What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-01-12 compared with 2021-10-14 · 92 added, 41 removed, 51 unchanged (72% of the section changed)

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This trial monitors IBS patients over an 8-week period to determine the efficacy of our InFoods® IBS product to improve the patients’ IBS symptoms.

We expect our final enrolled patients to complete the trial, and for top-line trial results to be reported at or around the end of December 2021 .

During the next six months, we also expect to be entertaining partnership/licensing discussions with pharmaceutical and technology companies that could help us commercialize the product, including obtaining final FDA clearance.

We have completed the trial, and we expect top-line trial results to be reported at or around the end of January 2022 .

Our medical diagnostic products are sold worldwide primarily in two markets:

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The diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations.

Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began redirecting and focusing much of our resources to develop, test, validate, seek regulatory approval for COVID-19 tests.

During fiscal 2021, we sold 2 primary types of COVID-19 tests:

1) antibody diagnostic tests that use a patient’s blood sample to detect if the patient has certain antibodies to COVID-19 that were created as part of their body’s immune response to a COVID-19 infection, even if the infection was asymptomatic, and 2) antigen tests that use a patient’s nasal fluid sample to detect if a patient is currently infected with the virus.

During the fiscal year, we sold these products outside of the U.S.

under a CE Mark (European Conformity).

Because individual orders for these tests have been large in size, this has created volatility and material fluctuations in our monthly and quarterly revenues.

Although sales in these products have slowed, we continue to receive and fill orders for our COVID-19 test products.

During our fiscal first quarter of 2022, we recorded approximately $226,000 in sales of our COVID-19 antigen test.

Aside from the COVID-19 products we offer, the other products we sell are primarily focused on gastrointestinal diseases, food intolerances, cancer screening and awareness and certain esoteric tests.

Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19.

While the Company does offer a COVID-19 antibody diagnostic test, all of our COVID-19 revenues in fiscal 2022 have come from international sales of our antigen tests that use a patient’s nasal fluid sample to detect if the patient is currently infected with the virus.

These COVID-19 antigen tests have accounted for approximately 60% of our revenues during the first six months of fiscal 2022.

The other products we sell are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests.

These diagnostic test products utilize immunoassay technology.

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Pylori product, and our InFoods® IBS product.

We also recently added several new employees in its sales and marketing department in order to increase sales of existing non-COVID products during fiscal 2022.

Through these efforts, our EZ Detect colon disease home screening test is seeing a significant increased interest from retailers such as Walmart, distributors, and ministries of health in many countries.

We also recently added several new employees in our sales and marketing department in order to increase sales of existing products during fiscal 2022.

Through these efforts, our EZ Detect colon disease home screening test is seeing a significant increased interest from retailers such as Walmart, distributors, and screening programs in other countries.

RESULTS OF OPERATIONS

As disclosed in Note 8 to the unaudited condensed consolidated financial statements in Item 1, during the process of preparing our financial statements for the quarter ended August 31, 2021, we determined that our calculation of non-cash stock-based compensation expense related to issued stock options in previously issued financial statements was incorrect.

As disclosed in Note 8 of Item 1 to these unaudited condensed consolidated financial statements, during the fiscal quarter ended November 30, 2021, we determined that our calculation of non-cash stock-based compensation expense related to issued stock options in previously issued financial statements was incorrect.

Our calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation expense.

Additionally, our calculation expensed the option at vesting dates versus pro rata over the period the requisite service was provided.

These errors resulted in an understatement of stock compensation expense during the three months ended August 31, 2020, and periods prior to May 31, 2020, resulting in a cumulative adjustment to equity accounts.

As a result, our previously issued financial statements for the three months ended August 31, 2020 have been restated.

These errors resulted in an understatement of stock compensation expense during the six months ended November 30, 2020, and periods prior to May 31, 2020, resulting in a cumulative adjustment to equity accounts.

As a result, our previously issued financial statements for the six months ended November 30, 2020 have been restated.

Three months ended November 30, 2021

Net Sales and Cost of Sales

Consolidated net sales were $1,261,787 for the three months ended August 31, 2021, as compared to $1,143,806 for the three months ended August 31, 2020.

This represents an increase of $117,981 or 10%.

The increase for the three months ended August 31, 2021, as compared to the three months ended August 31, 2020, was primarily due to the sale of our food intolerance products to a distributor in Asia.

Consolidated cost of sales was $1,350,757, or 107% of net sales, for the three months ended August 31, 2021, as compared to $1,025,717, or 90% of net sales, for the three months ended August 31, 2020.

This represents an increase of $325,040 or 32%.

Our cost of sales for the three months ended August 31, 2021, were impacted by an adjustment to market or net realizable value for COVID-19 antigen tests of approximately $179,000.

The following is a breakdown of revenues according to markets to which the products are sold:

Three Months Ended

Increase (Decrease)

Physician's office

Over-the-counter

Contract manufacturing

Consolidated net sales were approximately $4,647,000 for the three months ended November 30, 2021, as compared to $1,373,000 for the three months ended November 30, 2020.

This represents an increase of approximately $3,274,000 or 238%.

The increase for the three months ended November 30, 2021, as compared to the three months ended November 30, 2020, was primarily due to the sale of our COVID-19 product to distributors in Asia and Europe.

Consolidated cost of sales was approximately $3,875,000 or 83% of net sales, for the three months ended November 30, 2021, as compared to $1,064,000 or 78% of net sales, for the three months ended November 30, 2020.

This represents an increase of approximately $2,811,000 or 264%.

Operating Expenses

The following is a summary of operating expenses:

Three Months Ended

Increase (Decrease)

Operating Expense

Total Revenues

Operating Expense

Total Revenues

Selling, General and

Administrative Expenses

Research and Development

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were $1,011,535 for the three months ended August 31, 2021, as compared to $1,305,944 for the three months ended August 31, 2020.

This represents a decrease of $294,409 or 23%.

The decrease in the three months ended August 31, 2021, was primarily due to a reduction of legal expenses.

Consolidated selling, general and administrative expenses were approximately $1,283,000 for the three months ended November 30, 2021, as compared to $1,405,000 for the three months ended November 30, 2020.

This represents a decrease of approximately $122,000 or 9%.

The decrease in the three months ended November 30, 2021, was primarily due to a reduction of legal expense and bad debt expense.

Research and Development

Consolidated research and development expenses were $439,864 for the three months ended August 31, 2021, as compared to $711,505 for the three months ended August 31, 2020.

Consolidated research and development expenses were approximately $619,000 for the three months ended November 30, 2021, as compared to $617,000 for the three months ended November 30, 2020.

This represents an increase of approximately $2,000 or 0%.

Interest Income

Interest and dividend income were $6,916 for the three months ended November 30, 2021, as compared to $7,983 for the three months ended November 30, 2020.

This represents a decrease of $1,067 or 13%.

The decrease in the three months ended August 31, 2021, was primarily a result of decreases in costs related to the research, development, and validation of COVID-19 tests.

Interest Expense

Interest and dividend income were $6,805 for the three months ended August 31, 2021, as compared to $8,091 for the three months ended August 31, 2020.

Six months ended November 30, 2021

Net Sales and Cost of Sales

The following is a breakdown of revenues according to markets to which the products are sold:

Six Months Ended

Increase (Decrease)

Physician's office

Over-the-counter

Contract manufacturing

Consolidated net sales were approximately $5,909,000 for the six months ended November 30, 2021, as compared to $2,516,000 for the six months ended November 30, 2020.

This represents an increase of approximately $3,393,000 or 135%.

The increase for the six months ended November 30, 2021, as compared to the six months ended November 30, 2020, was primarily due to the sale of our COVID-19 product to distributors in Asia and Europe.

Consolidated cost of sales was approximately $5,226,000 or 88% of net sales, for the six months ended November 30, 2021, as compared to $2,090,000 or 83% of net sales, for the six months ended November 30, 2020.

This represents an increase of approximately $3,136,000 or 150%.

Operating Expenses

The following is a summary of operating expenses:

Six Months Ended

Increase (Decrease)

Operating Expense

Total Revenues

Operating Expense

Total Revenues

Selling, General and

Administrative Expenses

Research and Development

Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were approximately $2,295,000 for the six months ended November 30, 2021, as compared to $2,711,000 for the six months ended November 30, 2020.

This represents a decrease of approximately $416,000 or 15%.

The decrease in the six months ended November 30, 2021, was primarily due to a reduction of legal expense and bad debt expense.

Research and Development

Consolidated research and development expenses were approximately $1,058,000 for the six months ended November 30, 2021, as compared to $1,328,000 for the six months ended November 30, 2020.

This represents a decrease of approximately $270,000 or 20%.

The decrease in the six months ended November 30, 2021, was primarily a result of decreases in costs related to the research, development, and validation of COVID-19 tests.

Interest Income

Interest and dividend income were $13,721 for the six months ended November 30, 2021, as compared to $16,074 for the six months ended November 30, 2020.

This represents a decrease of $2,353 or 15%.

LIQUIDITY AND CAPITAL RESOURCES

As of August 31, 2021 and May 31, 2021, we had cash and cash equivalents in the amount of approximately $4,997,000 and $4,199,000, respectively, and working capital of approximately $7,464,000 and $7,931,000, respectively.

As a result of cash and cash equivalents on hand at August 31, 2021, and our ability to raise additional funds through our ATM Agreement, management believes we have sufficient funds to operate through the next twelve months or more.

The following are the principal sources of liquidity:

Cash and cash equivalents

Working capital including cash and cash equivalents

As of November 30, 2021 and May 31, 2021, we had cash and cash equivalents of approximately $7,199,000 and $4,199,000, respectively, and working capital of approximately $7,662,000 and $7,931,000, respectively.

As a result of cash and cash equivalents on hand at November 30, 2021, and our ability to raise additional funds through our ATM Agreement, management believes we have sufficient funds to operate through the next twelve months or more.

Operating Activities

Cash provided by operating activities of $75,836 during the three months ended August 31, 2021, reflects a net loss of $1,542,581 and non-cash adjustments of $502,094 primarily associated with depreciation, amortization, stock-based compensation, and inventory reserves.

In addition, we realized an increase in net working capital of $1,116,322 primarily driven by a decrease in accounts receivable and inventory.

For the three months ended August 31, 2020, cash used by operating activities of $1,597,146 reflects a net loss of $1,892,394 and non-cash adjustments of $542,994 primarily associated with depreciation, amortization, stock-based compensation, and inventory reserves.

This was partially offset by a decline in net working capital of $247,746 driven by increases in inventory, which was partially offset by a decrease in prepaid expenses.

Cash provided by operating activities of approximately $1,419,000 during the six months ended November 30, 2021, reflects a net loss of approximately $2,668,000 and non-cash adjustments of $201,000 primarily associated with depreciation, amortization, stock-based compensation, adjustments to allowance for doubtful accounts, and inventory reserves.

In addition, we realized an increase in net working capital of approximately $3,886,000 primarily driven by an increase in advance from customers, and decrease in accounts receivable.

For the six months ended November 30, 2020, cash used by operating activities of approximately $2,880,000 reflects a net loss of $3,610,000 and non-cash adjustments of $1,102,000 primarily associated with depreciation, amortization, stock-based compensation, and inventory reserves.

The non-cash adjustments were partially offset by a decline in net working capital of approximately $371,000 driven by an increase in inventory, which was partially offset by a decrease in prepaid expenses.

Investing Activities

Cash used in investing activities for the three months ended August 31, 2021, was $5,141 for purchases of property and equipment and $72,375 for increased intangibles.

Cash used in investing activities for the three months ended August 31, 2020, was $39,588 for purchases of property and equipment and $53,158 for increased intangibles.

Cash used in investing activities for the six months ended November 30, 2021, was approximately $18,000 for purchases of property and equipment and $109,000 for increased intangibles.

Cash used in investing activities for the six months ended November 30, 2020, was approximately $62,000 for purchases of property and equipment and $62,000 for increased intangibles.

Financing Activities

Cash provided by financing activities for the three months ended August 31, 2021, was $804,605 which was a result of stock option exercises of $3,895 and net proceeds from the sale of common stock of $800,710.

Cash provided by financing activities for the three months ended August 31, 2020, was $14,900 which was a result of stock option exercises of $14,900.

Cash provided by financing activities for the six months ended November 30, 2021, was approximately $1,719,000 which was a result of stock option exercises of $35,000 and net proceeds from the sale of common stock of $1,684,000.

Cash provided by financing activities for the six months ended November 30, 2020, was approximately $49,000 which was a result of stock option exercises of $49,000.

OFF BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements as of August 31, 2021.

There were no off-balance sheet arrangements as of November 30, 2021.

CRITICAL ACCOUNTING POLICIES

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We suggest that our significant accounting policies be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

See Note 2 to the Financial Statements for information on Significant Accounting Policies.

See Note 2 to these Financial Statements for information on Significant Accounting Policies.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis