UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1-K
ANNUAL REPORT PURSUANT TO
REGULATION A OF THE SECURITIES ACT OF 1933
For the fiscal year ended December 31, 2022
Quadrant Biosciences Inc.
(Exact name of issuer as specified in its charter)
| Delaware | 47-3417864 | |
| (State or other jurisdiction of | (IRS Employer | |
| incorporation or organization) | Identification No.) |
505 Irving Avenue, Suite 3100AB Syracuse, New York |
13210 | |
| (Address of principal executive offices) | (Zip code) |
(315) 614-2325
(Registrant’s telephone number, including area code)
Common Stock
(Title of each class of securities issued pursuant to Regulation A)
In this report, the terms “Quadrant,” “the company,” “we,” “us” and “our” refer to Quadrant Biosciences Inc. and its consolidated subsidiaries. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.
Forward-Looking Statements
The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “could,” “expect,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “possible,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.
Item 1. Business
SUMMARY
Overview
Quadrant Biosciences Inc. is a healthcare company dedicated to improving the lives of children and families by delivering innovative diagnostic, therapeutic, and virtual care solutions for global health priorities.
Quadrant is comprised of five business units:
| ● | Quadrant Laboratories. Quadrant Laboratories (“QLabs”) engages in the research, development and commercialization of molecular diagnostics for certain public health priorities, including Autism Spectrum Disorder (“ASD”), mild-traumatic brain injuries (“mTBI”), Parkinson’s Disease (“PD”) and others. QLabs conducts business through two wholly-owned subsidiaries of Quadrant, Quadrant Laboratories LLC and Quadrant Viral Testing LLC. |
| ● | Quadrant Wastewater Solutions. Quadrant Wastewater Solutions (“QWS”) provides communities throughout the northeastern United States and the New York State Department of Health (“NYSDOH”) with weekly wastewater surveillance reporting on the presence and relative abundance of the SARS-CoV-2 virus in wastewater sampled from municipal treatment facilities; additionally, QWS facilitates testing for other human pathogens. QWS conducts business through Quadrant Viral Testing LLC. |
| ● | As You Are. As You Are (“AYA”) is a virtual pediatric clinic which provides autism diagnostic evaluations for children 16 months to 10 years of age through telehealth appointments. AYA conducts business through two wholly-owned subsidiaries of Quadrant, Quadrant Medical Staffing LLC and Quadrant Virtual Care Management LLC; Quadrant Virtual Care Management LLC provides management services to As You Are Physicians P.C., which employs physicians and leases those physicians to the billing entities, which along with As You Are Physicians P.C. are variable interest entities. |
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| ● | Frazier Behavioral Health. Frazier Behavioral Health (“FBH”) delivers individualized therapy for neurodiverse children and adults with behavioral, social, communication, daily living, and educational deficits. FBH conducts business through the wholly-owned subsidiary of Quadrant, Frazier Behavioral Health LLC. |
| ● | Autism Analytica. Autism Analytica (“AA”) develops commercial software designed to facilitate the early identification of children on the autism spectrum, predict the type and frequency of services needed, and monitor a child’s progress through treatment over time. AA conducts business through the wholly-owned subsidiary of Quadrant, Autism Analytica LLC. |
Our Business Units
Quadrant Laboratories “QLabs”
QLabs owns and operates a research and development laboratory and a clinical laboratory.
Research and Development Laboratory:
Quadrant Laboratories strives to improve diagnostic accuracy and patient access through the research, development, and commercial implementation of novel molecular assays for both clinical and public health applications. Our lab has expertise in AI/machine-learning-based discoveries derived from patient phenotypic and genetic/multi-omic next generation sequencing data.
Our current tests include, Clarifi ASD, an easy to administer, non-invasive, molecular test that improves the specificity of tests that are used to screen for Autism Spectrum Disorder (“ASD”). ASD screening tests generate many false positive results and Clarifi ASD aids in distinguishing between the true positive and false positive results. This facilitates earlier diagnosis of ASD, when treatment is most effective. Quadrant started 2020 with sales of Clarifi ASD, having recently achieved regulatory approval for this test in 49 states as an LDT offered through a third-party laboratory. However, not long after the company began to introduce Clarifi ASD to pediatric healthcare providers, the world was besieged by the COVID-19 pandemic. Starting in early 2020, the company’s ability to access healthcare providers was greatly restricted by social distancing mandates which, in turn limited its ability to introduce Clarifi ASD to potential customers. In light of these impediments and in deference to the company’s concentration in COVID-19 testing products and services, the company temporarily removed the Clarifi ASD test from the market. However, during that time the company continued to implement its strategy to obtain broad insurance reimbursement for Clarifi ASD. Attaining a unique CPT® PLA code in 2020 was a major step toward this outcome. On Sept 21, 2020, the Centers for Medicare and Medicaid Services (“CMS”) released a preliminary payment rate determination of $1,755 for Clarifi ASD; this rate was finalized and became effective in January 2021. In April 2021, the FDA designated Clarifi ASD a “Breakthrough Device”; the FDA Breakthrough Device Program is intended to help patients and health care providers receive more timely access to breakthrough technologies that have the potential to provide more effective treatment or diagnosis for life-threatening or irreversibly debilitating diseases or conditions. As part of the FDA regulatory approval process for Clarifi ASD, in November 2021 the company entered into a $6.2 million Research Support Agreement with Autism Speaks Inc. This agreement utilizes the Autism Care Network and facilitates the collection of one or more biological specimens from over 6,600 children at risk of an autism spectrum disorder diagnosis along with their demographic and phenotypic information from 17 clinical research sites located throughout the United States. The company is planning to re-validate Clarifi ASD and launch Clarifi ASD as a single lab LDT in all 50 states during the fourth quarter of 2023.
In addition to the Clarifi ASD diagnostic test being developed, the company plans to offer a comprehensive panel of genetic tests built on whole-exome sequencing using saliva samples to increase access to this type of testing. Genetic tests are primarily not to diagnose autism, but to serve as an adjunct after an autism diagnosis to better understand the condition as well as related comorbidities, and create a more targeted treatment. The genetic tests launched via a reference lab in the fourth quarter of 2022 while the company seeks approval for an in-house developed assay through the New York State Department of Health as a Laboratory Developed Test (expected in mid-2023).
Outside of the work focused on autism, the company continues to build its research pipeline. This work includes the exploration of ways to further monetize existing products and processes. The company remains actively engaged in ongoing clinical research to develop a molecular diagnostic aid for mild traumatic brain injuries (mTBI); this work leverages the proprietary methods and intellectual property developed for Clarifi ASD. For mTBI, certain saliva-based biomarkers show promise for identifying the injury while others predict which patients will have persistent post-concussion symptoms. In September of 2020, the company received a $2.3 million Small Business Technology Transfer (“STTR”) grant from the National Institute of Health (“NIH”) related to this project, with the second phase of the grant anticipated to begin in 2023. The company anticipates launching a laboratory developed test in mid-2024. We also hope to continue to materially expand our research and development pipeline to include attention deficit/ hyperactivity disorder (“ADD/ADHD”), depression, and diabetes, among other medical conditions.
Clinical Laboratories:
The company’s laboratory located on the SUNY Upstate Syracuse campus is certified under the Clinical Laboratory Improvement Amendment (Federal) / Clinic Laboratory Evaluation Program (New York State) (“CLIA/CLEP”). See “—Regulation -- New York State Department of Health - Clinical Laboratory Evaluation Program and CLIA” below. The processing of COVID-19 tests by the clinical laboratories was the primary revenue generating activity in 2022. The clinical laboratory will expand into additional types of testing as new products are developed; see “Research and Development Laboratory” above.
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Specimens:
Through our laboratory work QLabs has curated and owns one of the world's largest biobanks, including over 615,000 saliva specimens from over 160,000 unique individuals. Specimens included in this biobank are appropriate for genetic and multi-omic discovery. These specimens, along with associated de-identified patient data, will allow QLabs to materially expand its research and development pipeline to include ADHD, Depression and Diabetes, among other medical conditions.
Additionally, the company believes that it will be able to sell some of the specimens in order to help fund the company and its initiatives. The company began marketing its specimens at the end of March 2023 and believes that it will be able to sell them for significantly more than they are currently valued on the balance sheet, which currently is at cost.
Quadrant Wastewater Solutions
QWS provides communities throughout the northeastern United States and the New York State Department of Health with weekly wastewater surveillance reporting on the presence and relative abundance of the SARS-CoV-2 virus in wastewater sampled from municipal treatment facilities. Results from the wastewater tests are used by local and state authorities to modify public health policies and allocate resources to areas as the virus appears in wastewater several days before infected individuals enter the healthcare system for diagnosis. As of March 20, 2023, QWS provided these services for approximately 90% of all counties in New York State. Additionally, QWS facilitates additional testing by the NYSDOH (including the phylogenetic classification of SARS-CoV-2 variants and genetic testing for other human pathogens) by providing extracted RNA from wastewater samples. Beginning in August 2023, QWS anticipates beginning in-house testing for additional human pathogens, including Norovirus, Hepatitis A, Flu A/B and RSV; concurrently, QWS will continue to provide extracted RNA to NYSDOH for the detection of Polio and potentially other human pathogens.
As You Are
AYA is a virtual pediatric clinic which provides autism diagnostic evaluations for children 16 months to 10 years of age through telehealth appointments; AYA’s diagnostic process is facilitated by its proprietary evidence-based medicine platform. As of the date of this Annual Report, AYA serves children and families in 21 states including California, Utah, Maryland, Louisiana, Iowa, Missouri, Montana, Oklahoma, Tennessee, Utah, Vermont, Washington, New York, New Jersey, Texas, Florida, Alabama, Georgia, Kentucky, Ohio, and Pennsylvania; AYA expects to provide services in all 50 states by year-end 2023. AYA began seeing patients in August 2022 and as of April 21, 2023 has provided diagnoses for nearly 1,500 children. Following a diagnosis, families can choose to be paired with a dedicated AYA care coordinator who connects families with resources in their area and provides ongoing support to help children flourish. In each state of operation, AYA accepts nearly all major insurances, including state Medicaid plans.
Frazier Behavioral Health
FBH delivers individualized therapy for neurodiverse children and adults with behavioral, social, communication, daily living, and educational deficits; their mission is to assist these individuals in becoming their best selves and create enhanced outcomes at home, at school and in the community. From their clinic in Cleveland, Ohio, and other locations convenient for patients, FBH provides evidence-based therapies and intervention strategies for children and adults with autism, ADD/ADHD, and other developmental conditions. As of March 20, 2023, FBH employs over 30 clinicians providing behavioral health services, including Applied Behavioral Analysis therapy (“ABA”), speech/language therapy (“SLT”), psychological evaluations, education interventions, and other support services.
Autism Analytica
AA develops commercial software designed to facilitate the evaluation of cognitive and behavioral functions in children, adolescents, and young adults with a broad range of neurodevelopmental and neurobehavioral challenges, including children without a specific neuropsychiatric diagnosis. One specific focus is to use informant-report and webcam-collected measures to aid in the accurate early identification of children on the autism spectrum, predict the type and frequency of services needed, and monitor a child’s progress through treatment over time. Another specific focus is to measure a broad range of neurobehavioral functions that can be used to screen, monitor, and inform intervention strategies for children receiving psychosocial or medical interventions. AA’s initial offerings will be comprised of:
| ● | clinical decisions support software, inclusive of ten parent/caregiver-completed, clinically validated, measures of a child’s strengths and challenges and the clinical compilation of these results (“Virtual IPM”), and |
| ● | an objective, webcam-collected set of measures which utilizes gaze tracking, automated facial expression coding, proprietary stimuli, and AI/machine-learning algorithms to augment clinical decision making relative to ASD (“Neuro IPM”). |
AA software is designed for use by clinicians and behavioral health specialists for evaluating and monitoring developmental and intervention progress in children with a range of neurodevelopmental and neuropsychiatric challenges. The first commercial application of Neuro IPM is expected in July 2023. The combination of Virtual IPM and Neuro IPM is scheduled to be the subject of a clinical trial sponsored by Magellan Health, Inc., a subsidiary of the fifth largest health insurance company in the US.
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Intellectual Property
The company’s epigenetic technology is based on research originally conducted at SUNY Upstate Medical University and the Penn State College of Medicine and is licensed from the Research Foundation for the State University of New York and the Pennsylvania State Research Foundation (“Foundations”). The intellectual property associated with the technology includes:
| ● | Two patents issued in 2022, in the US and South Korea respectively, and one patent issued in Australia in 2023, with claims covering an epigenetic test to aid in the diagnosis of Autism Spectrum Disorder
One patent issued in 2022 in the US with claims covering an epigenetic test to aid in the diagnosis of mild traumatic brain injury |
| ● | Potential patent rights that may be obtained through the patent applications (together with associated know how) that are invented and owned by the Foundations, and |
| ● | Trade secrets that are created and owned by the company. |
The patent applications presently consist of non-provisional patent applications in a number of jurisdictions, and the non-provisional applications must then be prosecuted at the USPTO, as well as select international patent offices, to attempt to obtain issued patent rights.
The company has entered into License Agreements with the Foundations, which grant the company the exclusive right to practice certain existing joint patent rights and Foundation-owned patent rights in fields of use consisting of products and services for the evaluation of ASD, Parkinson’s Disease, and TBI. The company’s ASD, Parkinson’s, and TBI License Agreements have the same terms and conditions regarding the earned royalties payable, the term, and early termination by the Foundations.
Under the License Agreements, earned royalties are payable at the rate of 4% of revenue from licensed products if the licensed technology includes an issued patent, and at the rate of 2% of revenue if no patents are issued and the licensed technology includes only the know-how created in development of the technology covered by the License Agreement.
Further, each agreement requires Quadrant to pay a minimum amount of royalties per year, and if earned royalties are less than the minimum amount for a particular year, a minimum royalty payment is required so that the minimum amount is paid to the Foundations. The minimum royalties are:
| Year | ASD License Agreement | Parkinson’s License Agreement | TBI License Agreement | |||||||||
| 2022 | $ | 50,000 | $ | 25,000 | $ | 10,000 | ||||||
| 2023 | $ | 50,000 | $ | 25,000 | $ | 10,000 | ||||||
| 2024 | $ | 50,000 | $ | 25,000 | $ | 10,000 | ||||||
| 2025 | $ | 50,000 | $ | 25,000 | $ | 25,000 | ||||||
| 2026 through expiration (estimated to be 2038) | $ | 50,000 | $ | 25,000 | $ | 25,000 | ||||||
The total estimated payments going forward, assuming the company pays the minimum royalty payment through expiration (estimated to be 2038), for the ASD, Parkinson’s and TBI Licenses are $800,000, $400,000 and $370,000, respectively.
Further, each License Agreement requires Quadrant to begin selling licensed products by the following agreed upon commercialization deadlines: Parkinson’s licensed product, December 31, 2020 and TBI licensed product, December 31, 2022. Both Quadrant and the Foundations acknowledge the difficulties associated with conducting clinical research during the COVID-19 pandemic and have agreed in principle to a two-year extension of these commercialization deadlines; a definitive agreement is expected. Quadrant has already begun commercialization of the ASD licensed product. Quadrant has the option to extend the commercialization deadlines by a maximum of three six-month extensions, for the following fees: $25,000 for the first extension, $50,000 for the second extension, and $100,000 for the third extension.
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The term of the License Agreements, which include one or more issued patents, extends until expiration of the last issued patent. Issued patents expire 20 years after the earliest filing date, and most of Quadrant’s patent applications have effective filing dates in 2018. The term of any License Agreement that covers only know-how is 10 years after the first commercial sale of the licensed product that embodies the know-how.
The Foundations can terminate the License Agreements early if the company fails to commercialize licensed products by agreed upon deadlines or the company fails to make required payments. The License Agreements presently are in good standing.
Quadrant has also entered into two license agreements with the SUNY Research Foundation (“SUNY RF”) in relation to its COVID-19 testing technology, one for testing saliva samples and one for testing wastewater. The technologies embodied in the Clarifi COVID-19 Test for saliva and the test for wastewater were both jointly developed by Quadrant and SUNY Upstate Medical University personnel, and are therefore co-owned by Quadrant and SUNY RF.
The saliva testing technology consists of inventions and know-how related to the method of testing saliva samples for the presence of the SARS-CoV-2 virus, and the test kit of materials and reagents that are used in the testing method. The testing method involves extraction of the SARS-CoV-2 viral RNA and amplification and detection of the viral RNA using a qualitative polymerase chain reaction. SUNY RF has granted Quadrant an exclusive worldwide license of SUNY RF's ownership interest in the COVID-19 Test technology in consideration for Quadrant's payment of a royalty in the amount of the following percentages of the net revenue realized on sales of products or services that embody the COVID-19 Test technology for the associated time periods: 10% until December 31, 2021, 8% from January 1, 2022 through June 30, 2022, and 6% for the remainder of the term of the license. The wastewater technology consists of inventions (covered by a US patent application) and know-how related to a method of identifying the SARS-CoV-2 virus in wastewater and estimating the quantity of SARS virus present in relation to the amount of other viral RNA typically present in wastewater. SUNY-RF has granted Quadrant an exclusive worldwide license of this technology in consideration for Quadrant’s payment of a royalty consistent with the terms of the saliva agreement above. The terms of both of these licenses extend for the entire time period during which Quadrant sells any product or service that embodies the COVID-19 Test technology, and wastewater technology, respectively. SUNY RF has the right to terminate the licenses if Quadrant defaults in performance of its obligations under the license, for example failing to pay royalties when due, and if Quadrant declares bankruptcy or becomes insolvent.
In 2022 and 2021, the company incurred royalty expense due to SUNY RF of $2,868,377 and $7,833,833, respectively, with respect to the COVID-19 testing technology, and these license agreements with SUNY RF presently are in good standing.
The company has filed patent applications with the United States Patent and Trademark Office (“USPTO”) in relation to intellectual property related to some significant epigenetic diagnostic tools it is developing based on the research conducted at one or both of the Foundations. The company believes it is a leader in the development of intellectual property, products and services and other diagnostic-related assets relating to human and microbial transcripts.
Quadrant has four granted and 23 pending patent applications. Issued patents are US 11,242,563 B2, issued February 8, 2022, KR 10-2359013, issued January 28, 2022, and AU 2018237366, issued March 23, 2023, each entitled Analysis of Autism Spectrum Disorder, as well as US 11,453,914 B2, issued September 27, 2022, entitled Analysis and Prediction of Traumatic Brain Injury and Concussion Symptoms. The pending patent applications as of April 2023, are grouped below in the following 8 patent families:
| ● | Methods of determining the probability that a child is affected by ASD, using RNA biomarkers obtained from a sample of saliva; 4 applications: Japan, European Patent Convention, Canada, and New Zealand | |
| ● | Methods of determining the probability that a patient is affected by mild traumatic brain injury, using RNA biomarkers obtained from saliva; 6 national applications: Japan, Australia, European Patent Convention, Canada, Republic of Korea, and New Zealand | |
| ● | Methods of determining the probability that a patient is affected by Parkinson’s Disease, using RNA biomarkers obtained from saliva, 2 applications: US and European Patent Convention | |
| ● | Methods of determining the probability that a patient is affected by Anorexia Nervosa, using RNA biomarkers obtained from saliva, 1 US application | |
| ● | Methods of applying machine learning techniques to develop a system that classifies a set of RNA biomarkers according to patterns of relative abundance that are associated with a target medical condition, and methods of using the classification system to test samples of the biomarkers; 4 applications: US, Japan, Canada, and the European Patent Convention | |
| ● | Methods of normalizing micro RNA (miRNA) biomarkers to account for circadian variations in any testing process based on differentially expressed miRNAs; 4 national application: Australia, New Zealand, European Patent Convention, and Canada | |
| ● | Methods of normalizing miRNA biomarkers to account for variations caused by exercise in any testing process based on differentially expressed miRNAs; 1 US application | |
| ● | Methods of quantifying virus from wastewater; 1 US application |
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Quadrant has actively pursued the registration of the “Clarifi” mark, filing 34 applications in the U.S. and numerous countries. The current status of these efforts (and a brief, general, description of the terms “registered” and, “filed and pending”) follows:
| ● | Registered – i.e. the certificate of registration has been issued and is in force: Brazil (2 classes), China (2 classes), European Union, Great Britain, Hong Kong, Indonesia, India, Japan, Korea, Malaysia, Norway, New Zealand, Saudi Arabia (3 classes), Singapore, Switzerland, Taiwan (3 classes), United Arab Emirates (3 classes), United States, and Vietnam. | |
| ● | Filed and pending/allowed – i.e., in this context the term “pending” means the application is in the examination process but has not yet been approved or allowed, and “allowed” means the examiner has approved/allowed the application but it has not yet been registered (it could be waiting for the opposition period to pass or for a Statement of Use to be filed (as in the U.S.): Malaysia (pending), Canada (pending).
A filing with the USPTO was made to include the Clarifi word mark, which remains pending. |
Quadrant has filed three additional applications following the addition of new business lines. All applications are currently classified as filed and pending/allowed using the definitions above. The details of these efforts follows:
| ● | 1 filed and pending/allowed application for the word mark “Frazier Behavioral Health” | |
| ● | 1 filed and pending/allowed application for the word mark “As You Are” and 1 filed and pending/allowed application for the design mark relating to “As You Are Pediatric Evaluations” |
Each country conducts trademark examinations differently; some are limited to a formalities exam only (i.e., they do not look for conflicts).
Thomas Frazier, PhD, has three registered US Copyrights relating to Autism Diagnosis, which Quadrant has a right to use in certain instances.
Market – Autism Spectrum Disorder
The target market for our AYA, AA, and certain QLabs products are children who, based on clinical observations, have or are at risk to have Autism Spectrum Disorder. Of the nearly 4 million children born in the United States every year, nearly 1 in 6 will have a developmental delay. Currently, children with a wide range of developmental delays are referred for an ASD diagnosis.
ASD is a developmental disability that can cause significant social, communication and behavioral challenges. According to the US CDC:
| ● | As of 2020, approximately 1 in 36 children has been identified with Autism Spectrum Disorder according to the most recent estimates from CDC’s Autism and Developmental Disabilities Monitoring (“ADDM”) Network (2023). | |
| ● | The reported prevalence of ASD has increased significantly: in 2002, this statistic was 1 in 150; in 2006, prevalence was 1 in 110; in 2010, prevalence was 1 in 68; in 2018 the prevalence was 1 in 44; and in 2020 the prevalence was 1 in 36. | |
| ● | ASD is reported to occur in all racial, ethnic, and socioeconomic groups. | |
| ● | ASD is about 4 times more common among boys than among girls. | |
| ● | Studies in Asia, Europe, and North America have identified individuals with ASD with an average prevalence of between 1% and 2%. |
See below for further market analysis of each business line.
Quadrant Laboratories
The global epigenetics market is a new and developing market. According to Grand View Research, Inc., the global epigenetics diagnostic market size was $5.5 billion in 2018 and is expected to reach $21.7 billion by 2026.
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The target market for our different products will depend on the specific focus of the product, as outlined below:
Autism Spectrum Disorder
For Clarifi ASD, we believe our target market is the subsection of children who, based on clinical observations, are at risk to have an Autism Spectrum Disorder diagnosis; see “Market - Autism Spectrum Disorder” above.
Concussion Injuries (Mild Traumatic Brain Injuries)
For our acute concussion injury diagnostic (in development), we believe our target market is children and adults who have experienced some form of trauma and, as a result, are at risk to have a concussion (or mild traumatic brain injury) diagnosis. In 2014, there were approximately 2.87 million traumatic brain injury-related emergency department visits, hospitalizations, and deaths in the US, including over 837,000 of these health events among children.
A concussion is a type of traumatic brain injury caused by a bump, blow, or jolt to the head or by a hit to the body that causes the head and brain to move rapidly back and forth. This sudden movement can cause the brain to bounce around or twist in the skull, creating chemical changes in the brain and sometimes stretching and damaging brain cells.
According to the CDC, traumatic brain injury is a serious public health problem in the United States. Each year, traumatic brain injuries contribute to a substantial number of deaths and cases of permanent disability. Further information about the causes of TBIs:
| ● | In 2014, falls were the leading cause of TBI. Falls accounted for almost half (48%) of all TBI-related emergency department (“ED”) visits. Falls disproportionately affect children and older adults: |
| o | Almost half (49%) of TBI-related ED visits among children 0 to 17 years were caused by falls. |
| o | Four in five (81%) TBI-related ED visits in older adults aged 65 years and older were caused by falls. |
| ● | Being struck by or against an object was the second leading cause of TBI-related ED visits, accounting for about 17% of all TBI-related ED visits in the United States in 2014. |
| ● | Over 1 in 4 (28%) TBI-related ED visits in children less than 17 years of age or less were caused by being struck by or against an object. |
Parkinson’s Disease
For our early-stage Parkinson’s Disease diagnostic (in development), we believe our target market is those adults who, based on clinical observations, are at risk to have a PD diagnosis. In clinical research, movement disorders such as tremor and parkinsonism are observed in approximately 21% of adults aged 50 or more; these adults represent the target market for our PD diagnostic. For the US population of nearly 330 million, approximately 115 million are aged 50 or older.
According to the CDC, PD is the second most common neurodegenerative disease after Alzheimer’s disease. Population prevalence of PD increases from about 1% at age 60 to 4% by age 80. Early symptoms of PD include tremor, rigidity, and difficulty walking; cognitive decline is common at later stages. The underlying pathology of PD is selective death of dopamine-generating cells in the substantia nigra, a part of the brain involved in movement, reward, and addiction. Treatment of PD with levodopa temporarily controls motor symptoms but does not slow disease progression. Like other common diseases, PD is thought to arise from complex interactions between genetic and environmental factors.
Market – Wastewater Solutions
As individual COVID-19 testing wanes, wastewater testing offers a solution, where large scale testing is performed to monitor community COVID trends as an early-warning system for public health officials. Additionally, the Company has processed samples of Polio, Norovirus, Monkeypox, Hepatitis A, Flu A/B, and RSV. Quadrant has also variant sequenced COVID samples to determine variants and level of each in a community. Our proprietary wastewater surveillance technology is believed to be an order of magnitude more sensitive than our nearest competitor and is estimated to be able to detect 1 COVID case in a population of 10,000. Wastewater Surveillance testing informs policy decisions for Universities, Municipalities, Counties, States Prompts changes in targeted testing frequency and strategies Currently, QWS has provided public health surveillance across the northeastern United States.
Market – AYA
For AYA, we believe our target market is the subsection of children who, based on clinical observations, are at risk to have an Autism Spectrum Disorder diagnosis; see “Market - Autism Spectrum Disorder” above. A commentary released in 2021 in Autism Research, written by many world-renowned expert autism clinicians and researchers, urged clinicians to shift the ASD evaluation process to a more adaptable, sustainable and family-centered system of care in order to truly provide families with answers and access to needed intervention services. Telehealth diagnostic models and training pediatricians to better identify children with ASD were two suggested approaches highlighted by this panel of experts to rapidly improve diagnostic practices across the US. A McKinsey study showed that during the COVID-19 pandemic the use of telehealth grew, peaking in April 2020 but has since stabilized with approximately 40% of telemedicine users believing that they will continue to use telehealth at greater or similar levels as during the pandemic.
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Market – AA
For AA, we believe our target market is a combination of (i) clinicians and healthcare organizations engaged in providing behavioral health services to children and (ii) health insurance companies. In both cases, AA software products are intended to improve patient outcomes, streamline clinical workflows and reduce overall costs. The market for behavioral health services related to neurodevelopmental challenges is estimated below (see “Market - Behavioral Health Services for neurodevelopmental challenges”); the market for software related to the behavioral health services business is a fraction of the overall behavioral health services market.
Market – Behavioral Health Services for Neurodevelopmental Challenges
The global neurodevelopmental challenges treatment market is projected to grow from $1.93 billion in 2022 to $3.17 billion by 2029, at a compound annual growth rate of 7.4%.
Competition
There is a deep market need for improved diagnostic tools across a wide range of human health conditions and diseases and the company expects competition to increase, especially with respect to diagnostic tests related to ASD, traumatic brain injury, and Parkinson’s Disease. As evidenced by the wait times for ASD evaluations there is a need for additional autism diagnostic opportunities and the Company believes that a telemedicine model geared specifically towards ASD will fill this void. Further, due to the exigent nature of the COVID-19 pandemic, there is a significant need for fast, effective, and non-invasive diagnostic tools. The company expects to face significant competition from both emerging medical device, biotechnology and healthcare companies, and established market participants, some of whom may be larger and have more resources than the company.
The Company’s biobank is believed to be the fourth largest in the world with over 615,000 samples. The Company expects competition from primarily commercial biobanks, of which 23andME and Regeneron are the largest commercial biobanks in the world.
FBH competes with other local therapy providers.
Suppliers
The company purchases the reagents and materials used in the chemical reactions incorporated into our processes, as well as the sequencers and equipment that we use in our laboratory operations from a variety of suppliers. Currently, several reagents and materials are sourced from sole suppliers. For instance, DNA Genotek is the sole supplier of saliva swabs used in our Clarifi COVID-19 and Clarifi ASD test kits and Illumina is the sole supplier of sequencers and various associated reagents used in testing the saliva collected and is the sole provider of maintenance and repair services for these sequencers.
Customers
The company has received predominantly all of its revenue from COVID-19 products and testing for state and local entities of New York State. Revenue derived from AYA and FBH are from providing services to individuals and are predominantly reimbursed via commercial insurance, including Medicaid.
Research and Development
The amount expensed for research and development for the year ended December 31, 2022 was $1,018,519 and for the year ended December 31, 2021 was $206,092.
Employees
As of December 31, 2022, the company has 126 full-time employees. All company employees are “at will”; however, the company has employment agreements with basic confidentiality, proprietary rights and non-compete provisions with all employees.
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Regulation
Medical Products and Devices
Medical products and devices are regulated by the FDA in the United States and can be regulated by foreign governments for devices sold internationally. The Federal Food, Drug and Cosmetic Act and regulations issued by the FDA regulate development, manufacturing, packaging, and marketing of medical devices.
Unless an exemption applies, each medical device or product we wish to distribute commercially in the United States will require marketing authorization from the FDA prior to distribution. These devices may require premarket notification, also called 510(k) clearance, or in cases where that is not available, premarket approval (“PMA”). However due to the exigent nature of the COVID-19 pandemic in the US, on February 4, 2020, the Secretary of the Department of Health and Human Services (HHS) upon determining that there is a public health emergency that has a significant potential to affect national security or the health and security of United States citizens living abroad, declared that circumstances exist justifying the authorization of emergency use of in vitro diagnostics for the detection and/or diagnosis of COVID-19. This emergency use authorization (“EUA”) approval is needed to distribute and/or use in vitro diagnostic tests for COVID-19 in the United States.
Since our epigenetic diagnostic tests are developed and performed in a single laboratory, we believe that these tests are LDTs that are subject to FDA’s enforcement discretion for LDTs and do not require FDA notification or authorization. Notification requirements and the related exemptions are discussed in more detail below.
Our manufacturing processes and facilities are also subject to regulations, including the FDA’s Quality System Regulation (“QSR”) requirements. These regulations govern the way we manufacture our products and maintain documentation for our manufacturing, testing and control activities. Although the FDA has waived compliance with some parts of the QSR for COVID-19 tests that are granted EUA, other parts of the QSR do apply to the assembly, packaging, and tracking of COVID-19 diagnostic assays that are distributed to purchasers. In addition, to the extent we manufacture and sell products abroad, those products are subject to the relevant laws and regulations of those countries.
Finally, the labeling of our products and devices, our promotional activities and marketing materials are regulated by the FDA and various state agencies. Violations of regulations promulgated by these agencies may result in administrative, civil or criminal actions against us or our manufacturers by the FDA or governing state agencies.
Pre-market clearance
To obtain 510(k) clearance for a medical device, an applicant must submit a premarket notification to the FDA demonstrating that the device is “substantially equivalent” to a device legally marketed in the United States that is not subject to PMA approval, commonly known as the “predicate device.” A device is substantially equivalent if, with respect to the predicate device, it has the same intended use and has either (i) the same technological characteristics or (ii) different technological characteristics and the information submitted demonstrates that the device is as safe and effective as a legally marketed device and does not raise different questions of safety or effectiveness. A showing of substantial equivalence sometimes, but not always, requires clinical data. Generally, the 510(k) clearance process can exceed 90 days and may extend to a year or more.
510(k) Clearance
On October 22, 2019, ClearEdge Balance was cleared by the FDA as a Class II medical device under product code LXV (K18366). ClearEdge Balance assesses changes in balance using our proprietary Edge™ Sensor, a wireless inertial measurement unit worn on the patient’s lower back, at the approximate center of mass. On November 1, 2021, the ClearEdge Toolkit containing ClearEdge Balance was discontinued from use.
FDA EUA Application for COVID-19 Test Kit
The FDA has prescribed templates to be used for submissions to obtain EUAs for COVID-19 test kits, which enumerate the detailed information that FDA requires to issue the EUA. The information required includes the intended use of the test kit, the materials and reagents comprising the test kit, the step-by-step testing procedure in which the test kit is used, including laboratory equipment required to perform each step, and all laboratory and clinical testing that is required to demonstrate the accuracy of the test. The process to obtain an EUA typically consists of two phases, an initial Pre-EUA submission that is used to identify and resolve any significant problems that would preclude issuance of an EUA and a final EUA submission. The final EUA submission addresses the details that the FDA will require to demonstrate that the COVID-19 test kit will have acceptable sensitivity (to detect a high percentage of people who are infected) and specificity (to not generate a positive test result for someone who is not infected; i.e. limit false positive results). The company obtained an EUA from the FDA for its Clarifi COVID-19 Test Kit on September 22, 2020. Subsequently an amendment to this EUA was granted on May 6, 2021 to further expand the product's clinical use.
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Laboratory-Developed Tests
Laboratory developed tests (LDTs) are clinical laboratory tests that are developed, validated and manufactured, and used by a single laboratory and then only performed in that laboratory (the test is not shipped to other laboratories). Historically, the FDA has exercised enforcement discretion with respect to most LDTs, and not required the CLIA-certified laboratories that perform such tests to comply with the agency’s requirements for medical devices (e.g., establishment registration, device listing, QSR, premarket clearance or approval, adverse event reporting).
On April 13, 2022, Quadrant Laboratories received approval from NYSDOH CLEP for the LDT submission of an ELISA-based method for SARS-CoV-2 total antibody (IgM, IgG, IgA) detection in saliva collected samples. Although the approval is granted for an indefinite period, it is subject to demonstration of ongoing compliance with NYSDOH CLEP regulations and standards.
In recent years, the FDA has indicated that it intends to end its policy of enforcement discretion and begin regulating LDTs as medical devices. In October 2014, the FDA published two draft guidance documents describing a proposed risk-based framework under which it might regulate LDTs. The FDA’s draft framework proposed, among other things, premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared diagnostics currently on the market. Subsequently, on January 13, 2017, the FDA published a “discussion paper” in which the agency outlined a substantially revised “possible approach” to the oversight of LDTs. The discussion paper explicitly states that it is not a final version of the 2014 draft guidance and that it does not represent the agency’s “formal position”; rather, the discussion paper represents the latest iteration of the agency’s thinking on LDTs, which the agency posted to “spur further dialogue”. In August 2020 the Department of Health and Human Services announced that FDA would no longer require premarket review of LDTs unless and until it went through the notice and comment rulemaking procedure required by the Administrative Procedure Act. However, on November 15, 2021, HHS reversed its course once again and provided that the FDA may begin oversight of LDTs. It is unclear at this time when, and how, the FDA will provide oversight over LDTs. We believe that the epigenetic tests that we initially intend to offer are considered LDTs.
Further, a relatively new type of LDT consists of tests that use software algorithms to analyze the results of next generation sequencing of nucleic acids, known as bioinformatics analysis. The Clarifi ASD test is an example of this new type of bioinformatics LDT. It is often the case that the bioinformatics and next gen sequencing parts of LDTs are performed at separate facilities, because of the inherent differences in the equipment and personnel who process specimens to extract the nucleic acids and sequence them and the equipment and personnel who design and implement the analytic software algorithms. FDA’s regulation of bioinformatics LDTs is in its infancy, and there are not well-defined requirements regarding the joint control of the distributed sequencing and bioinformatics parts of these LDTs. There is therefore uncertainty about the risk that FDA may seek to regulate bioinformatics LDTs, such as Clarifi ASD, as medical devices.
If the FDA withdraws its enforcement discretion with respect to the Clarifi ASD test, it is likely that the Clarifi ASD test would be considered an In Vitro Diagnostic Device (“IVD”). IVDs are typically Class II devices, and there does not appear to be any existing IVD classification that would fit the Clarifi ASD test. While there is a device class for pediatric autism spectrum disorder diagnosis aids, the technology used in this class is not an in vitro diagnostic test, and it is not clear whether this class would be deemed to cover the Clarifi ASD test. If Clarifi ASD is not covered by the existing pediatric autism spectrum disorder diagnosis aids, there is no predicate device which could be used to obtain 510(k) clearance for the Clarifi ASD product, by demonstrating that Clarifi ASD was substantially equivalent to the predicate. Based on information gathering communications with the FDA, we believe that it would be possible to use what is known as the de novo regulatory pathway to seek and obtain classification of the Clarifi ASD test as a Class II IVD medical device and obtain clearance to market and sell the Clarifi ASD test based on requirements very similar to the 510(k) process. If the de novo regulatory pathway is undertaken, it is not certain how long it will take to obtain de novo clearance to market the Clarifi ASD test.
In the unlikely scenario in which the de novo regulatory pathway cannot be used to obtain clearance to market Clarifi ASD, the Clarifi ASD test would be a Class III medical device, and it would be necessary to use the PMA process to obtain authorization to market the Clarifi ASD test. The PMA process is much more costly and time consuming than the 510(k) clearance pathway, because while 510(k) clearance requires demonstrating substantial equivalence to an existing predicate device by comparison to the predicate, the PMA process requires demonstrating the safety and efficacy of the candidate device by valid scientific evidence regarding its technology and clinical utility. If the PMA process were required for Clarifi ASD, it is uncertain whether we have the resources necessary to obtain approval or whether approval could be obtained within a feasible time frame for our business.
Legislation has been introduced in previous Congresses, and is being drafted in the current Congress, that would clarify FDA’s role in the oversight of LDTs. For example, a congressional bill entitled the Verifying Accurate Leading-Edge In Vitro Clinical Tests Development (VALID) Act, would create a new type of regulated product, called In Vitro Clinical Tests, which would be subject to regulation by the FDA. We expect that new legislative proposals will be officially introduced from time-to-time. That being said, the likelihood that Congress will pass any such legislation – and the extent to which such legislation would give the FDA authority to regulate our LDTs – is unclear at this time.
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New York State Department of Health - Clinical Laboratory Evaluation Program and CLIA
All clinical laboratories located in New York State, and laboratories conducting clinical or forensic testing on specimens originating in New York State, regardless of location, must hold a New York State Department of Health (“NYSDOH”) clinical laboratory permit pursuant to Title V, Section 574 of the New York State Public Health Law.
The Clinical Laboratory Reference System (“CLRS”) was established by the NYSDOH to assist clinical laboratories and blood banks applying for licensure with the New York State Department of Health and to serve as a reference and a resource to all participants. CLRS is administered by the Clinical Laboratory Evaluation Program (“CLEP”), a function of the NYSDOH public health laboratory the Wadsworth Center. Mandated activities include collaborative research, method development and test approval, laboratory inspection, and monitoring of proficiency testing participation to ensure that laboratory services provided to healthcare providers in the state meet performance standards for good patient care. CLRS outlines the policies and procedures by which the Clinical Laboratory Reference System meets the following objectives: (i) to monitor, improve, and broaden the clinical capabilities of participating laboratories and blood banks, (ii) to provide guidelines, quality control standards and procedures to be used by permit-holding clinical facilities, and (iii) to provide continuing education opportunities for technical personnel involved in the operation of clinical laboratories through training and remediation programs.
In recognition of the fact that CLRS has requirements that are equal to or more stringent than the Clinical Laboratory Improvement Amendments of 1988 (“CLIA”), the program was granted exempt status by the federal Centers for Medicare and Medicaid Services (“CMS”) in 1995. As a result, laboratories located in New York State meet CLIA accreditation requirements, as documented by a valid New York State permit, which includes a CLIA number. Laboratories must enroll in a CMS-approved proficiency testing program to meet CLIA proficiency test requirements. Laboratories located in New York State are still subject to validation inspections performed by CMS staff and all records maintained by New York State regarding a laboratory are subject to disclosure to CMS. Eligibility for CLIA certification for laboratories located outside New York remains the responsibility of each state’s regional CMS office.
Our Syracuse Lab currently holds a NYSDOH clinical laboratory permit, meets CLIA accreditation requirements and has been assigned a CLIA number. The laboratory has demonstrated 100% scores in proficiency testing performance over the last four required testing cycles. The laboratory also conducts periodic internal audits to further review and refine processes consistent with applicable standards. The laboratory is permitted to accept clinical specimens for testing in all 50 states.
Specimens
Specifically related to our biobank, we are engaged in ongoing privacy compliance and oversight efforts, including in connection with the requirements of numerous local, state, and federal laws, rules, and regulations relating to the privacy and security of directly or indirectly identifiable personal information (collectively, “Data Protection Laws”). Such Data Protection Laws address the collection, storage, sharing, use, disclosure, processing, transferring, and protection of personal information, including genetic information, and evolve frequently in scope and enforcement. There can also be uncertainty, differing interpretations, and contradictory requirements across the privacy and security legal and regulatory landscape. The Company also expects new Data Protection Laws to be proposed and enacted in the future and current Data Protection Laws to evolve frequently through new legislation and amendments to existing legislation and changes in enforcement. The effects of such changes may be inconsistent from one jurisdiction to another, and potentially far-reaching and may require us to modify our data processing practices and policies and incur substantial compliance-related costs and expenses.
Medical and Behavioral Health Practices
Provider Licensing and Related Laws and Guidelines
The practice of medicine is subject to various federal, state and local certification and licensing laws, regulations, approvals and standards, relating to, among other things, the adequacy of medical care, the practice of medicine (including the provision of remote care), equipment, personnel, operating policies and procedures and the prerequisites for the prescription of medication and ordering of tests. In particular for FBH, we are subject to the rules of Ohio and for AYA we are subject to all the areas in which patients are located and further, since AYA is digital care application of some of these laws to digital care is unclear and subject to differing interpretations.
Specifically for AYA, Physicians who provide professional medical services to a patient via digital care must, in most instances, hold a valid license to practice medicine in the state in which the patient is located. We have established systems for ensuring that our affiliated physicians and other clinicians are appropriately licensed under applicable state law and, to the extent applicable, that their provision of digital care to patients occurs in each instance in compliance with applicable rules governing the practice of medicine/digital care. Failure to comply with these laws and regulations could result in licensure actions against the physicians, our services being found to be non-reimbursable, or prior payments being subject to recoupments and can give rise to civil, criminal or administrative penalties.
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Telehealth
As AYA is a virtual medical practice, our operations are subject to comprehensive United States federal, state and local regulations in the jurisdictions in which we do business. Our ability to operate profitably will depend, in part, upon our ability to maintain all necessary licenses and to operate in compliance with applicable laws and rules. Because the widespread use of telemedicine is a relatively new development in the field of medicine, those laws and rules continue to evolve, and we therefore devote significant resources to monitoring developments in healthcare and medical practice regulation. As the applicable laws and rules change, we are likely to make conforming modifications in our business processes from time to time. In some jurisdictions where we operate, neither our current nor our anticipated business model has been the subject of formal judicial or administrative interpretation. We cannot be assured that a review of our business by courts or regulatory authorities will not result in determinations that could adversely affect our operations or that the healthcare regulatory environment will not change in a way that impacts our operations.
In response to the COVID-19 pandemic, state and federal regulatory authorities loosened or removed a number of regulatory requirements in order to increase the availability of digital care services. For example, many state governors issued executive orders permitting physicians and other healthcare professionals to practice in their state without any additional licensure or by using a temporary, expedited or abbreviated licensure process so long as they hold a valid license in another state. In addition, changes were made to the Medicare and Medicaid programs (through waivers and other regulatory authority) to increase access to digital care services by, among other things, increasing reimbursement, permitting the enrollment of out of state providers and eliminating prior authorization requirements. Legislation that passed at the end of 2022 will extend most Medicare reimbursement flexibilities through December 31, 2024 and we anticipate many Medicaid agencies will follow suit. This extension includes a waiver for geographic site restrictions (patients may be located at home).
We believe that a return to the status quo would not have a material negative impact on any commercial agreements we have entered into.
Corporate Practice of Medicine Laws in the U.S.; Fee Splitting
We contract with physicians or physician-owned professional associations and professional corporations to provide access to the platform and management services. We have entered into management services contracts with Quadrant-affiliated entities pursuant to which we provide them with billing, scheduling and a wide range of other administrative and management services, and they pay us for those services via management and other service fees. These contractual relationships are subject to various state laws, including those of New Jersey, Pennsylvania, New York, Texas, Michigan and California, that prohibit fee splitting or the practice of medicine by lay entities or persons and that are intended to prevent unlicensed persons from interfering with or influencing a physician’s professional judgment. Activities other than those directly related to the delivery of healthcare may be considered an element of the practice of medicine in many states. Under the corporate practice of medicine restrictions of certain states, decisions and activities such as scheduling, contracting, setting rates and the hiring and management of non-clinical personnel may implicate the restrictions on the corporate practice of medicine.
State corporate practice of medicine and fee splitting laws and rules vary from state to state and are not always consistent among states. In addition, these requirements are subject to broad interpretation and enforcement by state regulators. Some of these requirements may apply to us even if we do not have a physical presence in the state, based solely on our engagement of a provider licensed in the state or the provision of digital care to a resident of the state. Thus, regulatory authorities or other parties, including our providers, may assert that, despite these arrangements, we are engaged in the corporate practice of medicine or that our contractual arrangements with affiliated physician groups constitute unlawful fee splitting. In such event, failure to comply could lead to adverse judicial or administrative action against us and/or our affiliated providers, civil, criminal or administrative penalties, receipt of cease-and-desist orders from state regulators, loss of provider licenses, the need to make changes to the terms of engagement of our providers that interfere with our business, and other materially adverse consequences.
U.S. Federal and State Fraud and Abuse Laws
Federal Stark Law
We are subject to the federal self-referral prohibitions, commonly known as the Stark Law. Where applicable, this law prohibits a physician from referring Medicare patients for “designated health services” such as laboratory and radiology services that are furnished at an entity if the physician or a member of such physician’s immediate family has a “financial relationship” with the entity, unless an exception applies. Sanctions for violating the Stark Law include treble damages (three times the amount of the claim submitted), denial of payment, civil monetary penalties, and exclusion from the federal health care programs. Failure to refund amounts received as a result of a prohibited referral on a timely basis may constitute a false or fraudulent claim and may result in civil penalties and additional penalties under the False Claims Act (“FCA”). The FCA also provides for an additional penalty of $13,508 to $27,018 per claim submitted in violation of the Act for 2023. The Stark Law is a strict liability statute, which means proof of specific intent to violate the law is not required. In addition, the government and some courts have taken the position that claims presented in violation of the various statutes, including the Stark Law, can be considered a violation of the federal False Claims Act (described below) based on the contention that a provider impliedly certifies compliance with all applicable laws, regulations and other rules when submitting claims for reimbursement. A determination of liability under the Stark Law could have a material adverse effect on our business, financial condition and results of operations.
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Federal Anti-Kickback Statute
We are also subject to the federal Anti-Kickback Statute. The Anti-Kickback Statute is broadly worded and prohibits the knowing and willful offer, payment, solicitation or receipt of any form of remuneration in return for, or to induce, (i) the referral of a person covered by Medicare, Medicaid or other governmental programs, (ii) the furnishing or arranging for the furnishing of items or services reimbursable under Medicare, Medicaid or other governmental programs or (iii) the purchasing, leasing or ordering or arranging or recommending purchasing, leasing or ordering of any item or service reimbursable under Medicare, Medicaid or other governmental programs. Certain federal courts have held that the Anti-Kickback Statute can be violated if “one purpose” of a payment is to induce referrals. In addition, a person or entity does not need to have actual knowledge of this statute or specific intent to violate it to have committed a violation, making it easier for the government to prove that a defendant had the requisite state of mind or “scienter” required for a violation. Moreover, the government may assert that a claim including items or services resulting from a violation of the Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act, as discussed below. Violations of the federal Anti-Kickback Statute may result in civil monetary penalties plus up to three times the remuneration involved. Civil penalties for such conduct can further be assessed under the federal False Claims Act. Violations of the Federal Anti-Kickback Statute can also result in criminal penalties, including criminal fines and imprisonment of up to 10 years. Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid. Imposition of any of these remedies could have a material adverse effect on our business, financial condition and results of operations. In addition to a few statutory exceptions, the HHS Office of Inspector General (“OIG”) has published safe-harbor regulations that outline categories of activities that are deemed protected from prosecution under the Anti-Kickback Statute provided all applicable criteria are met. The failure of a financial relationship to meet all of the applicable safe harbor criteria does not necessarily mean that the particular arrangement violates the Anti-Kickback Statute. However, conduct and business arrangements that do not fully satisfy each applicable safe harbor may result in increased scrutiny by government enforcement authorities, such as the OIG.
Although we believe that our arrangements with physicians and other referral sources comply with current law and available interpretative guidance, as a practical matter, it is not always possible to structure our arrangements so as to fall squarely within an available safe harbor. Where that is the case, we cannot guarantee that applicable regulatory authorities will determine these financial arrangements do not violate the Anti-Kickback Statute or other applicable laws, including state anti-kickback laws.
False Claims Act
Both federal and state government agencies have continued civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and their executives and managers. Although there are a number of civil and criminal statutes that can be applied to healthcare providers, a significant number of these investigations involve the federal False Claims Act. These investigations can be initiated not only by the government but also by a private party asserting direct knowledge of fraud. These “qui tam” whistleblower lawsuits may be initiated against any person or entity alleging such person or entity has knowingly or recklessly presented, or caused to be presented, a false or fraudulent request for payment from the federal government, or has made a false statement or used a false record to get a claim approved. In addition, the improper retention of an overpayment for 60 days or more is also a basis for a False Claim Act action, even if the claim was originally submitted appropriately. Penalties for False Claims Act violations include fines ranging from $11,803 to $23,607 for each false claim, plus up to three times the amount of damages sustained by the federal government. A False Claims Act violation may provide the basis for exclusion from the federally funded healthcare programs.
State Fraud and Abuse Laws
Several states in which we operate, or plan to operate in, have also adopted or may adopt similar fraud, whistleblower and false claims laws as described above. The scope of these laws and the interpretations of them vary by jurisdiction and are enforced by local courts and regulatory authorities, each with broad discretion. Some state fraud and abuse laws apply to items or services reimbursed by Medicaid programs and any third party payer, including commercial insurers or to any payer, including to funds paid out of pocket by a patient. A determination of liability under such state fraud and abuse laws could result in fines and penalties and restrictions on our ability to operate in these jurisdictions.
Other Healthcare Laws
HIPAA established several separate criminal penalties for making false or fraudulent claims to insurance companies and other non-governmental payers of healthcare services. Under HIPAA, these two additional federal crimes are: “Healthcare Fraud” and “False Statements Relating to Healthcare Matters”. The Healthcare Fraud statute prohibits knowingly and recklessly executing a scheme or artifice to defraud any healthcare benefit program, including private payers. A violation of this statute is a felony and may result in fines, imprisonment, or exclusion from government sponsored programs. The False Statements Relating to Healthcare Matters statute prohibits knowingly and willfully falsifying, concealing, or covering up a material fact by any trick, scheme or device or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services. A violation of this statute is a felony and may result in fines or imprisonment. This statute could be used by the government to assert criminal liability if a healthcare provider knowingly fails to refund an overpayment. These provisions are intended to punish some of the same conduct in the submission of claims to private payers as the federal False Claims Act covers in connection with governmental health programs.
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In addition, the Civil Monetary Penalties Law imposes civil administrative sanctions for, among other violations, inappropriate billing of services to federally funded healthcare programs and employing or contracting with individuals or entities who are excluded from participation in federally funded healthcare programs. Moreover, a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration, including waivers of copayments and deductible amounts (or any part thereof), that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of Medicare or Medicaid payable items or services may be liable for civil monetary penalties of up to $10,000 for each wrongful act. Moreover, in certain cases, providers who routinely waive copayments and deductibles for Medicare and Medicaid beneficiaries can also be held liable under the Anti-Kickback Statute and civil False Claims Act, which can impose additional penalties associated with the wrongful act. One of the statutory exceptions to the prohibition is non-routine, unadvertised waivers of copayments or deductible amounts based on individualized determinations of financial need or exhaustion of reasonable collection efforts. The OIG emphasizes, however, that this exception should only be used occasionally to address special financial needs of a particular patient. Although this prohibition applies only to federal healthcare program beneficiaries, the routine waivers of copayments and deductibles offered to patients covered by commercial payers may implicate applicable state laws related to, among other things, unlawful schemes to defraud, excessive fees for services, tortious interference with patient contracts, and statutory or common law fraud.
U.S. State and Federal Health Information Privacy and Security Laws
There are numerous U.S. federal and state laws and regulations related to the privacy and security of Personal Identifiable Health Information, including health information. In particular, The Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) establishes privacy and security standards that limit the use and disclosure of protected health information (“PHI”), and require the implementation of administrative, physical, and technical safeguards to ensure the confidentiality, integrity and availability of PHI in electronic form. AYA, QLabs and FBH are all regulated as covered entities under HIPAA. Quadrant and AA are business associates of our covered entity clients (and subsidiaries) when working on behalf of covered entity clients, including but not limited to our affiliated medical groups and also when we are providing technology services to those clients via our platform. As a business associate, we are also directly regulated by HIPAA and are required to provide satisfactory written assurances to our covered entity clients through written business associate agreements that we will provide our services in accordance with HIPAA. Failure to comply with these contractual agreements could lead to loss of clients, contractual liability to our clients, and direct action by HHS, including monetary penalties.
Violations of HIPAA may result in significant civil and criminal penalties. Our management responsibilities to Quadrant include assisting it with its obligations under HIPAA’s breach notification rule. Under the breach notification rule, covered entities must notify affected individuals without unreasonable delay in the case of a breach of unsecured PHI, which may compromise the privacy, security or integrity of the PHI. In addition, notification must be provided to HHS and the local media in cases where a breach affects more than 500 individuals. Breaches affecting fewer than 500 individuals must be reported to HHS on an annual basis. HIPAA also requires a business associate to notify its covered entity clients of breaches by the business associate.
State attorneys general also have the right to prosecute HIPAA violations committed against residents of their states. While HIPAA does not create a private right of action that would allow individuals to sue in civil court for a HIPAA violation, its standards have been used as the basis for the duty of care in state civil suits, such as those for negligence or recklessness in misusing personal information. In addition, HIPAA mandates that HHS conduct periodic compliance audits of HIPAA covered entities and their business associates for compliance. It also tasks HHS with establishing a methodology whereby harmed individuals who were the victims of breaches of unsecured PHI may receive a percentage of the Civil Monetary Penalty fine paid by the violator. In light of the HIPAA Omnibus Final Rule, recent enforcement activity, and statements from HHS, we expect increased federal and state HIPAA privacy and security enforcement efforts.
HIPAA also required HHS to adopt national standards for electronic transactions that all healthcare providers must use when submitting or receiving certain healthcare transactions electronically. On January 16, 2009, HHS released the final rule mandating that everyone covered by HIPAA must implement ICD-10 for medical coding on October 1, 2013, which was subsequently extended to October 1, 2015, and is now in effect.
Many states in which we operate and in which our patients reside also have laws that protect the privacy and security of sensitive and personal information, including health information. These laws may be similar to or even more protective than HIPAA and other federal privacy laws. For example, the laws of the State of California, in which we operate, are more restrictive than HIPAA. Where state laws are more protective than HIPAA, we must comply with the state laws we are subject to, in addition to HIPAA. In certain cases, it may be necessary to modify our planned operations and procedures to comply with these more stringent state laws. Not only may some of these state laws impose fines and penalties upon violators, but, unlike HIPAA, some may afford private rights of action to individuals who believe their personal information has been misused. In addition, state laws are changing rapidly, and there is discussion of a new federal privacy law or federal breach notification law, to which we may be subject.
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In addition to HIPAA and state health information privacy laws, we may be subject to other state and federal privacy laws, including laws that prohibit unfair privacy and security acts or practices and deceptive statements about privacy and security and laws that place specific requirements on certain types of activities, such as data security and texting. The FTC and states’ attorneys general have brought enforcement actions and prosecuted some data breach cases as unfair and/or deceptive acts or practices under the FTC Act and similar state laws.
In recent years, there have been a number of well publicized data breaches involving the improper use and disclosure of personal identifiable information and PHI. Many states have responded to these incidents by enacting laws requiring holders of personal information to maintain safeguards and to take certain actions in response to a data breach, such as providing prompt notification of the breach to affected individuals and state officials and provide credit monitoring services and/or other relevant services to impacted individuals. In addition, under HIPAA and pursuant to the related contracts that we enter into with our clients who are covered entities, we must report breaches of unsecured PHI to our clients following discovery of the breach. Notification must also be made in certain circumstances to affected individuals, federal authorities and others.
Litigation
From time to time, the company may be involved in legal proceedings. The results of such legal proceedings and claims cannot be predicted with certainty, and regardless of the outcome, legal proceedings could have an adverse impact on the company’s business because of defense and settlement costs, diversion of resources and other factors.
As a result of the company’s novel discoveries in medical diagnostics, the company and its advisors have been, and remain involved in, ongoing discussions with regulatory authorities. While the company considers these continuing inquiries to be ordinary course in light of the nature of the company’s projects, any failure by the company to satisfy regulatory authorities that it is in compliance with all applicable rules and regulations could have a material adverse effect on the company. At this time, the company is not aware of any proceedings against it which are expected to have a material adverse effect on its financial position or operations.
THE COMPANY’S PROPERTY
The company does not currently own real property. We lease numerous office and lab spaces, the material leases including spaces in (i) Syracuse, New York at SUNY Upstate Medical Center and at a local biotech accelerator affiliated with SUNY, (ii) Buffalo, New York at the University at Buffalo (SUNY), (iii) San Antonio, Texas in a commercial office building, (iv) Mayfield Heights, Ohio in a commercial office building. The lease for laboratory and office space at the University of Buffalo expired in February 2022. All other office and laboratory space rentals are on a month-to-month basis. Additionally, the Company has entered into two finance leases for laboratory equipment in Syracuse, New York, with payments through October 2025. The Company is in process of negotiating lease extensions and the Company expects our month-to-month lease contracts for our office space in Syracuse and Buffalo to continue with similar terms. During the years ended December 31, 2022 and 2021, rent expenses were recognized associated with operating and finance leases as fixed rent expense of $425,350 and $147,797 respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this report. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Unless otherwise indicated, the latest results discussed below are as of December 31, 2022.
Overview
The company was incorporated in Delaware on March 13, 2015 as Motion Intelligence Inc. On August 6, 2015, Motion Intelligence LLC, a New York limited liability company merged into Motion Intelligence Inc. The company changed its name to Quadrant Biosciences Inc. on September 7, 2017.
Quadrant is a healthcare company dedicated to improving the lives of children and families by delivering innovative diagnostic, therapeutic, and virtual care solutions for global health priorities. Quadrant is comprised of five business units: Quadrant Laboratories, Quadrant Wastewater Solutions, As You Are, Frazier Behavioral Health and Autism Analytica.
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The company was founded to improve the lives of children and families through the development of more accurate and timely clinical solutions for certain global health priorities; these include Autism Spectrum Disorder, mild traumatic brain injuries (or concussion injuries), Parkinson’s disease, and SARS-CoV-2 infections. In addition to these conditions, the company is actively engaged in proprietary research and development efforts related to other chronic, degenerative and developmental diseases and disorders.
The company operates primarily in the United States. Markets served include healthcare, educational institutions, and laboratory services. In some cases, the company’s commercial technology results from the translation of basic science developed by the company and in conjunction with academic partners.
Due to the pandemic in 2020, the company pivoted from its principal focus on the development and commercialization of epigenetic diagnostic tests and developed COVID-19 diagnostic products, including an individual diagnostic test for which it obtained a Food and Drug Administration (“FDA”) emergency use authorization (“EUA”) in September 2020. The Clarifi COVID-19 tests were all developed and validated in cooperation with SUNY Upstate Medical University. The company’s 2021 and 2022 financial revenues are primarily derived from its COVID-19 products and services.
The company’s COVID-19 related work includes as follows:
| ● | Test Kits for CLIA Laboratory Use: Producing the “Clarifi COVID-19 Test Kit” a non-invasive and easy to administer saliva swab that determines the presence or absence of SARS-CoV-2 viral RNA. For the Clarifi COVID-19 Test Kit, the company receives revenue both from the sale of the kits as well as product assembly services as such services are requested by its customers. |
| ● | Clinical COVID-19 Screening and Diagnostic Testing: Through its two CLIA/CLEP laboratories (described below), the company processes saliva specimens to identify individuals infected with the SARS-CoV-2 virus; the company’s clients include individuals, colleges/universities, K-12 schools, municipal and private employers. For individuals who are symptomatic or otherwise at risk of being infected, the company offers individual diagnostic testing services. For organizations, the company offers clinical screening services, generally utilizing a proprietary specimen pooling technology to reduce costs and minimize in-laboratory processing times. All specimens in a pool which screens “negative” are presumed negative; all specimens in a pool which screens “positive” are further tested on an individual diagnostic basis. Clinical results are available electronically for tested individuals and their respective organizations. To date, the company has sold over 4 million saliva based COVID-19 tests. |
| ● | Community/Municipal Wastewater Surveillance: Performing tests on municipal wastewater samples for SARS-CoV-2, principally in New York State. |
In the second quarter of 2021, the company became the sole owner of two laboratories, one located on the SUNY Upstate Syracuse campus and the other on the SUNY Buffalo campus. On July 1, 2021, these two laboratories were certified under CLIA/CLEP. The acquisition and certification of the labs allowed the company to begin performing certain COVID-19 laboratory testing services that facilitated a new testing model under which the company began administering tests directly to individuals by operating testing sites beginning in the fourth quarter of 2021. During the COVID-19 surge in the first quarter of 2022 the company opened 45 community test sites in conjunction with schools and counties in New York State. There were over 100,000 tests collected at these testing sites. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) these tests were billed to third-party insurers. Under the CARES Act if an individual is uninsured Quadrant billed and received reimbursement as administered through Health Resources and Services Administration (“HRSA”). HRSA stopped accepting claims for testing on March 22, 2022. In-line with the national trajectory of the COVID-19 pandemic and public appetite for testing, volumes at the community test sites declined during the second quarter of 2022 and substantially all of the community test sites were closed. Additionally, due to the decline in COVID-19 testing volumes, the company closed the lab located in Buffalo, New York in July 2022.
For the cost of products sold the company not only includes the materials and shipping costs related to the products but also royalty expenses related to its products. For 2021 and 2022 the royalty payments predominantly relate to the company’s exclusive license with The Research Foundation for The State University of New York for its COVID-19 products. Under the agreement through June 30, 2021, the company pays a royalty of 50% of all net income (as defined in the license). Effective July 1, 2021, the company began paying a royalty on COVID-19 related net sales at 10% for the quarter beginning July 1, 2021, through December 31, 2021, and decreasing by 2% until it reaches 6% for the period beginning July 1, 2022, through termination of the agreement, with certain specific exclusions.
In conjunction with the existing laboratory services, in 2022, the company began dedicating resources to improving the lives of children and families by developing a plan to deliver innovative diagnostic, therapeutic and virtual care solutions for the diagnosis and treatment of autism, attention deficit/ hyperactivity disorder (“ADD/ADHD”), and other developmental conditions. In April 2022, through the acquisition of Frazier Behavioral Health LLC (“FBH”) the company began providing behavioral health services including therapies, consultation services and training in social behavior techniques and intervention strategies for children and adults with autism, ADD/ADHD, and other developmental conditions (see “Trends” below).
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Additionally, during 2022, Quadrant started building a virtual telemedicine clinic focused on diagnosing autism spectrum disorder in children. The virtual care clinic launched in August 2022, under the branding “As You Are” and provides autism diagnostic evaluations for children 16 months to 10 years of age through telehealth appointments; AYA’s diagnostic process is facilitated by its proprietary evidence-based medicine platform. At the time of the launch, the virtual clinic was able to serve patients in five states and as of the date of this Annual Report serves families in 21 states including California, Utah, Maryland, Louisiana, Iowa, Missouri, Montana, Oklahoma, Tennessee, Utah, Vermont, Washington, New York, New Jersey, Texas, Florida, Alabama, Georgia, Kentucky, Ohio, and Pennsylvania. AYA conducts business through two wholly-owned subsidiaries of Quadrant, Quadrant Medical Staffing LLC and Quadrant Virtual Care Management LLC; Quadrant Virtual Care Management LLC provides management services to As You Are Physicians P.C., which employs physicians and leases those physicians to the billing entities. Those billing entities include Quadrant CA Virtual Pediatric Medical Care, PC, Quadrant MI Virtual Care PC, Quadrant NJ Virtual Care PC, Quadrant PA Virtual Care PC, and Quadrant TX Virtual Care PA. These entities are consolidated in the company’s financial statements.
Results of Operations
Year ended December 31, 2022 Compared to Year ended December 31, 2021
Net Revenues
The company’s revenues consist of revenue derived from product sales, behavioral health services, product assembly, testing services, and grant revenues. The company’s total revenues for the year ended December 31, 2022 (“Fiscal 2022”) were $36,395,155, a decrease of $24,124,024 from total revenues of $60,519,179 in the year ended December 31, 2021 (“Fiscal 2021”). This decrease is primarily attributable to:
| ● | decreases in product sales (net) and product assembly of $36,314,961 and 2,608,994, respectively, due in part to the company’s new testing model and the trajectory of the public response to the COVID-19 pandemic (see “Overview” above). |
| ● | an increase of $14,421,305 related to testing services, which includes COVID-19 testing performed outside of the initial pooled testing included with product sales and wastewater testing. Specifically, in the fourth quarter of 2021, the company launched a new model of testing delivery (see “Overview” above). |
| ● | an increase in revenue related to behavioral health services as FBH began receiving revenue in April 2022 (see “Overview” above). |
| ● | an increase in revenue related to virtual care diagnostic services as AYA began receiving revenue in August 2022 (see “Overview” above). |
Cost of products sold decreased to $14,340,093 in Fiscal 2022, a decrease of $19,126,145 from $33,466,238 in Fiscal 2021, due primarily to improvements related to scaling and efficiency resulting from the acquisition of the two labs allowing for a shift from a focus on product sales to more of a focus on testing services. Accordingly, the company had gross profit of $22,055,062 in Fiscal 2022 compared with $27,052,941 in Fiscal 2021.
Operating Expenses
Selling and administrative expenses in Fiscal 2022 were $22,179,592, compared to $10,035,548 in Fiscal 2021, an increase of $12,144,044. The increase primarily relates to the increase in employment related expenses, which includes salaries and wages, employee benefits and taxes, and stock option compensation, which collectively increased by $8,764,369 to $16,363,792 in Fiscal 2022 from $7,599,423 in Fiscal 2021. The company began independently operating the clinical labs in July 2021 and from then through the first quarter of 2022, the company hired additional employees, including clinical laboratory professionals, to service the company’s COVID-19 testing and products. Additionally, the company hired a wide range of research scientists, clinicians, and support staff to facilitate the company’s new initiatives; see “Overview” above. Professional fees increased by $1,528,828 to $2,477,138 in Fiscal 2022 from $948,310 in Fiscal 2021, due to services used in conjunction with the company’s third-party insurance billing for COVID-19 testing services. Sales and marketing expense increased in this period by $1,588,198 related primarily to marketing for the COVID-19 testing sites opened in the first quarter of 2022 and marketing efforts for the launch of AYA. There was also an increase in research and development expense of $812,427 driven by the company refocusing on its research pipeline once the COVID-19 business line was established; see “Trends” below.
Net (Loss) Income
The company had other income in Fiscal 2022 of $237,020 compared to other expense of $10,853 in Fiscal 2021. The company’s other income/(expense) consists of $294,775 of noncash grant income related to an equipment use agreement with The Research Foundation for The State University of New York under which rent payments are forgiven for meeting certain performance milestones and other miscellaneous income items, offset by $325,338 of interest expense related to the company’s long-term debt obligations.
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The company had deferred income tax benefit and income tax expense in Fiscal 2022 of $206,388 compared with deferred income tax expense and income tax expense in Fiscal 2021 of $4,395,723.
As a result of the foregoing factors, the company’s net loss was $2,444,757 in Fiscal 2022 compared with a net income of $12,247,807 in Fiscal 2021.
Liquidity and Capital Resources
As of December 31, 2022, the company’s cash and cash equivalents were $13,882,387. Historically, we had financed our operations primarily through the issuance of preferred stock, common stock, notes, debt, and research grants. In 2018, we converted our preferred stock into common stock. Beginning in September 2020 and through the first half of calendar year 2021, the company’s revenues related to COVID-19 testing and products. Beginning in July 2021, with the acquisition of two labs, the company began receiving revenues for testing services. Under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) testing services are primarily billed to third-party insurers. With the company’s shift in testing model during the fourth quarter of 2021, there was a delay in collections while the appropriate billing practices were established; accordingly, during 2022 between the billing delay and the decline in COVID-19 testing in the fourth quarter of 2022 compared to the fourth quarter of 2021, the company’s accounts receivable (net) decreased by $12,240,046 to $1,411,933 as of December 31, 2022, from $13,651,979 as of December 31, 2021, and cash and cash equivalents increased by $5,766,154 to $13,882,387 as of December 31, 2022, from $8,116,233 as of December 31, 2021.
The company’s current liabilities have increased by $1,440,106, primarily attributed to the VEP Biotech Ltd loan being due within the year. The loan from VEP Biotech Ltd, has a maturity date of October 2023, with an interest rate of 5%, and no required payment of principal or interest until maturity. The outstanding balance as of December 31, 2022, and December 31, 2021 (including principal and interest) were $6,132,628 and $5,837,124, respectively. The company is currently in discussions with VEP Biotech Ltd regarding final payment terms. This increase in current liabilities was offset by decreases, specifically royalties payable decreased by $3,306,783 from $3,533,378 as of December 31, 2021, to $226,595 as of December 31, 2022, due to payments made to the Research Foundation throughout the year and a decline in COVID-19 related revenue from the fourth quarter of 2021 compared to the fourth quarter of 2022. Additionally, contract liabilities decreased by $1,763,133 from $1,910,078 as of December 31, 2021 to $146,945 due to recognition of deferred revenue for lab testing completed in 2022 related to COVID-19 test kits sold in 2021.
On February 18, 2021, the company completed its most recent raise that started in September 2020. The company issued $416,628 in 6% Convertible Notes that mature on August 25, 2025, which had an outstanding balance as of December 31, 2022, and December 31, 2021 (including principal and interest) of $462,235 and $437,237, respectively.
The company also obtained an SBA loan in May 2020, with a maturity date of May 2050, an interest rate of 3.75% and payments of $731 which began in December 2022, which had an outstanding balance as of December 31, 2022, and December 31, 2021 (including principal and interest) of $162,947 and $159,046, respectively.
The company has a line of credit with the borrowing capacity of $1,000,000 from Pathfinder Bank, at an interest rate of the greater of 5.375% or Bank Prime plus 1.125%. The interest rate was 8.375% and 5.375% at December 31, 2022 and 2021, respectively. The line of credit did not have a balance outstanding at December 31, 2022, and December 31, 2021. The line is secured by all the business assets of the company.
Trends
The company anticipates that COVID-19 saliva testing revenues will continue to wane and that the majority of its revenue in 2023 and going forward will be autism diagnostic revenues generated via lab testing, the As You Are virtual platform, and commercial software through the Autism Analytica platform.
Below describes the company’s current and planned initiatives and our thoughts on them over the next couple of years:
COVID-19 Saliva Testing and Wastewater Surveillance
Beginning in 2020 and continuing into 2022 the company derived predominately all its revenue from COVID-19 related products and services. At the peak of the COVID-19 pandemic, the company operated two CLIA/CLEP laboratories and opened 45 community test sites in conjunction with schools and counties in New York State. Through the second quarter of 2022, the lab continues to process a lower volume of saliva based COVID-19 tests. Due to the reduced volumes, the company closed the lab located in Buffalo, New York in July 2022. It is expected that the remaining lab will continue to perform saliva based COVID-19 testing at reduced volumes through at least the second quarter of 2023. The area of testing that continues to be strong into 2023 and likely beyond is wastewater surveillance testing which the company performs for many college campuses and in communities across the northeastern United States. In addition to the COVID-19 testing, the company has expanded surveillance testing to include additional viruses, including Polio, Norovirus, Monkeypox, Hepatitis A, Flu A/B, and RSV. The company plans to continue to expand the types and quantity of wastewater surveillance performed in 2023.
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As the testing appetite for the COVID-19 pandemic wanes, the company has shifted its focus back to research, development and commercialization of molecular diagnostics, therapeutics and related products and services.
Autism Spectrum Disorder
Through its work on autism spectrum disorder, the company intends to fill a gap in care existing in the United States as it currently takes on average three years from the time of a parent’s first concern to clinical diagnosis. Early clinical diagnosis is critical: with early diagnosis, children have access to evidence-based therapeutic interventions when they are most effective and with the best likelihood of achieving substantial cognitive gains. To begin to fill this need, during 2022 and into 2023, the company has implemented a multi-pronged approach to provide an array of diagnostic (e.g., Clarifi ASD and genetic testing) and therapeutic solutions (e.g., As You Are, Autism Analytica) to children with autism and their families.
Clarifi ASD
Quadrant Laboratories strives to improve diagnostic accuracy and patient access through the research, development, and commercial implementation of novel molecular assays for both clinical and public health applications. Quadrant started 2020 with sales of Clarifi ASD, having recently achieved regulatory approval for this test in 49 states as an LDT offered through a third-party laboratory. However, not long after the company began to introduce Clarifi ASD to pediatric healthcare providers, the world was besieged by the COVID-19 pandemic. Starting in early 2020, the company’s ability to access healthcare providers was greatly restricted by social distancing mandates which, in turn limited its ability to introduce Clarifi ASD to potential customers. In light of these impediments and in deference to the company’s concentration in COVID-19 testing products and services, the company temporarily removed the Clarifi ASD test from the market. However, during that time the company continued to implement its strategy to obtain broad insurance reimbursement for Clarifi ASD. Attaining a unique CPT® PLA code in 2020 was a major step toward this outcome. On Sept 21, 2020, the Centers for Medicare and Medicaid Services (“CMS”) released a preliminary payment rate determination of $1,755 for Clarifi ASD; this rate was finalized and became effective in January 2021. The company is planning to re-validate Clarifi ASD and launch Clarifi ASD as a single lab LDT in all 50 states during the fourth quarter of 2023.
Genetic Testing
In addition to the Clarifi ASD diagnostic test being developed, the company plans to offer a comprehensive panel of genetic tests built on whole-exome sequencing using saliva samples to increase access to this type of testing. Genetic tests are primarily not to diagnose autism, but to serve as an adjunct after an autism diagnosis to better understand the condition and create a more targeted treatment. The genetic tests launched via a reference lab while the company seeks approval for an in-house developed assay through the New York State Department of Health as a Laboratory Developed Test (expected in the second quarter of 2023).
As You Are
During August 2022, the company launched a pediatric virtual clinic branded “As You Are” which specializes in autism diagnosis. The mission of As You Are is to establish a world-class virtual pediatric clinic that dramatically increases access to early autism diagnostic services. The company’s team of specialized pediatricians are providing an evaluation to diagnose in under 4 weeks. Currently, diagnostic services are offered in 21 states with expansion anticipated into all 50 states by the end of 2023.
Autism Analytica
In August 2022, the company founded Autism Analytica LLC (“Autism Analytica”). Autism Analytica (“AA”) develops commercial software designed to facilitate the early identification and monitoring of children with neurodevelopmental challenges including those with autism spectrum disorder and related conditions and those without a specific neuropsychiatric disorder, predict the type and frequency of services needed, and monitor a child’s progress through treatment over time. AA’s software is comprised of (i) clinical decisions support software, inclusive of ten parent/caregiver-completed, clinically validated, measures of a child’s strengths and challenges and the clinical compilation of these results (“Virtual IPM”), and an objective, webcam-collected set of measures which utilizes gaze tracking, automated facial expression coding, proprietary stimuli, and AI/machine-learning algorithms to augment clinical decision making relative to ASD (“Neuro IPM”). AA software is designed for use by clinicians evaluating and monitoring developmental and intervention progress in children with a broad range of neurobehavioral challenges and behavioral health specialists.
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Behavioral Health Services
To complement the work of Quadrant Laboratories and As You Are, Quadrant Biosciences acquired Frazier Behavioral Health effective April 1, 2022. FBH is a behavioral health clinic providing evidence-based therapies, consultation services and training in social behavior techniques and intervention strategies for children and adults with autism, ADD/ADHD, and other developmental conditions. To best meet each child’s needs, wraparound clinical care is provided in the following areas: psychological services, behavioral services (i.e., Applied Behavioral Analysis therapy), speech and language therapy, sensory and daily living skills services and medication management. These disciplines are supplemented by FBH with school educational services and community inclusion. Currently, FBH is located in Cleveland, Ohio. The global neurodevelopmental challenges market is projected to grow from $1.93 billion in 2022 to $3.17 billion by 2029, at a compound annual growth rate of 7.4%. As such, beginning in 2024 it is anticipated that FBH will expand to other major cities in Ohio including Columbus, Cincinnati, Dayton and Akron.
Other Initiatives
Outside of the work focused on autism the company continues to build its research pipeline. This work includes the exploration of ways to further monetize existing products and processes. The company remains actively engaged in ongoing clinical research to develop a molecular diagnostic aid for mild traumatic brain injuries (mTBI); this work leverages the proprietary methods and intellectual property developed for Clarifi ASD. For mTBI certain saliva-based biomarkers show promise for identifying the injury while others predict which patients will have persistent post-concussion symptoms. In September of 2020, the company received a $2.3 million Small Business Technology Transfer (“STTR”) grant from the National Institute of Health (“NIH”) related to this project, with the second phase of the grant anticipated to begin in 2023. The company anticipates launching a laboratory developed test in mid-2024.
Item 3. Directors and Officers
Directors, Executive Officers and Significant Employees
The company’s executive officers, directors and significant employees as of April 1, 2023 are listed below.
| Name | Current Position | Age | Date Appointed to Current Position | Approximate hours per week for part-time employees | |||||
| Executive Officers | |||||||||
| Richard Uhlig | Chief Executive Officer | 57 | August 2015 | Full time | |||||
| Richard Bongo | Chief Financial Officer | 61 | April 2018 | Full time | |||||
| Bryan Greene | Chief Operating Officer | 41 | July 2019 | Full time | |||||
| Erica Ash | Executive Vice President - General Counsel | 33 | November 2022 | Full time | |||||
| Nicholas Gianadda | Chief Technology Officer | 41 | April 2021 | Full time | |||||
| Directors | |||||||||
| Richard Uhlig | Chairman | 57 | August 2015 | ||||||
| Richard Bongo | Director | 61 | October 2017 | ||||||
| Peter Cohen | Director | 77 | April 2018 | ||||||
| James Croke, JD | Director | 64 | April 2018 | ||||||
| Ira Fedder, MD | Director | 68 | October 2017 | ||||||
| Andrew Rock | Director | 59 | August 2015 | ||||||
| Mary Ann Tyzsko | Director | 65 | August 2015 | ||||||
| Significant Employees | |||||||||
| Kayla Wagner, MS | Executive Vice President - Virtual Care | 30 | April 2022 | Full time | |||||
| Benjamin Perry, MS | Executive Vice President - Molecular Diagnostics | 32 | November 2019 | Full time | |||||
| Andrew Brindle | Executive Vice President Research & Development | 41 | April 2016 | Full time | |||||
| Rita Marble | Executive Vice President - Human Resources | 52 | June 2021 | Full time | |||||
| Erin Echelmeyer | Executive Vice President - Marketing and Communications | 35 | May 2022 | Full time | |||||
| Ira Fedder, MD | Executive Vice President Corporate Strategy | 68 | December 2021 | Full time | |||||
| Thomas Frazier, PhD | Executive Vice President Virtual and Clinical Care | 47 | May 2020 | 8 hours/week | |||||
| Funda Suer, PhD | Executive Vice President - Clinical Diagnostics & Clinical Lab | 49 | September 2022 | Full time | |||||
| Steven Hicks, MD PhD | Chief Medical Officer | 39 | October 2022 | 10 hours/week | |||||
| Karen Canestrare | Treasurer | 56 | May 2022 | Full time | |||||
| Allison Frazier | CEO Frazier Behavioral Health | 44 | April 2022 | Full time |
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Biographies of Directors, Executive Officers and Significant Employees
Richard Uhlig
Chairman & Chief Executive Officer
Richard has been our Chairman and CEO since 2015. He has more than 30 years of business experience focused on the design and development of innovative products across various industries, Richard’s management capabilities range from ownership of regional retail businesses to the start-up and management of major corporate divisions with domestic and international product sourcing and sales experience. Prior to serving as Chairman and CEO of Quadrant Biosciences, he was the Sole Member of Motion Intelligence LLC, a biotechnology company he founded in 2012 and which was merged into Quadrant in 2015. Previously, he was the Chairman and Chief Executive Officer of Morgan Stanley Bank, the principal banking subsidiary of Morgan Stanley, and was the Chief Investment Officer at Merrill Lynch Bank. He held other significant posts in the financial industry and served as an Executive in Residence at Cornell University’s Johnson Graduate School of Management. Richard received a Bachelor of Science degree from Cornell University.
Richard Bongo
Chief Financial Officer & Director
Richard has over 30 years of finance experience while working at many major Wall Street firms. Richard has been our Chief Financial Officer since May 2018. He most recently was a Managing Director at BNP Paribas (April 2006 through April 2018), one of Europe's largest banks, and has also worked at such firms as Lehman Brothers, Credit Suisse, Merrill Lynch and Bank of America. Richard’s experience spans several different disciplines in structured finance including structuring, trading and sales at the institutional level, where he helped to usher in several cutting-edge financial investment products such as Collateralized Mortgage Obligations and Commercial Mortgage Backed Securities and Collateralized Loan Obligations. Richard began his career at Coopers & Lybrand (PricewaterhouseCoopers) where he received his CPA. He holds degrees in both Computer Information Systems and Accounting from Kings College.
Bryan Greene
Chief Operating Officer
Bryan brings more than 15 years of experience in medical device operations, manufacturing, validation and new-product introduction at both large multinational and start-up corporations. He has been in charge of our operations since October 2015 and co-CEO of QLabs since August 2022. He has a proven track record of successfully introducing Class I, II and III products at Life Technologies (Thermo Fisher Scientific), Pall Corporation and ImClone System (Eli Lilly). Most recently, Bryan was the manufacturing and operations leader during establishment and implementation of an FDA 21CFR820 compliant system at Rheonix, a medical device start-up (January 2013 – July 2015) and production and operations quality manager (July 2015 –October 2015) at Unilife Corporation. He received a BS in Chemical Engineering from Clarkson University.
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Erica Ash
Executive Vice President - General Counsel
Prior to joining Quadrant in December 2021 and being promoted to General Counsel in November 2022, Erica practiced at Husch Blackwell LLP, an AmLaw 100 law firm. Upon completion of law school at the University of Kansas, Erica joined Husch Blackwell LLP in 2019 focused her practice on state and federal health privacy law, federal fraud and abuse issues related to the Stark Law, the False Claims Act and the Anti-Kickback Statute, and complex issues facing hospitals and laboratories. She was also a part of various firm leadership activities, including associate recruiting and associate business development. Throughout her career, Erica has focused on healthcare. Prior to law school, from 2015-2017, Erica worked at Taro Pharmaceuticals, interacting directly with providers. Erica obtained her J.D. from the University of Kansas.
Kayla Wagner
Executive Vice President - Virtual Care
Kayla’s career originates from a research background in clinical psychology, where she conducted research investigating many areas of child psychopathology, including autism spectrum disorder, ADHD and 22q11.2 deletion syndrome. More specifically, Kayla’s published research has a translational focus, with her interests surrounding early identification of autism, management of the comorbidity between autism and ADHD, and targets for intervention aimed at improving social outcomes for individuals with neurodevelopmental disorders. Kayla joined Quadrant in May 2017. Prior to her promotion to Executive Vice President - Virtual Care and CEO of As You Are, Kayla was previously the President of ASD Diagnostic Products and the VP of Product Management where Kayla led the development and commercialization of Clarifi ASD. This followed her role as VP of Research where she developed and led the Clinical Research Department, overseeing Quadrant’s research portfolio and grants in excess of $5 million. Prior to Quadrant, Kayla worked in academic medical settings for over 5 years conducting and managing grant funded research, including most recently at Syracuse University and SUNY Upstate Medical University (August 2014 - May 2017). In her clinical work, she provided diagnostic and psychological counseling services as a therapist focused on improving functioning and well-being for children and adolescents with autism and other psychiatric disorders. Kayla earned a BS in neuroscience and psychology and an MS in Clinical Psychology at Syracuse University.
Benjamin Perry
Executive Vice President - Molecular Diagnostics
Benjamin’s career originates from a technical background, where he spent over ten years in the software development industry. During that time, he both led and contributed to several successful projects in the public, private, and academic sectors. Benjamin’s expertise revolves around a wide breadth of disciplines including cloud computing architecture, blockchain technology, and agile project management, where his experience spans all facets of the product development lifecycle. He strives to build both human and technical systems that are accessible to all, and scale rapidly with demand. Ben has been with Quadrant Biosciences since April 2016 and became co-CEO of QLabs in August 2022. Until his promotion to President of the company in November 2019, he served as the Chief Technology Officer for both Quadrant and our subsidiary Motion Intelligence LLC. Prior to 2018, he was the Vice President of Technology at both organizations. Prior to Quadrant Biosciences, Benjamin led projects for the federal statistical system and public opinion domain. More specifically, he was a software developer for the Cornell Institute for Social and Economic Research from June 2013 – April 2016, where his metadata management software was installed within the US Census Bureau as part of an NSF grant. In addition, Benjamin ran a consulting business that provided data management expertise, and software development services. He received his master’s degree in Information Science from Cornell University.
Andrew Brindle
Executive Vice President - Research and Development
Andrew brings a strong background in hardware design and development to the Quadrant Biosciences team, where he has been since April 2016. Prior to that, he ran his own engineering consulting business with a focus on commercial manufacturing and medical devices (August 2013 – April 2016), where he had many clients, including Quadrant. His career has included over 12 years in the defense industry working on sophisticated radar systems such as the DARPA FORESTER, the Army’s AN/TPQ-49, and radar antennas for drone helicopters. Andrew developed and holds patents on new technologies involving efficient heat transfer, and has a strong background in algorithm development having created algorithms for deep-sea underwater sensors and sports performance technologies. Andrew received a BS in Mechanical Engineering with a minor in Mathematics from Clarkson University.
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Nicholas Gianadda
Chief Technology Officer
Nick has 20 years of experience in the software development, Information Technology, and security fields. Prior to joining Quadrant in April 2021, he held leadership roles managing diverse teams of project managers, developers, quality assurance testers, and support personnel. His experience includes serving as the Director of HIT Solutions at HealtheConnections where he oversaw the technical operations of the organization related to grant work and value based billing products and applications (September 2017 - March 2021) and as CTO at FieldNimble, a software startup focused on the small to medium sized contractor market, where he lead all technical operations for the organization (September 2016 - September 2017). Nick’s experience in developing software in the healthcare industry includes applications for single sign-on, patient data access for providers, referral & case management tools, and quality measure calculation. Nick has a long history of building highly performant teams and coordinating successful product launches. He received a BS in Computer Science from Canisius College.
Rita Marble
Executive Vice President - Human Resources
Rita has more than 20 years of leadership experience in the field of Human Resource Management. Her areas of expertise include: recruitment & training, labor cost management, benefits design and administration and staff development. Prior to joining Quadrant Biosciences, she was most recently Director of Employer Solutions at Pinnacle Employee Services, a high growth PEO, from July 2016-June 2021. In this role, Rita led in Business Development, HR Infrastructure design, onboarding and implementation of HR service plans for local and national organizations. She says she is most energized by making a meaningful impact for the organization and team she serves. Rita holds the certification of Senior Certified Professional from the Society for Human Resource Management and channels her knowledge and enthusiasm in her community as a New Venture Mentor for the Tech Garden and subject matter resource for companies affiliated with the WISE Women’s Business Center for the SBDC.
Erin Echelmeyer
Executive Vice President - Marketing and Communications
Erin is a senior level marketing and communications strategist. Erin joined Quadrant in May 2022 with over 15 years of experience in marketing and communications. Erin has spent the majority of her career, over a decade, supporting large healthcare systems. Most recently prior to joining Quadrant, Erin worked at Hospital Corporation of America (HCA) beginning in March 2019 and left in May 2022 as the Interim VP of Marketing. Prior to HCA, Erin was the Public relations and Marketing Manager for Reston Hospital Center from January 2016-March 2019. Focused on driving growth initiatives Erin worked with hospitals and clinicians in the acute care space, leveraging expertise in marketing, digital, content, reputation and branding strategy. She has her Masters of Business Administration and Management from Webster University and a Bachelor’s of Marketing, Retail Merchandising and Business Administration from Lindenwood University.
Ira Fedder, MD
EVP Corporate Strategy & Director
Ira is a fellowship trained orthopedic spine surgeon practicing at the University of Maryland, St. Joseph Medical Center in Towson, Maryland. Ira is Board Certified by the ABOS as well as the ABSS and an active member of a number of professional organizations. Ira has participated in a number of clinical trials, has published widely in both the orthopedic and pharmacology literature, and has been an active lecturer speaking about the current and future use of stem cells and other biologics in orthopedics. Dr Fedder received his Doctor of Pharmacy degree from the U of Maryland School of Pharmacy in 1979. Subsequently, Ira completed a fellowship in Clinical Pharmacology at Thomas Jefferson University School of Medicine. After teaching at Northeastern University College of Pharmacy and the Veterans Administration in Boston, Ira then returned to the University of Maryland where he graduated from the School of Medicine in 1986. After completing his residency in Orthopedic Surgery at the University of Maryland he completed a fellowship at St Joseph Medical Center in Towson. He has practiced as an orthopedic spine surgeon since 1992.
Thomas Frazier, PhD
Executive Vice President - Virtual and Clinical Care
Dr. Frazier is a licensed clinical psychologist who received his Ph.D. from Case Western Reserve University in 2004. He joined Cleveland Clinic in 2006 and from 2013-2017 was the director of the Cleveland Clinic Center for Autism. In 2017, he was hired as the Chief Science Officer at Autism Speaks, overseeing all science and service programs before joining John Carroll University in January 2020 as a Professor of Psychology. Over the last decade, Dr. Frazier has maintained an active clinical practice and research programs focused on the evaluation and treatment of autism, ADHD, and related conditions. He has published more than 120 scientific papers and has ongoing collaborations across the US and internationally.
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Funda Suer, PhD
Executive Vice President - Clinical Diagnostics & Clinical Lab Director
Dr. Suer has an extensive background in genetics and genomics. Prior to joining Quadrant in March 2022, she served as the Senior Director of Reproductive and Diagnostic Genomics, Division Head of Diagnostic testing at SEMA4 Inc (June 2017-March 2022), and Clinical laboratory Director at Mount Sinai Genomics Sciences. Dr. Suer received her PhD in Medical Genetics at Gulhane Medical Academy in Turkey and completed her postdoctoral residency/fellowship training program in clinical molecular genetics at the National Institute of Health Genomic Research Institute (NIHGRI). Additionally, she is a diplomate of the American Board of Medical Genetics and Genomics (ABMGG), a fellow of the American College of Medical Genetics and Genomics (ACMG), is certified by the NYS DOH as a clinical director in molecular genetic testing and a member of the American Association of Molecular Pathology (AMP). She has overseen multiple commercial laboratories as Senior Clinical Laboratory Director and corporate brand transformations, as well as academic laboratories including Quest Diagnostics, Athena Diagnostics Laboratories, Mount Sinai Genomics Testing Laboratories. Dr. Suer previously established genetics training programs as training laboratory site director at Quest Diagnostics, and served as a program director of the ABMGG Laboratory Genetics Training Program at Mount Sinai Icahn School of Medicine, and served as Associate Professor at Mount Sinai Icahn School of Medicine, Department of Genetics and Genomics Sciences.
Steven Hicks, MD, PhD
Chief Medical Officer
Dr. Hicks is on the Clinical Advisory Board and the Chief Medical Officer of As You Are, and an Associate Professor of Academic General Pediatrics at Pennsylvania State College of Medicine in Hershey, PA. In addition to his work at As You Are and Penn State, he is a physician scientist who has served the Central Pennsylvania community as a general pediatrician at Penn State since August 2015, performing well-child check-ups, sick visits, and developmental evaluations. His clinical focus is on the early, and accurate diagnosis of autism. Dr. Hicks’ interest in autism stems from his PhD training in neurogenetics. As a physician scientist, he studies the influence of genetics and the environment on pediatric diseases involving growth and neurodevelopment. Dr. Hicks has also been awarded the Outstanding Early Faculty Career Development Award from the National Association for Clinical and Translational Science, and the Distinguished Early Stage Investigator Award from the Penn State College of Medicine. Dr. Hicks has published over 50 articles in peer reviewed journals, including JAMA Pediatrics and Clinical and Translational Medicine. He completed his undergraduate degree from Marist College and completed his MD, PhD and residency at the State University of New York Upstate Medical University.
Karen Canestrare
Treasurer
Karen has 30 years of leadership experience in corporate and operations level finance and accounting in publicly and privately held organizations, as well as start-ups. Prior to joining Quadrant in June 2021, Karen’s experience spans various industries including telecommunications/wireless/media, manufacturing, financial services and quick service restaurants. Karen’s experience most recently prior to joining Quadrant includes serving as Director of Accounting and Treasury at JMA Wireless (March 2020-March 2021) and Corporate Manager Financial Planning & Analysis at Carrols Corporation (2018-March 2020). Throughout the span of her career, Karen’s experience includes financial planning & analysis, financial reporting, merger and acquisitions, audit, treasury, key stakeholder in ERP implementations, process improvement and change management, where she has championed several change initiatives of various sizes and complexities. She has earned a certification of Leadership for Success from Dale Carnegie and has participated in various mentorship programs for Women in Technology. Karen earned her Bachelor of Science in Accounting and her Masters in Business from the Madden School of Business at Le Moyne College.
Allison Frazier, MA, BCBA
CEO Frazier Behavioral Health
Allison Frazier is a Board Certified Behavior Analyst with over 12 years experience in behavioral health. Her areas of expertise include direct behavior therapy with clients 18 months to 36 years old; private and public school consultation; parent and teacher training; community education; and clinical supervision. She previously directed the Cleveland Clinic Center for Autism (CCCA) Outreach Department and was the assistant director of their summer program. Prior to founding FBH in 2019, Allison was a school administrator and behavior specialist at the Julie Billiart Schools (JB) from August 2014-August 2019. During her tenure at JB, she founded and directed a national award winning camp. Throughout her career, she worked as an adjunct professor at John Carroll University, Ursuline College, and Lakeland Community College. Allison currently serves on the board at the Cuyahoga County Board of Developmental Disabilities.
| 25 |
Peter Cohen
Director
Peter was Chairman of the Board of Cowen Inc., a well-known diversified financial services firm and its predecessor Ramius Capital from 1994 to 2017. From November 1992 to May 1994, Peter was Vice Chairman and director of Republic New York Corporation, as well as Chairman of Republic’s subsidiary, Republic New York Securities Corporation. He was Chairman of the Board and Chief Executive Officer of Shearson Lehman Brothers from 1983 to 1990. From 1970 to 1983 he held various management roles within the company. Over his career, Mr. Cohen has served on a number of corporate, industry and philanthropic boards, including the New York Stock Exchange, The Federal Reserve International Capital Markets Advisory Committee, The Depository Trust Company, The American Express Company, Olivetti SpA, Telecom Italia SpA, and Kroll Inc. He was a Trustee of Mount Sinai Medical Center for 30 years and is currently Vice Chairman and Lead Director of the Board of Directors of Scientific Games Corporation, Chairman of PolarityTE Inc, Chairman of Andover National Corporation, Chairman of Peter Cohen LLC, Chairman of the Museum of American Finance, and Director of Gift of Life Marrow Registry. Mr. Cohen received a Bachelor of Science from The Ohio State University in 1968 and his Master of Business Administration from Columbia University in 1969.
James Croke
Director
Jim was our General Counsel from January 2018 through November 2021. Jim continues to serve the company as a Director. He is currently a principal at The Law Office of James Croke, LLC where he has been since April 2014. Jim was previously a structured finance/banking partner at Chapman & Cutler, Orrick Herrington, Cadwalader Wickersham & Taft, and Hunton & Williams. Throughout his career, he served as counsel to underwriters and issuers in U.S. and global public offerings and private placements. Jim has been a member of the board of directors of the American Securitization Forum and a faculty member of the Practicing Law Institute. He has written and lectured on a variety of topics regarding legal and regulatory issues and annually served as a guest lecturer regarding U.S. corporate and finance law at The Universidad Panamericana in Guadalajara, Mexico. Jim practiced U.S. law in London from 1999 - 2004, as the head of Cadwalader, Wickersham & Taft LLP's London capital markets department. Jim earned his undergraduate degree in Mathematics from the University of Kentucky (in three years) and his J.D. degree from the University of Notre Dame Law School.
Andrew Rock
Director
Andrew earned a reputation as a successful serial entrepreneur in the global medical technology industry. He is co-founder of K2M Group, a medical device developer based in Leesburg, Va., which became listed as a publicly traded company on NASDAQ on May 5, 2014. While at K2M, Andrew developed over 18 utility and method patents for the treatment of complex spine pathologies including scoliosis, tumor and trauma, as well as for minimally invasive implants. Before his involvement in K2M, Andrew was a member of the executive management team at American Osteomedix, where he co-developed a minimally invasive approach to access and treat osteoporotic compression fractures and tumors in the thoracic spine. From 1993 to 2003, he was Chairman and CEO of Rock Surgical Associates, Inc., a distributor of Orthopedic and Neurosurgical Products in the Mid-Atlantic region. Currently, Andrew is the Chairman and CEO of Minneapolis-based St Teresa Medical Inc., a developer of nanotechnology-based hemostatic and dural sealants; he is also the founder and managing partner of Neuro Spine Ventures LLC, an 82-member global angel investor group. Andrew is also a Co-Founder and Executive Director of DP Enterprises Group Inc., which provides product development and global marketing services for med-tech companies. Andrew also serves as the Chairman of Woven Orthopedics, LLC, which specializes in fixation and osteoporotic and osteopenic, and of Virtual Healthcare partners, a wellness focused digital healthcare company. Andrew serves on the Board of Directors for several corporations, including St. Teresa Medical, Woven Orthopedics, 7D Surgical, Inc., a machine vision surgical navigation company, and Quadrant Biosciences, Inc., which focuses on brain health and epigenetics diagnostics. He is on the board of advisors for Indianapolis-based Recovery Force, LLC, and a pioneer in wearable technology for the medical, sports and defense industry sectors. Andrew graduated from Linsly and West Virginia University.
| 26 |
Mary Ann Tyszko
Director
Mary Ann has over 30 years of experience in leadership, strategy development, business development, program execution and management. She served as Chief Executive Officer and President of SRCTec Inc. from its inception until August 2010. Prior to that, she served as an Executive Vice President, Operations for SRC, responsible for the day-to-day management and financial results of SRC's four business centers. Mary Ann also served as Vice President for Strategic Business Development and Innovation for Syracuse University. Her office integrated the activities of technology transfer, corporate relations and technology incubation to facilitate the commercialization of university technologies and support faculty entrepreneurship. She served on the board of Excell Partners, Inc., a VC fund investing in seed and early stage high-tech startups in New York State. Currently, Mary Ann is chair of the board of Symphoria, Central New York’s professional orchestra. Formerly Mary Ann was Chair of the Greater Syracuse Chamber of Commerce Board of Directors, and a Member of Le Moyne College Management Division Advisory Board. She is a National Director of the Association of Old Crows (AOC) and a Member of the Armed Forces Communications and Electronics Association (AFCEA), the Association of the United States Army (AUSA), the United States Field Artillery Association (USFAA), and the National Association of Corporate Directors (NACD). Mary Ann also has been Corporate Chair of Go Red for Women, American Heart Association, as well as a Board Member of Manufacturers Association of Central New York (MACNY). She received her MBA and MS in Computer Science from Syracuse University and a BS in Biology from Le Moyne College.
Compensation of Directors and Executive Officers
For the fiscal year ended December 31, 2022, we compensated our three highest-paid directors and executive officers as follows:
| Name | Capacities in which compensation was received | Cash compensation ($) | Other compensation ($)(1) | Total compensation ($)(2) | ||||||||||
| Richard Uhlig | Chief Executive Officer | $ | 275,000 | $ | 425,002 | $ | 700,002 | |||||||
| Richard Bongo | Chief Financial Officer | $ | 275,000 | $ | 425,002 | $ | 700,002 | |||||||
| Bryan Greene | Chief Operating Officer | $ | 230,385 | $ | 400.003 | $ | 630,388 | |||||||
| (1) | Other compensation is limited to stock options; the Black-Scholes formula was used to determine the value of the options at the date of grant. 140,869 stock options were granted to Richard Uhlig and Richard Bongo, and 132,583 stock options were granted to Bryan Greene for their services as CEO, CFO and COO, respectively. This amount does not reflect the actual economic value realized by the officer. |
| (2) | Total compensation is the sum of cash compensation and other compensation.
We compensated five of our directors in options for their work as directors related to the fiscal year ended December 31, 2022. The value of those options in aggregate was $500,007 based on the Black-Scholes formula which was used to determine the value of the options at the date of grant. This amount does not reflect the actual economic value realized by the directors. |
Item 4. Security Ownership of Management and Certain Securityholders
Our authorized capital stock consists of 125,000,000 shares, all of which are Common Stock with a $0.0001 par value per share. As of December 31, 2022, there were 89,009,360 shares of our Common Stock issued and outstanding, all of which were fully paid, non-assessable and entitled to vote. Each share of our Common Stock entitles its holder to one vote on each matter submitted to the stockholders.
The following table sets forth information as of December 31, 2022, with respect to the beneficial ownership of our Common Stock (represented as the sum of Common Stock owned plus Common Stock acquirable through the exercise of options) by (i) each person or entity which holds a beneficial ownership of 5% or more of our Common Stock, (ii) the beneficial ownership held by our Executive Officers and Directors (as listed above), and (iii) the beneficial ownership held by our Directors (which includes four Executive Officers as noted above):
| 27 |
| Name and address of beneficial owner (1) | Number of Common Shares Owned | Number of Common Shares Acquirable (2) | Percent of ownership (3) | |||||||||
| Richard Uhlig, Chairman and CEO | 32,975,977 | 6,977,639 | 41.62 | % | ||||||||
| Research Foundation for the State University of New York | 5,959,241 | -- | 6.70 | % | ||||||||
| James Croke, Secretary and Director | 2,020,398 | 3,547,491 | 6.02 | % | ||||||||
| Richard Bongo, CFO and Director | 1,204,266 | 3,689,669 | 5.28 | % | ||||||||
| All Directors and Executive Officers (10 total) | 40,214,466 | 17,401,129 | 54.14 | % | ||||||||
| All Directors (7 total) | 39,214,595 | 16,397,067 | 52.76 | % | ||||||||
| (1) | The address of each beneficial owner is in the care of Quadrant Biosciences Inc, 505 Irving Ave., Suite 3100 AB, Syracuse, New York 13210. |
| (2) | Represents shares of Common Stock acquirable upon exercise of options which are vested or which vest on or before March 1, 2023. |
| (3) | Percent of ownership includes a calculation of the amount the person (or group) owns now, plus the amount that person (or group) is entitled to acquire. That amount is then shown as a percentage of the outstanding amount of securities in that class if no other people exercised their rights to acquire those securities. The result is a calculation of the maximum amount that person could ever own based on their current and acquirable ownership, which is why the amounts in this column will not add up to 100%. |
Item 5. Interest of Management and Others in Certain Transactions
None.
Item 6. Other Information
None.
| 28 |
Item 7. Financial Statements
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended
December 31, 2022 and 2021
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Quadrant Biosciences, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Quadrant Biosciences, Inc., its Subsidiaries and its Affiliates (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. Federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
F-1
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements, and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Capitalized Internal-Use Software Development Costs (Software as a Service)
As discussed in Notes A (23) and E to the consolidated financial statements, the Company capitalizes certain development costs that relates to internal use software incurred during the application development stage. The Company capitalized internal-use software assets, net of accumulated amortization, was $11,189,946 and $7,993,342, as of December 31, 2022 and 2021, respectively.
Auditing the Company’s capitalization of software costs was especially challenging because management’s determination of which projects and development activities qualify for capitalization requires significant judgment, as only those costs incurred in certain stages of software development can be capitalized in accordance with the applicable accounting standards.
We obtained an understanding and evaluated the design of internal controls over the Company’s internal use software costs processes. This includes the controls over management’s determination of which projects and costs qualify for capitalization in accordance with the appliable accounting standards.
To test the Company’s capitalization of software costs, we performed audit procedures that included, among others, inspecting underlying documentation to evaluate whether the costs were capitalizable under the applicable accounting standards. We also inquired of project managers for significant projects to assess the nature of the costs, the time devoted to capitalizable activities and the underlying documentation.
| /s/ Dannible & McKee, LLP |
Dannible & McKee, LLP
We have served as Quadrant Biosciences, Inc.'s auditor since 2019.
Syracuse, New York
April 3, 2023
F-2
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
| 2022 | 2021 | |||||||
| Current Assets: | ||||||||
| Cash and cash equivalents (amounts related to VIEs of $12,629 and $0, respectively) | $ | 13,882,387 | $ | 8,116,233 | ||||
| Accounts receivable, net (amounts related to VIEs of $42,719 and $0, respectively) | 1,411,933 | 13,651,979 | ||||||
| Prepaid expenses | 2,782,317 | 3,367,754 | ||||||
| Other current assets | 137,257 | 1,211,193 | ||||||
| Inventories | 1,554,754 | 472,128 | ||||||
| Total Current Assets | 19,768,648 | 26,819,287 | ||||||
| Property and Equipment: | ||||||||
| Property & equipment | 1,949,648 | 1,056,661 | ||||||
| Less: accumulated depreciation | 283,278 | 82,133 | ||||||
| Total Property and Equipment, net | 1,666,370 | 974,528 | ||||||
| Other Assets: | ||||||||
| Deferred tax asset | 1,812,777 | 1,564,598 | ||||||
| Right-of-use lease asset | 1,713,488 | 875,950 | ||||||
| Goodwill | 150,000 | - | ||||||
| Software as service | 13,383,996 | 10,187,392 | ||||||
| Less: accumulated amortization | 2,194,050 | 2,194,050 | ||||||
| Total Other Assets | 14,866,211 | 10,433,890 | ||||||
| Total Assets | $ | 36,301,229 | $ | 38,227,705 | ||||
The accompanying notes are an integral part of the consolidated financial statements.
F-3
LIABILITIES AND STOCKHOLDERS’ EQUITY
| 2022 | 2021 | |||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 926,151 | $ | 809,495 | ||||
| Royalty payable | 226,595 | 3,533,378 | ||||||
| Contract liabilities | 146,945 | 1,910,078 | ||||||
| Current portion lease liability | 492,712 | 289,756 | ||||||
| Accrued payroll and related liabilities (amounts related to VIEs of $39,612 and $0, respectively) | 328,905 | 229,911 | ||||||
| Federal tax payable | - | 131,518 | ||||||
| Accrued liabilities | 570,422 | 483,040 | ||||||
| Current portion of long-term debt | 6,141,400 | 5,848 | ||||||
| Total Current Liabilities | 8,833,130 | 7,393,024 | ||||||
| Long-Term Liabilities: | ||||||||
| Lease liability, net of current portion | 1,284,026 | 588,963 | ||||||
| Convertible debt | 462,235 | 437,237 | ||||||
| Notes payable | 154,175 | 5,990,322 | ||||||
| Total Long Term Liabilities | 1,900,436 | 7,016,522 | ||||||
| Stockholders’ Equity: | ||||||||
| Common stock, par value $0.0001 per share, 125,000,000 shares authorized, 89,009,360 and 88,992,860 issued and outstanding, respectively | 8,901 | 8,900 | ||||||
| Additional paid in capital | 34,126,368 | 29,932,108 | ||||||
| Accumulated deficit | (8,385,254 | ) | (6,122,849 | ) | ||||
| Non-controlling interests | (182,352 | ) | - | |||||
| Total Stockholders’ Equity | 25,567,663 | 23,818,159 | ||||||
| Total Liabilities and Stockholders’ Equity | $ | 36,301,229 | $ | 38,227,705 | ||||
F-4
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
| 2022 | 2021 | |||||||
| Revenues: | ||||||||
| Testing services, net (amounts relating to VIEs of $55,577 and $0, respectively) | $ | 28,062,567 | $ | 13,641,262 | ||||
| Product sales, net | 7,821,116 | 44,136,077 | ||||||
| Behavioral health services | 306,546 | - | ||||||
| Product assembly | - | 2,608,994 | ||||||
| Other revenue | 204,926 | 132,846 | ||||||
| Total Revenues | 36,395,155 | 60,519,179 | ||||||
| Cost of Products Sold | 14,340,093 | 33,466,238 | ||||||
| Gross Profit | 22,055,062 | 27,052,941 | ||||||
| Sales and Marketing Expenses | 1,745,116 | 156,918 | ||||||
| Research and Development Costs | 1,018,519 | 206,092 | ||||||
| Selling and Administrative Expenses: | ||||||||
| Charitable contributions | 33,922 | 24,475 | ||||||
| Depreciation and amortization | 201,145 | 49,504 | ||||||
| Employee benefits and taxes (amounts relating to VIEs of $69,604 and $0, respectively) | 2,223,051 | 832,622 | ||||||
| Office expenses | 1,550,745 | 760,454 | ||||||
| Other expenses (amounts related to VIEs of $229 and $0, respectively) | 1,552,850 | 653,382 | ||||||
| Professional fees | 2,477,138 | 948,310 | ||||||
| Salaries and wages (amounts relating to VIEs of $562,712 and $0, respectively) | 9,910,023 | 3,624,093 | ||||||
| Stock option compensation | 4,230,718 | 3,142,708 | ||||||
| Total Selling and Administrative | ||||||||
| Expenses | 22,179,592 | 10,035,548 | ||||||
| (Loss) Income from Operations | (2,888,165 | ) | 16,654,383 | |||||
| Other Income (Expenses): | ||||||||
| Other income | 562,358 | 298,989 | ||||||
| Interest expense | (325,338 | ) | (309,842 | ) | ||||
| Total Other Income (Expenses) | 237,020 | (10,853 | ) | |||||
| Net (Loss) Income Before Income Tax | (2,651,145 | ) | 16,643,530 | |||||
| Deferred Income Tax Expense | 264,247 | (4,236,433 | ) | |||||
| Income Tax Expense | (57,859 | ) | (159,290 | ) | ||||
| Net (Loss) Income | (2,444,757 | ) | 12,247,807 | |||||
The accompanying notes are an integral part of the consolidated financial statements.
F-5
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the Years Ended December 31,
| 2022 | 2021 | |||||||
| Less: Net Loss Attributable to Non-Controlling Interests | (182,352 | ) | - | |||||
| Net (Loss) Income Attributable to Common Stockholders | $ | (2,262,405 | ) | $ | 12,247,807 | |||
| Per share data: | ||||||||
| Basic (loss) income, per common share | $ | (0.03 | ) | $ | 0.14 | |||
| Diluted (loss) income, per common share | (0.03 | ) | 0.12 | |||||
| Shares used in computing net income per common share: | ||||||||
| Basic | 89,002,878 | 88,974,967 | ||||||
| Diluted | 89,002,878 | 105,832,846 |
The accompanying notes are an integral part of the consolidated financial statements.
F-6
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Years ended December 31, 2022 and 2021
| Common Shares | Common Stock Par Value | Additional Paid-in Capital | (Accumulated Deficit) | Non-Controlling Interests | Total | |||||||||||||||||||
| Balance, December 31, 2020 | 88,955,194 | $ | 8,896 | $ | 26,808,240 | $ | (18,370,656 | ) | $ | - | $ | 8,446,480 | ||||||||||||
| Exercised stock options ($0.003 per share) | 37,000 | 4 | 110 | - | - | 114 | ||||||||||||||||||
| Exercised stock options ($3.00 per share) | 666 | - | 1,998 | - | - | 1,998 | ||||||||||||||||||
| Stock option compensation | - | - | 3,142,708 | - | - | 3,142,708 | ||||||||||||||||||
| Stock issuance costs | - | - | (20,948 | ) | - | - | (20,948 | ) | ||||||||||||||||
| Net income | - | - | - | 12,247,807 | - | 12,247,807 | ||||||||||||||||||
| Balance, December 31, 2021 | 88,992,860 | 8,900 | 29,932,108 | (6,122,849 | ) | - | 23,818,159 | |||||||||||||||||
| Exercised stock options ($0.003 per share) | 16,500 | 1 | 51 | - | - | 52 | ||||||||||||||||||
| Stock option compensation | - | - | 4,230,718 | - | - | 4,230,718 | ||||||||||||||||||
| Stock issuance costs | - | - | (36,509 | ) | - | - | (36,509 | ) | ||||||||||||||||
| Net income | - | - | - | (2,262,405 | ) | (182,352 | ) | (2,444,757 | ) | |||||||||||||||
| Balance, December 31, 2022 | 89,009,360 | $ | 8,901 | $ | 34,126,368 | $ | (8,385,254 | ) | $ | (182,352 | ) | $ | 25,567,663 | |||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-7
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31,
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | (2,444,757 | ) | $ | 12,247,807 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | 311,621 | 393,060 | ||||||
| Employee stock option compensation | 4,230,718 | 3,142,708 | ||||||
| Deferred tax expense | (250,745 | ) | 4,236,433 | |||||
| Forgiveness of loan | (295,775 | ) | (196,345 | ) | ||||
| Changes in income tax credit receivable | - | 222,667 | ||||||
| Changes in accounts receivable | 12,240,046 | (12,297,629 | ) | |||||
| Changes in accounts payable | 116,656 | (398,237 | ) | |||||
| Changes in royalty payable | (3,306,783 | ) | 2,674,764 | |||||
| Changes in contract liabilities | (1,763,133 | ) | (5,732,149 | ) | ||||
| Changes in accrued interest | 324,403 | 307,500 | ||||||
| Changes in inventories | (289,858 | ) | 991,727 | |||||
| Changes in right-of-use lease assets | (948,014 | ) | (833,260 | ) | ||||
| Changes in income taxes payable | (131,518 | ) | 131,518 | |||||
| Changes in lease liabilities | 1,001,358 | 830,347 | ||||||
| Changes in prepaid expenses and other current assets | 509,314 | (4,554,972 | ) | |||||
| Changes in accrued payroll and related liabilities | 98,994 | (559,650 | ) | |||||
| Changes in accrued liabilities | 339,804 | 166,239 | ||||||
| Cash Provided by Operating Activities | 9,742,331 | 772,528 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Cash paid for purchases of fixed assets | (489,777 | ) | (492,753 | ) | ||||
| Purchase of goodwill | (150,000 | ) | - | |||||
| Payments of software development costs | (3,196,604 | ) | (1,888,247 | ) | ||||
| Cash Used in Investing Activities | (3,836,381 | ) | (2,381,000 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Payments on financing lease | (103,339 | ) | (12,546 | ) | ||||
| Repayment of line of credit | - | (403,996 | ) | |||||
| Proceeds from convertible debt | - | 416,628 | ||||||
| Proceeds from sale of stock and exercise of options, net of issuance costs | (36,457 | ) | (18,836 | ) | ||||
| Cash Used in Financing Activities | (139,796 | ) | (18,750 | ) | ||||
| Net Change in Cash | 5,766,154 | (1,627,222 | ) | |||||
The accompanying notes are an integral part of the consolidated financial statements.
F-8
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Years ended December 31,
| 2022 | 2021 | |||||||
| Net Change in Cash | 5,766,154 | (1,627,222 | ) | |||||
| Cash, beginning of year | 8,116,233 | 9,743,455 | ||||||
| Cash, end of year | $ | 13,882,387 | $ | 8,116,233 | ||||
| Supplemental Disclosures of Cash Flow Information: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | 935 | $ | 2,342 | ||||
| Income taxes | 201,729 | 14,345 | ||||||
| Non-Cash Operating and Investing Activities: | ||||||||
| During 2022, $792,768 of other current assets were reclassified to inventory and $359,857 of other current assets were reclassified to fixed assets. | ||||||||
The accompanying notes are an integral part of the consolidated financial statements.
F-9
QUADRANT BIOSCIENCES INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2022 and 2021
| A. | Summary of Significant Accounting Policies: |
| 1. | Quadrant Biosciences Inc. (the “Company”, “Quadrant”) is a healthcare company dedicated to improving the lives of children and families by delivering innovative diagnostic, therapeutic, and virtual care solutions for global health priorities. Quadrant is comprised of five business units: Quadrant Laboratories, Quadrant Wastewater Solutions, As You Are, Frazier Behavioral Health and Autism Analytica. |
Quadrant Laboratories (“QLabs”) performs COVID-19 testing and engages in the research, development and commercialization of molecular diagnostics for certain public health priorities, including Autism Spectrum Disorder (“ASD”), mild-traumatic brain injuries (“mTBI”), Parkinson’s Disease (“PD”) and others. Quadrant Laboratories has curated and owns a biobank, including over 610,000 saliva specimens from over 160,000 unique individuals; specimens included in this biobank are appropriate for genetic and multi-omic discovery. QLabs operates through Quadrant Laboratories LLC.
Quadrant Wastewater Solutions (“QWS”) provides communities throughout New York State and the New York State Department of Health (“NYSDOH”) with weekly wastewater surveillance reporting on the presence and relative abundance of the SARS-CoV-2 virus in wastewater sampled from municipal treatment facilities. As of March 20, 2023, QWS provided these services for approximately 90% of all counties in New York State. Additionally, QWS facilitates additional testing by the NYSDOH (including the phylogenetic classification of SARS-CoV-2 variants and genetic testing for other human pathogens) by providing extracted RNA from wastewater samples. QWS conducts business through Quadrant Viral Testing LLC.
As You Are (“AYA”) is a virtual pediatric clinic which launched in August 2022 and provides autism diagnostic evaluations for children 16 months to 10 years of age through telehealth appointments; AYA’s diagnostic process is facilitated by its proprietary evidence-based medicine platform. Currently, AYA serves families in ten States, including Texas, Florida, New York, New Jersey, Pennsylvania, Ohio, Virginia, Georgia, Kentucky, and Alabama. AYA conducts business through two wholly-owned subsidiaries of Quadrant, Quadrant Medical Staffing LLC and Quadrant Virtual Care Management LLC; Quadrant Virtual Care Management LLC provides management services to As You Are Physicians PC, which employs physicians and leases those physicians to the billing entities. Those billing entities include Quadrant CA Virtual Pediatric Medical Care PC Quadrant MI Virtual Care PC, Quadrant NJ Virtual Care PC, Quadrant PA Virtual Care PC, and Quadrant TX Virtual Care PA.
F-10
Frazier Behavioral Health LLC (“FBH”) delivers individualized therapy for neurodiverse children and adults with behavioral, social, communication, daily living, and educational deficits; their mission is to assist these individuals in becoming their best selves and create enhanced outcomes at home, at school and in the community. From their clinic in Cleveland, OH, and other locations convenient for patients, FBH provides evidence-based therapies and intervention strategies for children and adults with autism, ADD/ADHD, and other developmental conditions. Quadrant Biosciences Inc. purchased Frazier Behavioral Health LLC through a Membership Interest and Purchase Agreement effective April 1, 2022. Quadrant Behavioral Staffing LLC and Quadrant Behavioral Care Management LLC were created to operate in conjunction with Frazier Behavioral Health LLC. Operations of Quadrant Behavioral Staffing LLC and Quadrant Behavioral Care Management LLC have not yet commenced.
Autism Analytica (“AA”) develops commercial software designed to facilitate the early identification of children on the autism spectrum, predict the type and frequency of services needed, and monitor a child’s progress through treatment over time. AA’s software is comprised of (i) clinical decisions support software, inclusive of ten parent/caregiver-completed, clinically validated, measures of a child’s strengths and challenges and the clinical compilation of these results (“Virtual IPM”), and (ii) an objective, clinical diagnostic aid which utilizes vision-tracking technology, proprietary stimuli, and AI/machine-learning algorithms to augment clinical decision making relative to ASD (“Neural IPM”). AA software is designed for use by clinicians diagnosing children with ASD and behavioral health specialists serving children with ASD. AA conducts business through the wholly-owned subsidiary of Quadrant, Autism Analytica LLC.
Motion Intelligence LLC is a wholly owned subsidiary which sold ClearEdge toolkits to end users utilizing distributors and agents. Effective September 7, 2022, Motion Intelligence LLC was dissolved in Delaware and effective January 11, 2023 was dissolved in New York.
Quadrant Epigenetics LLC is a wholly owned subsidiary which will record revenue from epigenetic activities. Effective September 7, 2022, Quadrant Epigenetics LLC was dissolved in Delaware and effective January 11, 2023 was dissolved in New York.
Quadrant IP Holdings LLC is a wholly owned subsidiary which houses the Company’s patents. Effective September 7, 2022, Quadrant IP Holdings LLC was dissolved.
Quadrant Vision Technologies is a wholly owned subsidiary created to partner with a health provider. Effective September 9, 2022, Quadrant Vision Technologies LLC was dissolved.
Quadrant Biosciences Canada Ltd is a wholly owned subsidiary created to pay an employee residing in Canada. Effective October 12, 2022, Quadrant Biosciences Canada Ltd was dissolved.
Quadrant Biosciences Inc. is the sole owner of its subsidiaries Quadrant Laboratories LLC, Quadrant Viral Testing LLC, Quadrant Virtual Care Management LLC, Quadrant Medical Staffing LLC, Frazier Behavioral Health LLC, Quadrant Behavioral Staffing LLC, Quadrant Behavioral Care Management LLC, Autism Analytica LLC, Motion Intelligence LLC, Quadrant Epigenetics LLC, Quadrant IP Holdings LLC, Quadrant Vision Technologies LLC, and Quadrant Biosciences Canada Ltd.
F-11
| 2. | Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Motion Intelligence LLC, Quadrant Epigenetics LLC, Quadrant IP Holdings LLC, Quadrant Vision Technologies LLC, Quadrant Viral Testing LLC, Quadrant Biosciences Canada Ltd, Quadrant Laboratories LLC, Autism Analytica LLC, Frazier Behavioral Health LLC, Quadrant Behavioral Staffing LLC, Quadrant Behavioral Care Management LLC, Quadrant Virtual Care Management LLC, and Quadrant Medical Staffing LLC. |
In addition to the Company and its wholly owned subsidiaries, As You Are Physicians PC, Quadrant CA Virtual Pediatric Medical Care PC, Quadrant MI Virtual Care PC, Quadrant NJ Virtual Care PC, Quadrant PA Virtual Care PC and Quadrant TX Virtual Care TX Virtual Care PA are consolidated in the consolidated financial statements as variable interest entities (“VIE”). The Company evaluates its ownership, contractual, and other interests in entities to determine if an entity qualifies as a VIE. These evaluations are complex and involve judgment. The Company has consolidated VIE’s which the Company has concluded it holds a contractual or ownership interest in and that the Company is the primary beneficiary of in the consolidated financial statements. The primary beneficiary of a VIE is the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE, and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. The Company has determined that based on the substance of various agreements, including management agreements, physician shareholder agreements, and stock transfer restriction agreements that the aforementioned physician practices qualify as VIE’s. The Company regularly reassess whether changes in the facts and circumstances regarding the Company’s involvement with a VIE will cause the consolidation conclusion to change. Changes in consolidation status are applied prospectively.
All intercompany balances and transactions have been eliminated in consolidation.
| 3. | Cash – For the purposes of cash flow disclosures, cash is defined as cash deposited in financial institutions and any investments that mature within three months or less from the initial purchase date. |
| 4. | Property and Equipment – Furniture and equipment acquisitions are recorded at cost. Depreciation is computed using the straight-line method based on the expected useful lives of the assets, which range from 5 to 10 years. The Company had $538,475 in laboratory equipment received, but not in service as of December 31, 2021, all equipment received as of December 31, 2022 has been placed in service. Expenditures for repairs and maintenance are charged to expense as incurred, whereas major betterments are capitalized. Depreciation expense is included in selling and administrative expenses. Depreciation expense for the years ended December 31, 2022 and 2021 was $201,145 and $49,504, respectively. |
F-12
| 5. | Inventories – Inventories consist of raw materials and supplies, and are stated at the lower of cost or market using the average cost method or net realizable value. Net realizable value is determined as the estimated selling price in the normal course of business minus the cost of completion, disposal and transportation. |
| 6. | Accrued Vacation – Employees are eligible to receive paid vacation time based on years of service. The vacation policy is a use it or lose it policy. |
| 7. | Royalty Payable – The Company has an exclusive license with The Research Foundation for The State University of New York (the Foundation) for a COVID-19 Saliva Diagnostic. The Company paid to the Foundation a royalty of 50% of all net income as defined in the agreement through June 30, 2021. Under this agreement income is defined as COVID-19 related gross revenue received by the Company and its affiliates from third party customers, less, sales tax or duties actually paid, transportation costs actually paid, amounts credited or returned, cost of goods sold, commissions paid to sales representatives, patent costs paid by the Company, and product liability insurance premiums covering the licensed product. Effective July 1, 2021, the Company shall pay to the Foundation a royalty on COVID-19 related net sales at 10% for the quarter beginning July 1, 2021, through December 31, 2021 and decreasing by 2% each quarter until it reaches 6% for the period beginning July 1, 2022 through termination of the agreement, with certain specific exclusions. As of December 31, 2022, and 2021 the amounts owed for royalty payments were $226,595 and $3,533,378, respectively. Royalty expense is included in cost of products sold. For the year ended December 31, 2022 and 2021 the expense was $2,868,377 and $7,833,833, respectively. |
| 8. | Income Taxes – The Company accounts for income taxes under FASB ASC 740-10. Deferred tax assets and liabilities are based on the difference between the financial statement and tax basis of assets and liabilities as measured by the enacted tax rates which are anticipated to be in effect when these differences reverse. The deferred tax provision is the result of the net change in the deferred tax assets and liabilities. A valuation allowance is established when it is necessary to reduce deferred tax assets to amounts expected to be realized. See Note G. |
The Company follows FASB ASC 740-10, which clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return. Additionally, it provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company will include interest on income tax liabilities in interest expense and penalties in operations if such amounts arise. The Company determined it has no uncertain tax positions and therefore no amounts are recorded.
Commencing on July 24, 2015, the Company is a certified Start-Up New York business. As such the Company is exempt from New York franchise tax for 10 years due to their Start-Up New York locations.
F-13
| 9. | Research and Development Expenditures – Research and development expenditures of $1,018,519 and $206,092 for the years ended December 31, 2022 and 2021, respectively, were expensed as incurred. |
| 10. | Accounts Receivable – Accounts receivable are recorded at the invoiced amount less certain price concessions and do not bear interest. The Company’s accounts receivable is bifurcated between direct customers and third-party payers. |
Direct customers represent the portion of the Company’s revenue and accounts receivable related to employers, schools and other entities where payment is received directly from the entity ordering the product or service. Accounts receivable for customers are recorded at the invoiced amount. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company reviews its allowance for doubtful accounts on an ongoing basis. Past due balances for client payers are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. There has been no allowance established for potential losses on direct customer accounts receivable.
Third-party payers represent the portion of the Company’s revenue and accounts receivable related to Medicare, Medicaid, and commercial insurance companies. Third-party payer revenue and accounts receivable is recorded net of explicit and implicit price concessions which are based on healthcare industry trends and regulations, current economic conditions, and aging of accounts. The Company reviews its allowances for the explicit and implicit price concessions on an ongoing basis. The Company has contracted with a medical billing company that provides billing services for the laboratories and another medical billing company that provides billing services for behavioral health services.
The Company does not have any off-balance-sheet credit exposure related to its customers.
| 11. | Prepaid Expenses – Prepaid expenses primarily consist of prepaid expenses related to various insurances and agreements over a period of time. In 2021 the Company entered into a research support agreement under which the contracting entity will use its best efforts to recruit and coordinate participation in a study for the Company. In exchange the Company provided prepaid research funding of $3,100,000 during the fourth quarter of 2021 and will provide up to an additional $3,097,000 through October 31, 2023, based on certain participation milestones being met. During the year ended December 31, 2022, the Company capitalized as software $822,951 of the prepaid research funding recorded based on the number of participants enrolled in the study. |
F-14
| 12. | Other Current Assets – In late 2021 the Company began a project to build a legally compliant large-scale biodepository and initiated the systematic curation of its “Project Silver Linings” Biobank and data repository. At December 31, 2021, other current assets represent the capitalization of the biobank samples and the related costs of storage. During 2022, it was determined that the biobanking project was viable and ready to be sold and marketed. Therefore, during 2022 $792,768 and $359,857 of the capitalized costs were reclassed as inventory and property and equipment, respectively. |
| 13. | Concentration of Business Risk – In 2021, all of the Company’s Clarifi ASD inventory was purchased from two vendors. There is no Clarifi ASD inventory recorded as December 31, 2022. For the year ended December 31, 2022 and 2021 17% and 94%, respectively, of inventory related to the Clarifi COVID-19 and wastewater services were purchases from a single vendor. |
For the year ended December 31, 2022 100% of lab testing revenue of $1,595,798 was to one customer. For the year ended December 31, 2021 80% of test kit sales of $43,436,304, 100% of lab testing revenue of $2,625,450, and 100% of product assembly services of $2,608,994 were to one customer.
| 14. | Cost of Goods Sold – During 2021 and 2022 the cost of goods sold includes costs and expenses directly related to the operations of the clinical and environmental labs. |
| 15. | Advertising and Promotion – The Company expenses all advertising costs. Advertising expenses totaled $1,745,116 and $156,918 for the years ended December 31, 2022 and 2021, respectively. |
| 16. | Sales Tax – Certain states impose a sales tax on the Company’s sales to nonexempt customers. The Company collects the required sales tax from customers and remits the entire amount to the respective states. The Company’s policy is to exclude the tax collected and remitted from revenues and expenses and record a liability for the tax at the time of invoicing. |
| 17. | Stock-Based Compensation – The Company accounts for stock options under the provisions of ASC 718 Stock Compensation. For options granted in 2022 and 2021, compensation expense is recognized over the requisite service periods of the option agreements based on their fair value computed under Black-Scholes option-pricing model. See Note F. |
| 18. | Estimates and Assumptions – Management of the Company uses estimates and assumptions in preparing consolidated financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could vary from the estimates that management uses. |
| 19. | Shipping Costs – Shipping costs that are non-reimbursable are included in cost of goods sold. |
F-15
| 20. | Grant Revenue – The Company evaluates terms and conditions of individual grants to determine whether they meet the characteristics of an exchange transaction or a nonexchange transaction. Revenue from grants that are determined to be exchange transactions are recognized according to ASC 606. Revenue from grants that are nonexchange transactions are recognized over the period of performance, to match the revenue with the related expenses in a systematic manner. In 2022 and 2021, the Company recognized revenue within other revenue on a grant from National Institute of Mental Health (NIH), which was classified as a nonexchange transaction, of $204,926 and $132,846, respectively. |
During 2021, the Company entered an equipment use agreement with The Foundation, acting on behalf of the University at Buffalo. This equipment use agreement provides that the Foundation will contribute resources to the Company valued at up to $500,000 by way of a grant with ownership of the equipment transferring to the Company at the end of the agreement period, provided the Company meets certain performance milestones. The monthly payments due under the agreement will be deferred and forgiven annually for meeting performance milestones. Under the agreement, $492,120 of equipment was recorded in furniture and equipment at December 31, 2021. As of December 31, 2022 the performance milestones have been met and forgiveness of the liability has been recorded as other income. As neither the acquisition of the equipment nor the corresponding liability represented a source or use of cash, these activities have been excluded from the consolidated statements of cash flows
| 21. | Earnings Per Share – The Company presents basic earnings per share (“EPS”), computed based on the weighted average number of common shares outstanding for the period, and when applicable diluted EPS, which gives the effect to all dilutive potential shares outstanding (i.e. options, convertible debt) during the period after restatement for any stock dividends. Income or loss used in the EPS calculation is net income or loss for each year. There are outstanding dilutive stock options and convertible debt for the year ended December 31, 2022 and 2021, of 21,660,677 and 16,857,879, respectively. The dilutive stock options and convertible debt for the year ended December 31, 2022 have not been included for 2022 due to being antidilutive. |
F-16
The following table illustrates the computation of basic and diluted EPS for the year ended December 31, 2022, and 2021.
| For the Year Ended December 31, 2021 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Income from continuing operations | $ | 12,247,807 | ||||||||||
| Basic EPS | ||||||||||||
| Income available to common stockholders | 12,247,807 | 88,974,967 | $ | 0.14 | ||||||||
| Effect of Dilutive Securities | ||||||||||||
| Common Stock Options | 16,821,443 | |||||||||||
| Convertible Debt | 36,436 | |||||||||||
| Diluted EPS | ||||||||||||
| Income available to common stockholders and assumed conversions | $ | 12,247,807 | 105,832,846 | $ | 0.12 | |||||||
| For the Year Ended December 31, 2022 | ||||||||||||
| Income | Shares | Per-Share | ||||||||||
| (Numerator) | (Denominator) | Amount | ||||||||||
| Income from continuing operations | $ | (2,262,405 | ) | |||||||||
| Basic EPS | ||||||||||||
| Income available to common stockholders | (2,262,405 | ) | 89,002,878 | $ | (0.03 | ) | ||||||
| Effect of Dilutive Securities | ||||||||||||
| Common Stock Options | 21,634,532 | |||||||||||
| Convertible Debt | 26,145 | |||||||||||
| Diluted EPS | ||||||||||||
| Income available to common stockholders and assumed conversions | $ | (2,262,405 | ) | 110,663,555 | $ | (0.02 | ) | |||||
| 22. | Impairment of Long-Lived Assets – The carrying values of long-lived assets other than goodwill are generally evaluated for impairment only if events or changes in facts and circumstances indicate that carrying values may not be recoverable. Any impairment determined would be recorded in the current period and would be measured by comparing the fair value of the related asset to its carrying value. Fair value is generally determined by identifying estimated undiscounted cash flows to be generated by those assets. No impairment was recorded for the years ended December 31, 2022 and 2021, respectively. |
F-17
| 23. | Software – In accordance with authoritative accounting guidance, costs related to the development of internal use software are evaluated based upon the development stage of the software and expensed or capitalized based upon this evaluation. |
Expenses are reviewed on a quarterly basis for inclusion in the software as service capitalization and include but are not limited to software, software subscriptions, consultants, testing materials, sponsored research, legal fees, and salaries for employees based on estimations of time spent in development, design, testing, or otherwise supporting the software as service projects. The capitalized costs are amortized over the estimated lives of the products, which is generally three years. See Note E.
| 24. | Leases – The Company has recognized right-of-use assets and lease liabilities resulting from operating and finance leases where the Company is the lessee, as described in Note C. The Company has made an accounting policy election to not recognize lease assets and lease liabilities for leases with a term of 12 months or less unless the company has the ability and intent to extend the lease beyond a 12-month term. |
| 25. | Revenue from Contracts with Customers – All of the Company’s revenue from contracts with customers are in the scope of ASC 606 and are included in revenues on the Consolidated Statements of Income. Revenue is measured based on consideration specified in a contract with a customer, less any explicit or implicit price concessions. The Company recognizes revenue when it satisfies a performance obligation by transferring control of a product or service to a customer. No incremental contract costs are incurred in obtaining contracts. |
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transactions, that are collected by the Company from a customer, are excluded from revenue. See Note B.
| 26. | Related Party Transactions – The Company did not have any significant related party transactions for the years ended December 31, 2022 and 2021. |
| B. | Revenue from Contracts with Customers: |
Performance Obligations and Significant Judgments
The following is a description of the Company’s performance obligations from contracts with customers accounted for under ASC 606:
Testing services – Testing services consist of diagnostic tests and assessments performed by the Company using its Clarifi COVID-19 Saliva Test in its CLIA and CLEP laboratories and its ClearEdge technology. The Company recognizes revenue at the time the service is provided. Third-party payers being billed for certain COVID-19 tests are billed once the testing service is complete. Other customers at times prepay for testing services. ClearEdge customers prepay for testing services by purchasing credits to be redeemed for future testing services. The revenues are deferred in contract liabilities on the Consolidated Balance Sheet and recognized as testing services revenue at the time of performance. Clarifi ASD tests – In 2019, the Company launched Clarifi, a new clinically-validated saliva test aiding in the diagnosis of autism spectrum disorder. The Company recognizes revenue at the time the test results are delivered to the customer. Customers prepay for the test upon submitting the saliva sample. The payments are deferred in contract liabilities on the Consolidated Balance Sheet and recognized in net product sales at the time of performance. In 2021, Clarifi ASD tests were temporarily removed from the market due to the Company’s concentration in COVID-19 testing products and services.
F-18
Wastewater testing – In 2020, the Company began offering testing services to analyze wastewater across New York State for the COVID-19 virus. The Company recognizes revenue in net product sales at the time the test results are delivered to the customer. Customers are invoiced for these services upon delivery of test results and recorded in accounts receivable until payment is received.
Clarifi COVID-19 test kit sales – In 2020, the Company, along with SUNY Upstate, developed a saliva test to detect the COVID-19 virus. The Company recognizes revenue at the time the test kits are shipped to the customer. Customers pay for the test kits at the time of order. The payments are deferred in contract liabilities on the Consolidated Balance Sheet and recognized in net product sales at the time of performance. For test kits sold to camps, counties, and private businesses a portion of revenue is recognized when the swabs are shipped with the remaining revenue being recognized as test results are delivered.
Third-party COVID testing revenue – In 2021, the Company began performing certain COVID-19 laboratory testing services that in accordance with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) are billed to third party insurers. Under the CARES Act if an individual is uninsured Quadrant will bill and receive reimbursement as administered through Health Resources and Services Administration (HRSA). HRSA stopped accepting claims for testing on March 22, 2022. The third-party payers are billed at the Company's established list price and revenue is recorded net of contractual discounts. The Company’s sales are recorded based upon reimbursement amounts as required under the CARES Act and historical reimbursement experience. In addition to contractual discounts, other adjustments including anticipated payer denials are considered when determining revenue. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to the Company’s results of operations in the year ending December 31, 2022 and 2021.
Product assembly services – At times, the Company provides assembly services for Clarifi COVID-19 test kits for a separate fee. The Company recognizes revenue in product assembly revenue at the time the test kits are shipped to the customer. Customers are invoiced for these services upon shipment of test kits and recorded in accounts receivable until payment is received.
Behavioral Health Services – In 2022, through the acquisition of Frazier Behavioral Health LLC the Company began providing behavioral health services including therapies, consultation services and training in social behavior techniques and intervention strategies for children and adults with autism, ADD/ADHD, and other developmental conditions. The Company’s behavioral health service revenues are recorded based upon historical reimbursement experience. In addition to contractual discounts, other adjustments including anticipated payer denials are considered when determining revenue. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to the Company’s results of operations in the year ending December 31, 2022.
F-19
Diagnostic Services – The Company launched a virtual care clinic on August 1, 2022 under the branding “As You Are” to provide autism diagnostic services. The Company’s diagnostic service revenues are recorded based upon the established Medicaid fee schedule in the state that the visit occurred as well as historical reimbursement experience. In addition to contractual discounts, other adjustments including anticipated payer denials are considered when determining revenue. Any remaining adjustments to revenue are recorded at the time of final collection and settlement. These adjustments are not material to the Company’s results of operations in the year ending December 31, 2022.
Disaggregation of Revenues
The following table presents the Company’s sources of net revenues, disaggregated by major product and service lines, and timing of revenue recognition for the year ended December 31,
| Major products/service lines | 2022 | 2021 | ||||||
| Third-party COVID testing revenue | $ | 26,336,566 | $ | 11,001,414 | ||||
| Clarifi COVID-19 test kit sales | 6,112,886 | 43,436,304 | ||||||
| Lab testing revenue | 1,595,798 | 2,625,456 | ||||||
| Wastewater testing | 1,708,230 | 698,784 | ||||||
| Behavioral health services | 306,546 | - | ||||||
| Diagnostic services | 130,203 | - | ||||||
| Product assembly services | - | 2,608,994 | ||||||
| Other | - | 15,381 | ||||||
| $ | 36,190,229 | $ | 60,386,333 | |||||
All revenue is recognized at a point in time.
Contract Balances
The following table provides information about receivables and contract liabilities from contracts with customers as of December 31,
| 2022 | 2021 | |||||||
| Receivables, which are included in "Accounts receivable" | $ | 1,411,933 | $ | 13,651,979 | ||||
| Contract liabilities | 146,945 | 1,910,078 | ||||||
F-20
Full payment on test kits is due at the time of shipment, unless specified within the contract, full payment on wastewater tests is due at the time of delivery of test results, and full payment on product assembly services is due at the time of shipment of test kits. Receivables represent the Company’s unconditional rights to such consideration.
Contract liabilities represent advance consideration received from customers related to Clarifi COVID-19 test kit sales. Certain lab testing is typically included with the sale of COVID-19 test kits and the revenue allocated to the lab testing performance obligation is recognized by the Company when the testing is completed. Additionally, at times customers prepay for return shipping of the Clarifi COVID-19 tests and the Company recognizes the related revenue when shipping occurs.
Significant changes in the contract liabilities balances during the period are as follows:
| 2022 | 2021 | |||||||
| Revenue recognized that was included in the contract liability balance at the beginning of the period | $ | (1,910,078 | ) | $ | (7,642,227 | ) | ||
| Increases due to cash received, excluded amounts recognized as revenue during the period | 146,945 | 1,910,078 | ||||||
Allocation of Transaction Price to Remaining Performance Obligations
Estimated revenues expected to be recognized in the future relating to performance obligations that are unsatisfied (or partially satisfied) as of December 31, 2022 and 2021 are $146,945 and $1,910,078, respectively. Unsatisfied (or partially satisfied) performance obligations mainly consist of prepayments for Clarifi COVID-19 test kits. The Company recognized all the revenue from the remaining performance obligations as of December 31, 2021 in 2022, and expects to recognize all revenue from remaining performance obligations as of December 31, 2022 in 2023.
| C. | Lease Commitments: |
The Company has entered into several lease arrangements. Specifically, the Company has operating leases for lab space, warehouse space, and office space in Syracuse, NY, Buffalo, NY, Mayfield Heights, OH and San Antonio, TX during the periods. Two finance leases have been entered into for equipment in Syracuse, NY.
The Company has elected the practical expedient related to short term leases for office space rentals. One of the Company’s office space leases includes optional renewal periods. The Company considers the renewal reasonably certain of being exercised.
The provisions of the Company’s leases include both fixed rental payments and lease payments that increase at pre-determined dates. The Company has elected the practical expedient not to separate lease and non-lease components for all leases.
During the years ended December 31, 2022 and 2021, rent expenses were recognized associated with operating and finance leases as fixed rent expense of $425,350 and $147,797 respectively. Amounts recognized as right-of-use assets related to operating and finance leases are included in other assets, while related lease liabilities are shown as current liabilities and long-term liabilities. As of December 31, 2022 and 2021, right-of-use assets and lease liabilities relating to leases were as follows:
F-21
| 2022 | 2021 | |||||||
| Operating lease right-of-use assets | $ | 1,212,500 | $ | 560,667 | ||||
| Finance lease right-of-use assets | 500,988 | 315,283 | ||||||
| Operating and finance lease liabilities: | ||||||||
| Current portion of operating lease | 303,140 | 211,944 | ||||||
| Current portion of finance lease | 189,572 | 77,812 | ||||||
| Operating lease liability, net of current | 940,648 | 343,019 | ||||||
| Finance lease liability, net of current | 343,378 | 245,944 | ||||||
During the years ended December 31, 2022 and 2021, the Company had the following cash and non-cash activities associated with operating and finance leases:
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities- | ||||||||
| Operating cash flows: | ||||||||
| from operating leases | $ | 292,379 | $ | 141,811 | ||||
| from finance leases | 103,339 | 15,694 | ||||||
| Additions to right-of-use assets obtained from: | ||||||||
| New operating lease liabilities | 846,156 | 630,742 | ||||||
| New finance lease liabilities | 294,306 | 336,302 | ||||||
The future minimum annual payments due under operating and finance leases as of December 31, 2022 are as follows:
| Operating | Financing | |||||||
| 2023 | $ | 374,791 | $ | 204,227 | ||||
| 2024 | 357,226 | 204,227 | ||||||
| 2025 | 282,691 | 161,017 | ||||||
| 2026 | 204,303 | - | ||||||
| 2027 | 193,893 | - | ||||||
| Total future minimum lease payments | 1,412,904 | 569,471 | ||||||
| Less: Amount representing interest | 169,115 | 36,524 | ||||||
| Present value of future net minimum lease payments | 1,243,789 | 532,947 | ||||||
| Less: Current portion | 303,140 | 189,571 | ||||||
| Long-term obligations under finance leases | $ | 940,649 | $ | 343,376 | ||||
Amortization of finance lease right-of-use assets was $110,476 and $14,013 for the years ended December 31, 2022 and 2021, respectively.
As of December 31, 2022, and 2021, the weighted-average remaining lease term for all operating leases is 3.91 and 3.39 years, respectively.
F-22
When the Company does not have access to the rate implicit in the lease, the incremental borrowing rate is utilized as the discount rate. The weighted average discount rate associated with operating leases as of December 31, 2022 and 2021 is 5.67% and 4.14%, respectively.
| D. | Inventories: |
Inventories consisted of the following:
| 2022 | 2021 | |||||||
| Clarifi COVID-19 | ||||||||
| Testing supplies | $ | 224,837 | $ | 457,441 | ||||
| Project Silver Lining | ||||||||
| Biobank Samples | 1,291,649 | - | ||||||
| Wastewater | ||||||||
| Testing supplies | 38,268 | 14,687 | ||||||
| $ | 1,554,754 | $ | 472,128 | |||||
| E. | Software as Service: |
The Company capitalized software costs of $3,196,604 and $1,888,247 for the years ended December 31, 2022 and 2021, respectively.
The Company amortized $0 and $329,544 of capitalized costs for the years ended December 31, 2022 and 2021, respectively. The Company has software development costs of $9,084,093 for which amortization has not started as the software has not yet been placed in service for the year ended December 31, 2022. Amortization expense is included in cost of goods sold. Future amortization for assets placed in service will be $0 for 2023, and in subsequent years, until software is placed into service or back into service.
| F. | Stock Option Plan: |
Under the Company’s 2016 Equity Incentive Plan (the Plan), the Company, at the discretion of the board of directors, may issue stock awards for shares of the Company’s common stock. The board may, in its discretion, determine restrictions and conditions on the exercisability of the stock options and stock purchase rights. No option shall be exercisable after expiration of ten years from the date it was granted. Shares issued for exercised options are newly-issued from shares authorized. 34,000,000 common stock options have been authorized for the Plan.
The price of common stock covered by any option granted under the Plan shall be determined by the board at the time such option is granted, provided, however, that in the case of incentive stock options the option price shall not be less than the fair market value of the common stock on the date granted. No options have been granted for less than 100% of the fair market value of common shares at the date of option grant. Vesting periods for these awards generally range from under one year to three years. The fair value of the awards is determined and fixed on the grant date based on the Company’s most recent stock valuation report. The stock valuation report is a IRS Code Section 409A estimation of fair value report prepared by a qualified outside party. The traditional valuation techniques and methodologies used in determining the fair market value include market, income and cost valuation approaches. Changes in the assumptions made in the valuation may contribute to significant changes in the fair market value of the underlying stock during the period. This estimation of fair value is considered highly complex and subjective.
F-23
The Company’s calculation for the stock awards under its stock-based compensation arrangements was made using the Black-Scholes model with the following assumptions:
| 2022 | 2021 | |||||||
| Dividend yield | 0 | % | 0 | % | ||||
| Volatility | 60.00 | % | 60.00 | % | ||||
| Discount rate | 1.51 | % | 0.27 | % | ||||
| Expected life | 5.77 | 5.77 | ||||||
| Fair value of common stock per share | $ | 4.42 | $ | 3.00 | ||||
| Expected rate of forfeitures | 0.00 | % | 0.00 | % | ||||
Management’s policy is to account for forfeitures as they occur.
A summary of the status of the Company’s stock option plan as of December 31, 2022 and 2021 is presented below:
| Fixed Options | Shares | Weighted Average Exercise Price | ||||||
| January 1, 2021 | 29,089,600 | $ | 0.824 | |||||
| Granted | 1,665,000 | 3.000 | ||||||
| Forfeited | (3,329,883 | ) | 1.520 | |||||
| Exercised | (37,666 | ) | 0.056 | |||||
| December 31, 2021 | 27,387,051 | 0.873 | ||||||
| Granted | 3,092,629 | 4.420 | ||||||
| Forfeited | (1,172,149 | ) | 3.177 | |||||
| Exercised | (16,500 | ) | 0.003 | |||||
| December 31, 2022 | 29,291,031 | 1.155 | ||||||
| Exerciseable: | ||||||||
| December 31, 2022 | 24,733,696 | |||||||
The weighted-average grant-date fair value of options granted during the years ended December 31, 2022 and 2021, was $2.43 and $1.60.
F-24
A summary of the status of the Company’s nonvested shares as of December 31, 2022 and the changes during the year then ended is presented below:
| Nonvested shares | Shares | Weighted Average Grant- Date Fair Value | ||||||
| Nonvested at January 1, 2022 | 4,917,379 | $ | 1.26 | |||||
| Granted | 3,092,629 | 2.43 | ||||||
| Vested | (2,630,522 | ) | 1.05 | |||||
| Forfeited | (822,151 | ) | 1.96 | |||||
| Nonvested at December 31, 2022 | 4,557,335 | $ | 2.05 | |||||
Total compensation cost related to nonvested awards not yet recognized is $6,056,101 as of December 31, 2022. It is expected to be recognized over the weighted-average period of 1.11 years. Stock option compensation of $4,230,718 and $3,142,708 was recognized for the years ending December 31, 2022 and 2021, respectively.
| G. | Income Taxes: |
The components of the (expense)/benefit for income taxes in the accompanying Consolidated Statements of Income are as follows:
| 2022 | 2021 | |||||||
| Current: | ||||||||
| Federal | $ | (20,630 | ) | $ | (128,795 | ) | ||
| State | (37,229 | ) | (30,495 | ) | ||||
| (57,859 | ) | (159,290 | ) | |||||
| Deferred: | ||||||||
| Federal | 275,662 | (3,186,135 | ) | |||||
| State | (11,415 | ) | (1,050,298 | ) | ||||
| 264,247 | (4,236,433 | ) | ||||||
| Tax expense | $ | 206,388 | $ | (4,395,723 | ) | |||
The components of the expense for income taxes differs from the amount that would result from applying the federal statutory rate for the years ended December 31, 2022 and 2021 as follows:
| 2022 | 2021 | |||||||||||||||
| Amount | % | Amount | % | |||||||||||||
| Statutory tax rate | $ | (670,740 | ) | 25.3 | % | $ | 4,210,813 | 25.3 | % | |||||||
| Valuation allowance change | - | 0.0 | % | - | 0.0 | % | ||||||||||
| Permanent differences | 464,352 | -17.5 | % | 184,910 | 1.1 | % | ||||||||||
| $ | (206,388 | ) | 7.8 | % | $ | 4,395,723 | 26.4 | % | ||||||||
F-25
The temporary differences which give rise to deferred tax assets and (liabilities) at the Company as of December 31 are as follows:
| 2022 | 2021 | |||||||
| Accelerated depreciation | $ | (141,683 | ) | $ | (112,353 | ) | ||
| Other assets | (2,057,325 | ) | (2,241,065 | ) | ||||
| Charitable contribution carryovers | 8,761 | 91,556 | ||||||
| Stock option compensation | 1,280,880 | 895,468 | ||||||
| Research and development tax credit carryforward | 393,858 | 20,103 | ||||||
| NOL carryforward | 2,328,286 | 2,910,889 | ||||||
| Net deferred tax asset | $ | 1,812,777 | $ | 1,564,598 | ||||
There was no adjustment to the valuation allowance for the Company for the years ended December 31, 2022 and 2021, respectively.
The temporary differences which give rise to deferred tax assets and (liabilities) at the VIEs as of December 31 are as follows:
| 2022 | 2021 | |||||||
| NOL carryforward | $ | 48,522 | $ | - | ||||
| Valuation allowance | (48,522 | ) | - | |||||
| Net deferred tax asset | $ | - | $ | - | ||||
As required by FASB ASC 740 the Company has evaluated the positive and negative evidence bearing upon the realization of its net deferred tax assets. The Company has determined that, at this time, it is more likely than not that the Company will realize all of the benefits of federal and state net deferred tax assets, and, as a result, there is no established allowance valuation. The VIEs have determined that, at this time, it is more likely than not that the VIEs will not realize all of the benefits of federal and state net deferred taxes, and, as a result, there is a full valuation allowance recorded. The research and development tax credit carryforwards and NOL carryforwards generated through December 31, 2022 for the Company, of approximately $390,000 and $8,560,000, respectively, expire at various time through 2038. Pursuant to the Tax Cuts and Jobs Act, any of the Company’s newly generated Federal NOL carryforwards can be carried forward indefinitely, while being limited to 80% of taxable income (determined without regard to the deduction). The Company had a change of control during 2015, which limits the amount of Federal NOL that can be used per year going forward from the NOLs created prior to the change in control. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2019 through December 31, 2022. The Company has no uncertain tax positions. As of December 31, 2022, and 2021 there is no accrual for interest or penalties related to uncertain tax positions.
F-26
| H. | Pension Plan: |
The Company partners with a professional employer organization to offer a defined contribution retirement plan. All employees are eligible to participate and receive a 3% non-elective company contribution beginning after 90 days of employment on the first day of the subsequent quarter. Company contributions totaled $325,567 and $120,377 for the years ended December 31, 2022 and 2021, respectively.
| I. | Line of Credit: |
The Company has a line of credit with a borrowing capacity of $1,000,000 at an interest rate of greater of 5.375% or Bank Prime plus 1.125%. The interest rate was 8.375% and 5.375% at December 31, 2022 and 2021, respectively. The line of credit did not have a balance outstanding at December 31, 2022 and 2021.
This line of credit was secured by all the business assets of the Company and certain of the personal assets of Richard Uhlig, the Company’s Chairman and CEO. As compensation, Richard Uhlig received 6,480,683 stock options in 2018 with a value of $1,555,364 based on the Black-Scholes model calculation. The personal Guarantee of the CEO was released on November 17, 2022.
| J. | Long-Term Debt: |
Long-term debt including accrued interest consists of the following as of December 31:
| 2022 | 2021 | |||||||
| Loan from VEP Biotech Ltd, with a maturity date of October 2023, an interest rate of 5%, and no required payment of principal or interest until maturity. | $ | 6,132,628 | $ | 5,837,124 | ||||
| Convertible debt, with a maturity of August 2025, an interest rate of 6% and no required payment of principal or interest until maturity or conversion. | 462,235 | 437,237 | ||||||
| SBA Economic Injury Disaster loan, with a maturity date of May 2050, an interest rate of 3.75%, and monthly payments of $731 beginning in December 2022 | 162,947 | 159,046 | ||||||
| 6,757,810 | 6,433,407 | |||||||
| Less: current portion | 6,141,400 | 5,848 | ||||||
| $ | 616,410 | $ | 6,427,559 | |||||
Future minimum annual debt payments subsequent to 2022 are as follows:
| 2023 | $ | 6,141,400 | ||
| 2024 | 3,147 | |||
| 2025 | 465,122 | |||
| 2026 | 3,231 | |||
| 2027 and after | 144,910 | |||
| $ | 6,757,810 |
F-27
Accrued interest included in the outstanding loan balance due to VEP Biotech, Ltd. was $1,132,628 and $837,124 for the periods ending December 31, 2022 and 2021, respectively.
Accrued interest included in the outstanding loan balance due convertible debt holders was $45,607 and $20,609 for the periods ending December 31, 2022 and 2021, respectively.
Convertible debt is convertible to common stock upon qualified financing, maturity or change in control the conversion is based upon the most recent price per share multiplied by 0.8.
Accrued interest included in the outstanding loan balance due to the SBA was $12,948 and $9,046 for the periods ending December 31, 2022 and 2021, respectively.
| K. | Concentration of Credit Risk: |
The Company may, at times, have cash on deposit in financial institutions in excess of FDIC or NCUA insured amounts.
| L. | Legal Matters: |
None.
| M. | Coronavirus (COVID-19): |
Throughout 2021, 2022 and into 2023 there continues to be uncertainty related to COVID-19 for the Company, particularly as it relates to the Company’s Clarifi COVID-19 business line. Globally, the continued uncertainty is caused by new COVID-19 variants, public health policy and regulations, and supply chain constraints.
| N. | Subsequent Events: |
The Company has evaluated subsequent events through April 3, 2023, the date which the financial statements were available for issue, and no events required disclosure.
F-28
Item 8. Exhibits
The documents listed in the Exhibit Index of this report are incorporated by reference or are filed with this report, in each case as indicated below.
| 29 |
SIGNATURE
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Syracuse, New York, on April 28, 2023.
| QUADRANT BIOSCIENCES INC. | ||
| By | /s/ Richard Uhlig | |
| Name: | Richard Uhlig | |
| Title: | Chief Executive Officer | |
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| /s/ Richard Uhlig | Date: April 28, 2023 | |
| Richard Uhlig | ||
| Chief Executive Officer, Chairman |
| /s/ Richard Bongo | Date: April 28, 2023 | |
| Richard Bongo | ||
| Chief Financial Officer, Principal Accounting Officer, Director |
| /s/ James Croke | Date: April 28, 2023 | |
| James Croke | ||
| General Counsel, Director |
| /s/ Peter Cohen | Date: April 28, 2023 | |
| Peter Cohen | ||
| Director |
| /s/ Ira Fedder | Date: April 28, 2023 | |
| Ira Fedder MD | ||
| Director |
| /s/ Andrew Rock | Date: April 28, 2023 | |
| Andrew Rock | ||
| Director |
| /s/ Mary Ann Tyszko | Date: April 28, 2023 | |
| Mary Ann Tyszko | ||
| Director |
| 30 |