccurate and, therefore, we cannot assure you that any of the results or events contemplated in any of such forward-looking statements will be realized. Based on the significant uncertainties inherent in these forward-looking statements, the inclusion of any such statement should not be regarded as a representation or as a guarantee by us that our objectives or plans will be achieved, and we caution you against relying on any of the forward-looking statements contained herein.
Trademarks, Trade Names and Service Marks
Our trademarks currently used in the United States include Applied DNA Sciences®, SigNature® molecular tags, SigNature® T molecular tags, fiberTyping®, DNAnet®, SigNify®, Beacon®, CertainT®, LinearDNA™, Linea™ COVID-19 Diagnostic Assay Kit and safeCircleTM COVID-19 testing. We do not intend our use or display of other companies' trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies. All trademarks, service marks and trade names included or incorporated by reference in this Quarterly Report are the property of the respective owners.
Applied DNA Sciences is a biotechnology company developing technologies to produce and detect deoxyribonucleic acid ("DNA"). Using the polymerase chain reaction ("PCR") to enable both the production and detection of DNA, we operate in three primary business markets: (i) the manufacture of DNA for use in nucleic acid-based therapeutics ("Therapeutic DNA Production Services"); (ii) the detection of DNA in molecular diagnostics testing services ("MDx Testing Services"); and (iii) the manufacture and detection of DNA for industrial supply chain security services ("DNA Tagging and Security Products and Services").
Our growth strategy is to primarily focus our resources on the further development, commercialization, and customer adoption of our Therapeutic DNA Production Services, including the expansion of our contract development and manufacturing operation ("CDMO") for the manufacture of DNA for nucleic acid-based therapies and the development of our own product candidates in veterinary health. To offset these development costs, we plan to leverage our MDx Testing Services and our DNA Tagging and Security Products and Services business to generate cashflows.
Through our LinearRx, Inc. ("LRx") subsidiary we are developing and commercializing the LinearDNA ("linDNA") platform. The linDNA platform enables the rapid, efficient, and large-scale cell-free manufacture of high-fidelity DNA sequences for use in nucleic acid-based therapeutics. The linDNA platform enzymatically produces a linear form of DNA we call 'linDNA' that is an alternative to plasmid-based DNA manufacturing technologies that have supplied the DNA used in biotherapeutics for the past 40 years.
We believe our enzymatic linDNA platform has numerous advantages over existing cell-based plasmid DNA manufacturing platforms. Plasmid-based DNA manufacturing is based on the complex, costly and time-consuming biological process of amplifying DNA in living cells. Once amplified, the DNA must be separated from the living cells and other process contaminants via multiple rounds of purification, adding further complexity and costs. Unlike plasmid-based DNA manufacturing, the linDNA platform does not require living cells and instead amplifies DNA via the enzymatic process of PCR. The linDNA platform is simple, with only four ingredient inputs, and can rapidly produce very large quantities of DNA without the need for complex purification steps.
We believe the key advantages of the linDNA platform include:
? Speed - Production of linDNA can be measured in terms of hours, not days and
weeks as is the case with plasmid-based DNA manufacturing platforms.
? Scalability - linDNA production takes place on efficient bench-top instruments,
allowing for rapid scalability in a minimal footprint.
Purity - DNA produced via PCR is pure, resulting in only large quantities of
? only the target DNA sequence. Unwanted DNA sequences such as plasmid backbone
and antibiotic resistance genes, inherent to plasmid DNA, are not present in
Simplicity - The production of linDNA is streamlined relative to plasmid-based
? DNA production. linDNA requires only four ingredients, does not require living
cells or complex fermentation systems and does not require multiple rounds of
Flexibility - DNA produced via the linDNA platform can be easily chemically
modified to suit specific customer applications. In addition, the linDNA
? platform can produce a wide range of complex DNA sequences that are difficult
to produce via plasmid-based DNA production platforms. These complex sequences
include inverted terminal repeats (ITRs)
and polyadenylation sequences (poly (A) tail) important to gene therapy and
messenger RNA ("mRNA") therapies, respectively.
Preclinical studies have shown that linDNA is substitutable for plasmid DNA in numerous nucleic acid-based therapies, including:
? therapeutic and prophylactic DNA vaccines;
? DNA templates for in vitro transcription to produce ribonucleic acid ("RNA"),
Further, we believe that linDNA is also substitutable for plasmid DNA in the following nucleic acid-based therapies:
? viral vector manufacturing for in vivo and ex vivo gene editing;
? CRISPR-mediated homology-directed repair ("HDR"); and
As of the fourth quarter of calendar 2021, there were 3,483 gene, cell and RNA therapies in development from preclinical through pre-registration stages, almost all of which use DNA in their manufacturing process. (Source: ASGCT Gene, Cell & RNA Therapy Landscape: Q4 2021 Quarterly Report). Due to what we believe are the linDNA platform's numerous advantages over legacy plasmid-based DNA manufacturing platforms, we believe this large number of therapies under development represents a substantial market opportunity for linDNA to supplant plasmid DNA in the manufacture of nucleic acid-based therapies.
Our linDNA is currently manufactured pursuant to Good Laboratory Practices ("GLP") that we believe are sufficient for pre-clinical discovery and development of nucleic acid-based therapies. In addition, for indirect clinical use of linDNA (i.e., where linDNA is a starting material but is not incorporated into the final therapeutic product, as is the case with the production of mRNA or certain viral vectors), we believe that high-quality grade GLP linDNA is sufficient for clinical and commercial stage customers of our Therapeutic DNA Production Services. For the direct clinical use of our linDNA (i.e., nucleic acid-based therapies where our linDNA is incorporated into the final therapeutic product, as in the production of DNA vaccines, adoptive cell therapies and certain gene therapies) we believe clinical and commercial stage customers of our Therapeutic DNA Production Services will generally require our manufacturing facilities to meet current Good Manufacturing Practices ("cGMP"). We currently do not have any manufacturing facilities that meet cGMP. We will need to develop and maintain manufacturing facilities that meet cGMP to support customers that wish to use our linDNA for direct clinical use. In the longer term, we believe that the development and maintenance of a cGMP manufacturing facility for linDNA will benefit the entirety of our Therapeutic DNA Production Services business, in both direct and indirect clinical applications.
Our business strategy for the linDNA platform is (i) to utilize our current GLP linDNA production capacity to secure CDMO contracts to supply linDNA to pre-clinical therapy developers, as well as clinical and commercial therapy developers and manufacturers that are pursuing therapeutics that require the indirect clinical use of linDNA; and (ii) upon our development of cGMP linDNA production facilities, to secure CDMO contracts with clinical stage therapy developers and commercial manufactures to supply linDNA for direct clinical use.
In addition, we plan to leverage our Therapeutic DNA Production Services and deep knowledge of PCR to develop and monetize, ourselves or with strategic partners, one or more linDNA-based therapeutic or prophylactic vaccines for the veterinary health market. Currently, we have in-licensed a therapeutic DNA vaccine candidate against canine lymphoma, which accounts for up to 24% of all cancers in canines. Our lymphoma vaccine candidate has been licensed from Takis S.R.L and EvviVax, S.R.L. for exclusive use by the Company in association with our linDNA platform, and is subject to certain commercialization milestones. We believe the linDNA platform provides a substantial advantage to the development and monetization of a therapeutic DNA vaccine against canine lymphoma.
Through Applied DNA Clinical Labs, LLC ("ADCL"), our clinical laboratory subsidiary, we leverage our expertise in DNA detection via PCR to provide and develop clinical molecular diagnostics ("MDx") testing services. ADCL is a New York State Department of Health ("NYSDOH") Clinical Laboratory Evaluation Program ("CLEP") permitted, Clinical Laboratory Improvement Amendments ("CLIA")-certified laboratory which is currently permitted for virology. In providing MDx testing services, ADCL employs its own or third-party molecular diagnostic tests.
Under our MDx testing services, ADCL provides COVID-19 testing for large populations marketed under our safeCircleTM trademark. Leveraging ADCL's customizable high-throughput robotic pooled testing workflow and the Cleared4 digital health platform owned and operated by Cleared4 Inc. (the "Cleared4 Platform"), our safeCircle testing service is an adaptable turnkey large population COVID-19 testing solution that provides for all aspects of COVID-19 testing, including test scheduling, sample collection and automated results reporting. Our safeCircle testing service utilizes high-sensitivity robotically pooled real-time PCR ("RT-PCR") testing to help prevent virus spread by quickly identifying COVID-19 infections within a community, school, or workplace. Our safeCircle COVID-19 testing is performed using either the Company's internally developed Linea 2.0 RT-PCR Assay, a NYSDOH conditionally approved laboratory developed test ("LDT") or third-party emergency use authorization ("EUA")-authorized RT-PCR COVID-19 assays. Our safeCircle testing service also incorporates the Cleared4 Platform to enable large-scale digital test scheduling, in-field sample collection and registration, and results reporting. By leveraging the combination of our robotic pooled workflows and the Cleared4 Platform, our safeCircle testing services typically return testing results within 24 to 48 hours. We provide safeCircle testing services to primary/secondary/higher education institutions, private clients, and businesses and college athletic programs primarily located in New York State.
In addition to our safeCircle testing services, we are currently developing and validating pharmacogenetics ("PGx") testing services. Our PGx testing services will utilize a 120-target PGx panel test to evaluate the unique genotype of a specific patient to help guide individual drug therapy decisions. Our PGx testing services are designed to interrogate DNA targets on over 35 genes and provide genotyping information relevant to certain cardiac, mental health and pain management drug therapies. We believe the economics of complex MDx testing services such as PGx are more favorable to the Company as compared to high volume, low complexity MDx tests such as COVID-19 testing. Our PGx testing services will require NYSDOH approval prior to initiating our patient testing services. If approved, we plan to commercialize our PGx testing services by offering PGx clinical reference laboratory testing services to other clinical laboratories and healthcare facilities nationwide.
Going forward, our business strategy for ADCL is to leverage our deep knowledge of PCR to develop and commercialize high complexity, high value and differentiated MDx testing services that will be offered to other clinical laboratories and healthcare facilities as clinical reference laboratory testing services. We believe operating as a clinical reference laboratory has several advantages when compared to operating as a typical clinical non-reference laboratory, including:
the ability to leverage our deep expertise in PCR to develop and perform
? high-value esoteric MDx testing services not performed by conventional clinical
? a national customer base that may lead to a larger total addressable market.
The clinical reference laboratory services market is forecasted to have incremental growth of $26.0B between 2020 and 2025 with a 6.71% compound annual growth rate ("CAGR"). We believe that the rapidly increasing number of specialized MDx tests for early disease detection, disease prognosis, disease risk, companion diagnostics and personalized medicine will drive an increase in the demand for highly specialized MDx clinical reference laboratory services.
DNA Tagging and Security Products and Services
By leveraging our expertise in both the manufacture and detection of DNA via PCR, our DNA Tagging and Security Products and Services allow our customers to use non-biologic DNA tags manufactured on our linDNA platform to mark objects in a unique manner and then identify these objects by detecting the absence or presence of the DNA tag. We believe our DNA tags are not economically feasible nor practical to replicate, and that our disruptive tracking platform offers broad commercial relevance across many industry verticals. The Company's core DNA Tagging and Security Products and Services, which are marketed collectively as a platform under the trademark CertainT®, include:
SigNature® Molecular Tags, which are short non-biologic DNA taggants produced
? by the Company's linDNA platform, provide a methodology to authenticate goods
within large and complex supply chains for materials such as cotton, leather,
pharmaceuticals, nutraceuticals and other products.
SigNify® IF portable DNA readers and SigNify consumable reagent test kits
provide definitive real-time authentication of the Company's DNA tags in the
? field, providing a front-line solution for supply chain integrity backed with
forensic-level molecular tag authentication. The Company's software platform
enables customers to track materials throughout a supply chain or product life.
fiberTyping®, which uses PCR-based DNA detection to determine a cotton
? cultivar, and other product genotyping services that utilize PCR-based DNA
detection to detect a product's naturally occurring DNA sequences for the
purposes of product provenance authentication and supply chain security.
Our DNA Tagging and Security Products and Services are fully developed, highly scalable, and currently used in several commercial applications. To date, our largest commercial application for our DNA Tagging and Security Products and Services is in the tracking and provenance authentication of cotton. Cotton home textile products utilizing our DNA Tagging and Security Products and Services are available in national retail chains including Costco® and Bed Bath & Beyond®.
We believe that the Uyghur Forced Labor Prevention Act ("UFLPA"), signed into law on December 23, 2021, may be helpful to increase demand for our DNA Tagging and Security Products and Services. The UFLPA establishes a rebuttable presumption that any goods mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region ("XUAR") of the People's Republic of China are not entitled to entry to the United States. The presumption applies unless the importer of record has complied with specified conditions and, by clear and convincing evidence, shown that the goods were not produced using forced labor. On June 17, 2022, an implementation strategy for the UFLPA was published that listed DNA tagging as evidence that importers may present to potentially prove that a good did not originate in XUAR or did not benefit from forced labor. Approximately 20% of the world's cotton garments contain cotton that originated in the XUAR.
Our business plan is to leverage growing consumer demand for product traceability and the newly enacted UFLPA to expand our existing partnerships and seek new partnerships for our DNA Tagging and Security Products and Services with a focus on cotton and synthetic fibers.
The proprietary nature of and protection for our various technologies and know-how are important to our business. Our success depends in part on our ability to protect the proprietary nature of our technologies and know-how, to operate without infringing on the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek and maintain patent protection in the United States and internationally for our various technologies associated with our three primary business markets. We endeavor to patent or in-license technology, inventions and improvements that we consider important to the development of our business. We also rely on trade secrets, know-how and continuing innovation to develop and maintain our competitive position.
Because the development of our Therapeutic DNA Production Services and MDx Testing Services businesses are at an early stage, our intellectual property portfolio with respect to certain technologies associated with these businesses are also at an early stage. As further described below, we have filed or intend to file patent applications on certain technologies associated with these business markets, and as we continue the development of our technologies, we intend to identify additional means of obtaining patent protection that would potentially enhance commercial success.
We cannot be certain that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology. Any of our intellectual property and proprietary rights could be challenged, invalidated, circumvented, infringed or misappropriated, or such intellectual property and proprietary rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages. For more information, see "Risk Factors - Risks Related to Our Intellectual Property."
As of July 1, 2022, our patent portfolio included the following issued and pending patent applications applicable to each of our three primary business markets:
o 5 issued patents and 10 pending patent applications in the United States
o 11 issued foreign patents and 5 pending foreign patent applications
o 5 issued patents and 1 pending patent applications in the United States
o 4 issued foreign patents and 1 pending foreign patent applications
? DNA Tagging and Security Products and Services
o 28 issued patents and 5 pending patent applications in the United States
o 47 issued foreign patents and 14 pending foreign patent applications
In addition to patent protection, we also rely on trade secrets, know how, other proprietary information and continuing technological innovation to develop and maintain our competitive position. In our Therapeutic DNA Production Services, we currently rely heavily on trade secret protection. We seek to protect and maintain the confidentiality of proprietary information to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection. Although we take steps to protect our proprietary information and trade secrets, including through contractual means with our employees and consultants, third parties may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. Thus, we may not be able to meaningfully protect our trade secrets. It is our policy to require our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information concerning our business or financial affairs developed or made known to the individual during the course of the individual's relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances. Our agreements with employees also provide that all inventions conceived by the employee in the course of employment with us or from the employee's use of our confidential information are our exclusive property. However, such confidentiality agreements and invention assignment agreements can be breached and we may not have adequate remedies for any such breach.
The patent positions of biotechnology companies like ours are generally uncertain and involve complex legal, scientific and factual questions. Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third party patent would require us to alter our development or commercial strategies, or our manufacturing processes, obtain licenses or cease certain activities. Our breach of any license agreements or our failure to obtain a license to proprietary rights required to develop or commercialize our future products or services may have a material adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation proceedings in the United States Patent and Trademark Office, or USPTO, to determine priority of invention.
Historically, the substantial portion of our revenues has been generated from sales of our SigNature® and SigNature® T molecular tags, our principal supply chain security and product authentication solutions. However, most of our near-term growth in revenues has been derived from our validated COVID-19 pooled testing, and our COVID-19 Surveillance Testing. We also expect future growth in revenues to be derived from our Therapeutic DNA Production Services and our MDx testing services. To a lesser extent, we expect to grow revenues from the sale of SigNature® molecular tags, SigNature® T molecular tags, SigNify® and CertainT® offerings as we work with companies and governments to secure supply chains for various types of products and product labeling throughout the world.
We have continued to incur expenses in expanding our business to meet current and anticipated future demand. We have limited sources of liquidity.
Successful Expression of linDNA Encapsulated by Lipid Nanoparticles ("LNPs")
Via our LRx subsidiary, we have recently demonstrated the successful expression of linDNA encapsulated by LNPs in vitro and in in vivo (mice studies). The LNP-encapsulated linDNA encoded generic reporter proteins. For the mice studies, successful expression of the LNP-encapsulated linDNA was achieved via intramuscular ("IM") injection administered without the use of concurrent electroporation. This is our first successful animal study using LNP-mediated IM delivery, and its first successful animal study to achieve in vivo expression without the use of concurrent electroporation.
Development of Monkeypox MDx Testing Services
Via our ADCL subsidiary, we are developing PCR-based MDx testing services for the Monkeypox virus. The testing services are being developed as a NYSDOH LDT. Analytical validation of our Monkeypox testing services are currently underway. Once validation is complete, we will submit our validation data to NYSDOH. Our Monkeypox testing services will require NYSDOH approval prior to initiating our testing services.
On August 8, 2022, we closed on a public offering of 3,000,000 shares of our common stock (or common stock equivalents in lieu thereof), together with Series A warrants to purchase up to 3,000,000 shares of our common stock and Series B warrants to purchase up to 3,000,000 shares of our common stock at a combined offering price to the public of $4.00 per share (or $3.9999 per common stock equivalent with an exercise price of $0.0001) and associated warrants, priced at a premium to market under Nasdaq rules. The Series A warrants have an exercise price of $4.00 per share, are exercisable immediately upon issuance, and expire five years following the date of issuance. The Series B warrants have an exercise price of $4.00 per share, are exercisable immediately upon issuance, and expire thirteen months following the date of issuance. The gross proceeds to us from the offering were approximately $12 million, before deducting the placement agent's fees and other offering expenses payable us.
On August 8, 2022, 900,000 of the Series B warrants were exercised for total gross proceeds of $3,600,000.
Critical Accounting Policies and Recently Issued Accounting Pronouncements
See Note B to the accompanying unaudited condensed consolidated financial statements for our critical accounting policies and recent accounting pronouncements.
Comparison of Results of Operations for the Three-Month Periods Ended June 30, 2022 and 2021
For the three-month periods ended June 30, 2022 and 2021, we generated $219,765 and $639,637 in revenues from product sales, respectively. Product revenues decreased by $419,872 or 66% for the three-month period ended June 30, 2022, as compared to the three-month period ended June 30, 2021. The decrease in product revenues was primarily related to a decrease of approximately $459,000 in sales of our diagnostic test kits and supplies, which was attributable to sales pursuant to our contract with Stony Brook University Hospital. This decrease was offset by an increase of approximately $35,000 in our pharmaceutical/nutraceutical market.
For the three-month periods ended June 30, 2022 and 2021, we generated $182,796 and $234,070 in revenues from sales of services, respectively. The decrease in service revenues of $51,274 or 22% for the three-month period ended June 30, 2022, as compared to the same period in the prior fiscal year is attributable to a decrease for research and development projects in our biopharmaceutical market.
For the three-month periods ended June 30, 2022 and 2021 we generated $3,893,810 and $826,613 in revenues from our clinical laboratory testing services, respectively. Clinical laboratory testing service revenues increased by $3,067,197, or 371% for the three-month period ended June 30, 2022, as compared to the same period in the prior fiscal year. The increase in revenue is primarily due to an increase in demand for COVID-19 testing services during the three-month period ended June 30, 2022 compared to the three-month period ended June 30, 2021. Of this increase, approximately $2,773,000 in testing services related to our contract with the City University of New York, which commenced during August 2021.
Gross profit for the three-month period ended June 30, 2022, increased by $455,044 or 78% from $584,214, for the three-month period ended June 30, 2021 to $1,039,258. The gross profit percentage was 24% and 34% for the three-month periods ended June 30, 2022 and 2021, respectively. The decline in the gross profit percentage was the result of a significant portion of our clinical laboratory service revenues coming from the testing contracts where we also provide and staff the testing centers, as these contracts have higher costs associated with them as compared to our surveillance testing contracts.
Selling, general and administrative expenses for the three-month period ended June 30, 2022 increased by $130,155 or 5% to $3,013,967 as compared to $2,883,812 for the three-month period ended June 30, 2021. The increase is attributable to an increase in payroll of approximately $200,000 for a bonus accrual for the CEO, in accordance with his employment agreement. The increase was also due to an increase in insurance expense of approximately $129,000, which is related to an increase in our Directors and Officers insurance policy premiums. These increases were offset by decreases of approximately $138,000 and $82,000 in stock-based compensation and professional fees, respectively.
Research and development expenses decreased to $863,025 for the three-month period ended June 30, 2022 from $1,142,111 for the three-month period ended June 30, 2021, a decrease of $279,086 or 24%. This decrease is primarily due to purchases relating to our clinical lab build out as well as for research projects related to genetic sequencing and isotopic research analysis projects that took place during the three-month period ended June 30, 2021.
Other expense for the three-month periods ended June 30, 2022 and 2021, was $45,263 and $8,578, respectively. The increase of $36,685 is due to an increase in royalty fees during the three-month period ended June 30, 2022.
Unrealized gain on change in fair value of the Common Warrants
Unrealized gain in change in fair value of Common Warrants for the three-month period ended June 30, 2022 of $1,758,200 relates to the change in fair value of the Common Warrants issued as part of the Offerings (see Note E of the accompanying condensed consolidated financial statements). The gain on change in fair value represents the difference between the fair value of the Common Warrants on March 31, 2022 compared to the fair value as of June 30, 2022.
Net loss decreased $2,321,918 or 67% to $1,124,797 for the three-month period ended June 30, 2022 compared to $3,446,715 for the three-month period ended June 30, 2021 due to the factors noted above.
Comparison of Results of Operations for the Nine-Month Periods Ended June 30, 2022 and 2021
For the nine-month periods ended June 30, 2022, and 2021, we generated $1,454,427 and $2,154,844 in revenues from product sales, respectively. Product revenues decreased by $700,417 or 33% for the nine-month period ended June 30, 2022, as compared to the nine-month period ended June 30, 2021. The decrease in product revenues was primarily related to an decrease of approximately $1,116,000 in sales of our diagnostic test kits and supplies, which was attributable to sales pursuant to our contract with Stony Brook University Hospital offset by an increase of approximately $415,000 of sales in the textile market relating to protecting the cotton supply chain, as well as shipment of a DNA transfer unit for the tagging of cotton in Egypt.
For the nine-month periods ended June 30, 2022, and 2021, we generated $570,759 and $678,896 in revenues from sales of services, respectively. The decrease in service revenues of $108,137 or 16% for the nine-month period ended June 30, 2022, as compared to the same period in the prior fiscal year is attributable to a decrease of approximately $146,000 for research and development projects in our pharmaceutical/nutraceutical markets offset by a $51,000 increase in textiles.
For the nine-month periods ended June 30, 2022 and 2021 we generated $12,584,174 and $3,154,263 in revenues from our clinical laboratory testing services, respectively. Clinical laboratory testing service revenues increased by $9,429,911, or 299% for the nine-month period ended June 30, 2022, as compared to the same period in the prior fiscal year. The increase in revenue is primarily due to an increase in demand for COVID-19 testing services during the first half of fiscal 2022 compared to the same period during fiscal 2021. Of this increase, approximately $8,081,000 in testing services related to our contract with the City University of New York, which began testing in August 2021.
Gross profit for the nine-month period ended June 30, 2022, increased by $1,221,333 or 36% from $3,415,548 for the nine-month period ended June 30, 2021 to $4,636,881. The gross profit percentage was 32% and 57% for the nine-month periods ended June 30, 2022 and 2021, respectively. The decline in the gross profit percentage was the result of a significant portion of our clinical laboratory service revenues coming from the testing contracts where we also provide and staff the test collection centers, as these contracts have higher costs associated with them as compared to our surveillance testing contracts.
Selling, general and administrative expenses for the nine-month period ended June 30, 2022 increased by $1,874,368 or 20% to $11,224,015 as compared to $9,349,647 for the nine-month period ended June 30, 2021. The increase is primarily attributable to an increase in stock-based compensation expense of $615,000 primarily relating to officer stock option grants that vested immediately, as well as to the annual non-employee board of director grant that vests one-year from the date of grant. The remainder of the increase relates to an increase in insurance expense of approximately $390,500, primarily related to an increase in our Directors and Officers insurance policy premiums and payroll of approximately $990,000. The increase in total payroll is primarily due to the nine-month period ended June 30, 2021 having a reversal of an accrual of approximately $817,000 for an accrued bonus that was forgiven by the CEO.
Research and development expenses increased to $3,013,162 for the nine-month period ended June 30, 2022 from $2,861,657 for the nine-month period ended June 30, 2021, an increase of $151,505 or 5%. This increase is primarily due to increased outsourced service contracts of approximately $263,000, as well as increased depreciation expense of approximately $141,000. These increases were to support our continued research and development efforts, primarily related to our ongoing animal vaccine study, as well as next generation sequencing projects. These increases were offset by a decrease of approximately $180,000 in laboratory equipment, as well as a decrease of approximately $43,000 related to cannabis projects during the nine-month period ended June 30, 2021.
Interest income, net for the nine-month periods ended June 30, 2022 and 2021, was of $5,813 and $11,975, respectively.
Other expense, net for the nine-month periods ended June 30, 2022 and 2021, was $160,387 and $52,357, respectively. The increase of $108,030 is due to an increase in royalty fees during the first nine months of fiscal 2022.
Transaction cost allocated to warrant liabilities
Transaction cost allocated to warrant liabilities for the nine-month period ended June 30, 2022 was $391,335.
Unrealized gain on change in fair value of the Common Warrants
Unrealized gain on change in fair value of Common Warrants for the nine-month period ended June 30, 2022 of $2,540,700 relates to the change in fair value of the Common Warrants issued as part of the Offering (see Note E of the accompanying condensed consolidated financial statements). The gain on change in fair value represents the difference between the fair value of the Common Warrants on the issuance date compared to the fair value as of June 30, 2022.
Loss on Extinguishment of Convertible Notes Payable
Loss on extinguishment of convertible notes payable of $1,774,662 for the nine-month period ended June 30, 2021 relates to the repayment of convertible notes that were originally issued during July 2019. The loss on extinguishment represents the difference between the fair value of the convertible notes, including the fair value of the replacement warrants issued, on the repayment date compared to its carrying value.
Gain on Extinguishment of Notes Payable
Gain on extinguishment of notes payable for the nine-month period ended June 30, 2021 of $839,945 relates to the full forgiveness of the Company's PPP loan. The gain on extinguishment represents the carrying value of the loan on the forgiveness date.
Net loss decreased $2,165,350 or 22% to $7,605,505 for the nine-month period ended June 30, 2022 compared to $9,770,855 for the nine-month period ended June 30, 2021 due to the factors noted above.
Our liquidity needs consist of our working capital requirements and research and development expenditure funding. As of June 30, 2022, we had working capital of $4,983,408. For the nine-month period ended June 30, 2022, we used cash in operating activities of $5,718,086 consisting primarily of our loss of $7,605,505 net with non-cash adjustments of $962,800 in depreciation and amortization charges, an unrealized gain on change in fair value of the Common Warrants of $2,540,700, $2,245,749 in stock-based compensation expense and $10,000 of bad debt expenses. Additionally, we had a net decrease in operating assets of $146,927 and a net increase in operating liabilities of $1,062,643. Cash used in investing activities of $246,892 was for the purchase of property and equipment. Cash flows from financing activities of $4,091,908 was from the February 2022 registered direct offering.
We have recurring net losses, which have resulted in an accumulated deficit of $291,836,869 as of June 30, 2022. Our current capital resources include cash and cash equivalents, accounts receivable and inventories. Historically, we have financed our operations principally from the sale of equity and equity-linked securities. Through June 30, 2022, we have dedicated most of our financial resources to commercialization of our MDx Testing Services, specifically our COVID-19 Testing Services, as well as to research and development efforts, including the development and validation of our own technologies as well as, advancing our intellectual property, and general and administrative activities.
As discussed in Note I to the accompanying condensed consolidated financial statements, on August 8, 2022, we closed on a public offering of 3,000,000 shares of Common Stock, and warrants (or Common Stock equivalents), at a purchase price of $4.00 per share. The gross proceeds, before deducting the placement agent's fees and other offering expenses were $12 million. On August 8, 2022, the Company received $3.6 million in proceeds from the exercise of 900,000 Series B Warrants.
We have alleviated the substantial doubt of a going concern through the cash received from the August 2022 public offering and the warrant exercises, discussed above, as well as collection of our accounts receivable. We estimate that we will have sufficient cash and cash equivalents to fund operations for the next twelve months from the date of filing of this quarterly report.
We may require additional funds to complete the continued development of our products, services, product manufacturing, and to fund expected additional losses from operations until revenues are sufficient to cover our operating expenses. If revenues are not sufficient to cover our operating expenses, and if we are not successful in obtaining the necessary additional financing, we will most likely be forced to reduce operations.
The effect of inflation on our revenue and operating results was not significant.
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