What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-01-13 compared with 2022-10-13 · 76 added, 40 removed, 89 unchanged (57% of the section changed)

7 unchanged sentences

The Company's products are designed to enhance the health and well-being of people, while reducing total healthcare costs.

Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our InFoods ® Technology platform that treat gastrointestinal diseases, such as irritable bowel syndrome, and other inflammatory diseases.

Our primary focus is the research, development, commercialization, and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our InFoods ® Technology platform that are designed to treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases.

These InFoods ® based products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets.

The first product we are launching using this patented InFoods Technology is our InFoods® IBS product which uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation.

The first product we are launching using the patented InFoods Technology is our InFoods® IBS product which uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation.

Instead of broad and difficult to manage dietary restrictions, the InFoods® IBS product works by identifying a patient’s above normal immunoreactivity to specific foods.

A food identified as positive and causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms.

We are currently in discussions with key gastroenterology (GI) physician groups who are interested in offering this product to their patients.

As such, we are expecting to begin generating revenues from the launch of our InFoods ® IBS product during our fiscal third quarter.

A food identified as causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms.

We are currently working with key gastroenterology (GI) physician groups who are interested in offering this product to their patients.

As such, we are expecting to begin generating revenues from the launch of our InFoods ® IBS product during our fiscal third quarter ending February 28, 2023.

Due to the proprietary (patented) nature of this product and the size of the market, we believe our InFoods IBS product has the potential to become a significant revenue opportunity.

During fiscal 2022, we completed an endpoint determination clinical trial on our InFoods® IBS product.

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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 validate efficacy, and determine the primary 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 U.S.

The purpose of the endpoint study was to determine the efficacy of the product.

A secondary purpose was to determine the primary symptom endpoint, or endpoints that could be used in a final pivotal trial that will be conducted to attain the validation data needed to apply for U.S.

Food and Drug Administration (“FDA”) clearance for the product.

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

We are also preparing the protocols for this trial and expect to present these protocols to the FDA during fiscal 2023, with the intention of beginning the trial by June 30, 2023.

We are also preparing the protocols for this trial.

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.

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We have been in communications with the FDA answering certain follow-up questions and providing additional data as requested.

We are currently awaiting FDA clearance of the product.

We are currently collecting and providing additional data as requested from the FDA.

Once cleared, we will begin marketing the product in the U.S.

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While we initially offered a COVID-19 antibody diagnostic test to determine if a person has previously been infected by the COVID-19 virus, all our COVID-19 revenues in fiscal 2022 and 2023 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.

Due to falling demand, less than 12% of our revenues during the three months ended August 31, 2022 were from sales of our COVID-19 related products.

While limited sales continue to occur in our COVID-19 products, virtually all our research and development efforts are focused on development and commercialization of non-COVID-19 related products such as our H.

Due to falling demand, approximately 13% of our revenues during the six months ended November 30, 2022 were from sales of our COVID-19 related products.

While limited sales continue to occur in our COVID-19 products, virtually all of our research and development efforts are focused on development and commercialization of non-COVID-19 related products such as our H.

Pylori product, and our InFoods® IBS product.

Our non-COVID-19 products that accounted for over 88% of our revenues during the three months ended August 31, 2022, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests.

Our non-COVID-19 products that accounted for approximately 87% of our revenues during the six months ended November 30, 2022, are primarily focused on gastrointestinal diseases , food intolerances, and certain esoteric tests.

These diagnostic test products utilize immunoassay technology.

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RESULTS OF OPERATIONS

Three months ended August 31, 2022

Three months ended November 30, 2022

Net Sales and Cost of Sales

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

Three Months Ended August 31,

Three Months Ended November 30,

Increase (Decrease)

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Contract manufacturing

Consolidated net sales were approximately $1,637,000 for the three months ended August 31, 2022, as compared to $1,262,000 for the three months ended August 31, 2021, an increase of approximately $375,000, or 30%.

This increase for the three months ended August 31, 2022, was driven primarily by demand for our clinical lab products in Asia and OTC products in the United States.

Consolidated net sales were approximately $1,482,000 for the three months ended November 30, 2022, as compared to $4,647,000 for the three months ended November 30, 2021 , a decrease of approximately $3,165,000, or 68%.

This decrease for the three months ended November 30, 2022, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia.

Excluding COVID-19 product sales, consolidated net sales were approximately $1,423,000 for the three months ended November 30, 2022, as compared to $1,316,000 for the three months ended November 30, 2021 , an increase of approximately $107,000, or 8%.

Periodic and infrequent orders may cause volatility in quarterly sales.

Consolidated cost of sales were approximately $1,692,000, or 103% of net sales, for the three months ended August 31, 2022, as compared to $1,351,000, or 107% of net sales, for the three months ended August 31, 2021, an increase of approximately $342,000, or 25%.

The increase for the three months ended August 31, 2022, was driven primarily by an increase in volume of our food intolerance product and product cost inflation.

Consolidated cost of sales were approximately $1,130,000, or 76% of net sales, for th e three months ended November 30, 2022, as compared to $3,875,000, or 83% of net sales, for the three months ended November 30, 2021, a decrease of approximately $2,745,000, or 71%.

The decrease for the three months ended November 30, 2022, was driven primarily by a decrease in volume of our COVID-19 product.

Operating Expenses

The following is a summary of operating expenses:

Three Months Ended August 31,

Three Months Ended November 30,

Increase (Decrease)

Operating Expense

As a % of Total Revenues

Total Revenues

Operating Expense

As a % of Total Revenues

Total Revenues

Selling, General and Administrative Expenses

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Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were approximately $1,654,000 for the three months ended August 31, 2022, as compared to $1,070,000 for the three months ended August 31, 2021, an increase of approximately $584,000, or 55%.

The increase in the three months ended August 31, 2022, was primarily due to approximate increases in bad debt expense of $300,000, compensation of $73,000, and legal expense of $65,000.

Consolidated selling, general and administrative expenses were approximately $1,556,000 for the three months ended November 30, 2022, as compared to $1,354,000 for the three months ended November 30, 2021, an increase of approximately $202,000, or 15%.

The increase in the three months ended November 30, 2022, was primarily due to approximate increases in bad debt expense of $130,000 related to a customer in Vietnam and legal expense of $40,000 related to patent activity.

Research and Development

Consolidated research and development expenses were approximately $361,000 for the three months ended August 31, 2022, as compared to $381,000 for the three months ended August 31, 2021, a decrease of approximately $20,000, or 5%.

The decrease in the three months ended August 31, 2022, was primarily due to a reduction in COVID-19 research.

Consolidated research and development expenses were approximately $462,000 for the three months ended November 30, 2022, as compared to $548,000 for the three months ended November 30, 2021, a decrease of approximately $86,000, or 16%.

The decrease in the three months ended November 30, 2022, was primarily due to a reduction in COVID-19 research.

Interest and Dividend Income

Interest and dividend income were approximately $0 for the three months ended August 31, 2022, as compared to $7,000 for the three months ended August 31, 2021, a decrease of $7,000, or 100%.

The $7,000 decrease was due to lower dividend payment from our investment.

Interest and dividend income were approximately $41,000 for the three months ended November 30, 2022, as compared to $7,000 for the three months ended November 30, 2021, an increase of $34,000, or 497%.

The increase was primarily driven by interest income on our cash and cash equivalents that resulted from higher current period interest rates.

Six months ended November 30, 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 November 30,

Increase (Decrease)

Over-the-counter

Physician's office

Contract manufacturing

Consolidated net sales were approximately $3,119,000 for the six months ended November 30, 2022, as compared to $5,909,000 for the six months ended November 30, 2021, a decrease of approximately $2,790,000, or 47%.

This decrease for the six months ended November 30, 2022, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia, which was partially offset by an increase in demand for our food intolerance product in Asia.

Excluding COVID-19 product sales, consolidated net sales were approximately $2,709,000 for the six months ended November 30, 2022, as compared to $2,350,000 for the six months ended November 30, 2021 , an increase of approximately $359,000, or 15%.

Periodic and infrequent orders may cause volatility in quarterly sales.

Consolidated cost of sales were approximately $2,822,000, or 90% of net sales, for the six months ended November 30, 2022, as compared to $5,226,000, or 88% of net sales, for the six months ended November 30, 2021, a decrease of approximately $2,404,000, or 46%.

The decrease for the six months ended November 30, 2022, was driven primarily by a decrease in volume of our COVID-19 product.

Operating Expenses

The following is a summary of operating expenses:

Six Months Ended November 30,

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 $3,210,000 for the six months ended November 30, 2022, as compared to $2,423,000 for the six months ended November 30, 2021, an increase of approximately $787,000, or 32%.

The increase in the six months ended November 30, 2022, was primarily due to approximate increases in bad debt expense of $428,000 related to Vietnam customer, legal expense of $105,000 related to patent activity, and consulting services of $136,000 related to our online presence at Amazon and Walmart.

Research and Development

Consolidated research and development expenses were approximately $823,000 for the six months ended November 30, 2022, as compared to $929,000 for the six months ended November 30, 2021, a decrease of approximately $106,000, or 11%.

The decrease in the six months ended November 30, 2022, was primarily due to a reduction in COVID-19 research.

Interest and Dividend Income

Interest and dividend income were approximately $41,000 for the six months ended November 30, 2022, as compared to $14,000 for the six months ended November 30, 2021, an increase of $27,000, or 201%.

The increase was primarily driven by interest income on our cash and cash equivalents that resulted from higher current period interest rates.

LIQUIDITY AND CAPITAL RESOURCES

The following are the principal sources of liquidity:

August 31, 2022

November 30, 2022

Cash and cash equivalents

Working capital including cash and cash equivalents

As of August 31, 2022 and May 31, 2022, the Company had cash and cash equivalents of approximately $6,075,000 and $5,917,000, respectively.

As of August 31, 2022 and May 31, 2022, the Company had working capital of approximately $7,410,000 and $7,416,000, respectively.

As of November 30, 2022 and May 31, 2022, the Company had cash and cash equivalents of approximately $5,067,000 and $5,917,000, respectively.

As of November 30, 2022 and May 31, 2022, the Company had working capital of approximately $6,335,000 and $7,416,000, respectively.

We believe that the aggregate of our existing cash and cash equivalents is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next year.

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Operating Activities

During the three months ended August 31, 2022, cash used in operating activities was approximately $1,573,000.

The primary factors that contributed to this was a loss of approximately $2,072,000, non-cash expenses of $766,000, primarily associated with stock-based compensation, account receivables provision, and inventory reserves .

This was partially offset by changes in asset and liability accounts of $(267,000).

During the three months ended August 31, 2021, cash provided by operating activities was approximately $76,000.

The primary factors that contributed to this was a loss of approximately $1,543,000, non-cash expenses of $502,000, primarily associated with stock-based compensation and inventory reserves .

In addition, we benefited from a decrease in accounts receivable of $778,000, and changes in other asset and liability accounts of $339,000.

During the six months ended November 30, 2022, cash used in operating activities was approximately $2,787,000.

The primary factors that contributed to this was a loss of approximately $3,698,000, non-cash expenses of $1,102,000, primarily associated with stock-based compensation and account receivables provision .

This was partially offset by changes in asset and liability accounts that used a net amount of cash of approximately $191,000.

During the six months ended November 30, 2021, cash provided by operating activities was approximately $1,419,000.

The primary factors that contributed to this was a loss of approximately $2,668,000, non-cash expenses of $201,000, primarily associated with depreciation, amortization, stock-based compensation, adjustments to allowance for doubtful accounts, and inventory reserves .

In addition, we benefited from an increase in customer advances of $2,150,000, a decrease in accounts receivable of $1,139,000, and changes in other asset and liability accounts of $597,000.

Investing Activities

During the three months ended August 31, 2022, cash used in investing activities was approximately $34,000 for purchases of property and equipment.

During the three months ended August 31, 2021, cash used in investing activities was approximately $78,000 for purchases of property and equipment, and expenditures related to patents.

During the six months ended November 30, 2022, cash used in investing activities was approximately $58,000 for purchases of property and equipment.

During the six months ended November 30, 2021, cash used in investing activities was approximately $18,000 for purchases of property and equipment, and $109,000 expenditures related to patents.

Financing Activities

During the three months ended August 31, 2022, cash provided by financing activities was approximately $1,778,000 which was a result of net proceeds from the sale of common stock of $1,764,000, and stock option exercises of $14,000.

During the three months ended August 31, 2021, cash provided by financing activities was approximately $805,000 which was a result of net proceeds from the sale of common stock of $801,000, and stock option exercises of $4,000.

During the six months ended November 30, 2022, cash provided by financing activities was approximately $2,016,000 which was a result of net proceeds from the sale of common stock of $1,937,000, and stock option exercises of $79,000.

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

OFF BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements as of August 31, 2022.

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