What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-04-14 compared with 2022-01-12 · 56 added, 47 removed, 96 unchanged (52% of the section changed)

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If these DGT products prove effective in their clinical trials, and are ultimately cleared for sale by the U.S.

Food and Drug Administration, we believe the revenues potential to the Company is significant.

We are currently finalizing an endpoint determination clinical trial on our InFoods ® IBS product.

This trial is and has been conducted at Mayo Clinics in Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School Teaching Hospital, University of Texas Health Science Center at Houston, Houston Methodist, the University of Michigan and other institutions .

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

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 assisting with obtaining final FDA clearance.

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

Food and Drug Administration, we believe the revenue potential to the Company is significant.

We recently completed an endpoint determination clinical trial on our InFoods® IBS product.

This trial was conducted at Mayo Clinics in Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School Teaching Hospital, University of Texas Health Science Center at Houston, Houston Methodist, the University of Michigan and other institutions.

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

The top-line trial results were reported in February 2022.

Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in all patient subtypes (including patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed).

The greatest clinical improvements, including but not limited to abdominal pain and bloating, were seen in patients diagnosed with IBS-Mixed and IBS-Constipation, in the top line data.

The purpose of the endpoint study was to determine the symptom endpoint, or endpoints to be used in a final pivotal trial that will be conducted to attain the validation data needed to apply for FDA clearance for the product.

We are now in the process of reviewing the complete data-set and selecting the target endpoint(s) to be used in the pivotal trial.

We are also writing the protocols for this trial and expect to present these protocols to the FDA over the next several months, with the intention of beginning the trial in calendar year 2022.

The trial is expected to include the large medical institution participants that conducted the endpoint trial, in addition to other new institutions and a Clinical Research Organization.

We are also beginning the work of selecting and validating at least one new disease (such as ulcerative colitis or migraines), where there is evidence that certain foods can trigger or contribute to the symptoms found in these indications.

We expect any new disease we target will follow a similar development pathway as InFoods IBS in seeking FDA clearance of the diagnostic guided therapy.

We will also continue to evaluate partnership/licensing opportunities, as they arise, with U.S and multinational companies that could help us commercialize the InFoods products in the U.S and overseas.

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

1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter drugstores like Walmart and Walgreens).

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 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.

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, or is currently infected.

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 COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if the patient is currently infected with the virus.

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

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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 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

These errors resulted in an understatement of stock compensation expense during the nine months ended February 28, 2021, 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 nine months ended February 28, 2021 have been restated.

Three months ended February 28, 2022

Net Sales and Cost of Sales

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Three Months Ended

February 28,,

Increase (Decrease)

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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.

Consolidated net sales were approximately $7,660,000 for the three months ended February 28, 2022, as compared to $3,629,000 for the three months ended February 28, 2021.

This represents an increase of approximately $4,031,000 or 111%.

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.

The increase for the three months ended February 28, 2022, as compared to the three months ended February 28, 2021, was primarily due to the sale of our COVID-19 product to distributors in Asia and Europe.

Consolidated cost of sales was approximately $5,987,000 or 78% of net sales, for the three months ended February 28, 2022, as compared to $3,702,000 or 102% of net sales, for the three months ended February 28, 2021.

This represents an increase of approximately $2,285,000 or 62%.

Operating Expenses

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Selling, General and Administrative 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.

Consolidated selling, general and administrative expenses were approximately $1,324,000 for the three months ended February 28, 2022, as compared to $1,528,000 for the three months ended February 28, 2021.

This represents a decrease of approximately $204,000 or 13%.

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

The decrease in the three months ended February 28, 2022, was primarily due to a reduction of bad debt expense, partially offset by increases in compensation and outside services expense.

Research and Development

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.

Consolidated research and development expenses were approximately $457,000 for the three months ended February 28, 2022, as compared to $564,000 for the three months ended February 28, 2021.

This represents a decrease of approximately $107,000 or 19%.

The decrease in the three months ended February 28, 2022, was primarily a result of decreases in costs related to the research, development, and validation of COVID-19 tests.

Interest and Dividend Income

Interest and dividend income were approximately $6,000 for the three months ended February 28, 2022, as compared to $38,000 for the three months ended February 28, 2021.

This represents a decrease of $32,000 or 84%.

Six months ended November 30, 2021

Nine months ended February 28, 2022

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

Nine Months Ended

Increase (Decrease)

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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.

Consolidated net sales were approximately $13,569,000 for the nine months ended February 28, 2022, as compared to $6,145,000 for the nine months ended February 28, 2021.

This represents an increase of approximately $7,424,000 or 121%.

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.

The increase for the nine months ended February 28, 2022, as compared to the nine months ended February 28, 2021, was primarily due to the sale of our COVID-19 product to distributors in Asia and Europe.

Consolidated cost of sales was approximately $11,213,000 or 83% of net sales, for the nine months ended February 28, 2022, as compared to $5,792,000 or 94% of net sales, for the nine months ended February 28, 2021.

This represents an increase of approximately $5,421,000 or 94%.

Operating Expenses

The following is a summary of operating expenses:

Six Months Ended

Nine Months Ended

Increase (Decrease)

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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.

Consolidated selling, general and administrative expenses were approximately $3,618,000 for the nine months ended February 28, 2022, as compared to $4,239,000 for the nine months ended February 28, 2021.

This represents a decrease of approximately $621,000 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.

The decrease in the nine months ended February 28, 2022, was primarily due to a reduction of bad debt expense, partially offset by increases in compensation and outside services 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.

Consolidated research and development expenses were approximately $1,515,000 for the nine months ended February 28, 2022, as compared to $1,892,000 for the nine months ended February 28, 2021.

This represents a decrease of approximately $377,000 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.

The decrease in the nine months ended February 28, 2022, was primarily a result of decreases in costs related to the research, development, and validation of COVID-19 tests.

Interest and Dividend Income

Interest and dividend income were approximately $20,000 for the nine months ended February 28, 2022, as compared to $54,000 for the nine months ended February 28, 2021.

This represents a decrease of $34,000 or 63%.

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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.

As of February 28, 2022 and May 31, 2021, we had cash and cash equivalents of approximately $10,174,000 and $4,199,000, respectively, and working capital of approximately $8,533,000 and $7,931,000, respectively.

As a result of cash and cash equivalents on hand at February 28, 2022, 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 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.

Cash provided by operating activities of approximately $3,777,000 during the nine months ended February 28, 2022, reflects a net loss of approximately $2,772,000 and non-cash adjustments of $705,000 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 $5,844,000 primarily driven by an increase in advances from customers and accounts payable.

For the nine months ended February 28, 2021, cash used by operating activities of approximately $4,244,000 reflects a net loss of $5,735,000 and non-cash adjustments of $3,307,000 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 $1,816,000 primarily driven by an increase in inventory.

Investing Activities

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.

Cash used in investing activities for the nine months ended February 28, 2022, was approximately $33,000 for purchases of property and equipment and $113,000 for increased intangibles.

Cash used in investing activities for the nine months ended February 28, 2021, was approximately $107,000 for purchases of property and equipment and $117,000 for increased intangibles.

Financing Activities

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.

Cash provided by financing activities for the nine months ended February 28, 2022, was approximately $2,356,000 which was a result of stock option exercises of $39,000 and net proceeds from the sale of common stock of $2,317,000.

Cash provided by financing activities for the nine months ended February 28, 2021, was approximately $1,108,000 which was a result of stock option exercises of $96,000 and proceeds from the sale of comment stock of $1,011,000.

OFF BALANCE SHEET ARRANGEMENTS

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

There were no off-balance sheet arrangements as of February 28, 2022.

CRITICAL ACCOUNTING POLICIES

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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