SUMMARY AND ANALYSIS OF FINANCIAL REPORT

Overview of Financial Performance

The company’s financial results for the three and six months ended November 30, 2024 show a mixed performance. Consolidated net sales increased by 4% and 5% respectively compared to the same periods in the prior year. This was driven by higher sales of Aware® products in the Middle East market and increased contract manufacturing billings. However, these increases were partially offset by a decrease in clinical lab sales, which experienced volatility due to periodic and timing of orders.

Consolidated cost of sales decreased by 3% for the three-month period, primarily due to a reduction in force (RIF) executed in July 2024 that helped decrease labor costs. For the six-month period, cost of sales increased by 7%, largely due to the growth in contract manufacturing sales.

Expenses and Profitability

Selling, general and administrative (SG&A) expenses decreased by 23% and 6% for the three and six-month periods respectively, mainly due to the RIF and the absence of a sales reserve for over-the-counter (OTC) products that was recorded in the prior year. Research and development (R&D) expenses also decreased significantly by 38% and 37% for the three and six-month periods, driven by the RIF and a reduction in clinical trials.

Despite the revenue growth, the company reported net losses of $2.3 million for both the three and six-month periods. This was primarily due to the decrease in interest and dividend income, which fell by 63% and 58% respectively, as a result of lower market interest rates and decreased cash balances.

Liquidity and Capital Resources

As of November 30, 2024, the company had cash and cash equivalents of $2.4 million and working capital of $4.1 million, down from $4.2 million and $5.5 million respectively as of May 31, 2024. The company’s ability to continue as a going concern over the next twelve months is influenced by several factors, including the need to generate additional revenue, access capital markets, manage expenses, and retain key employees.

To address its capital needs, the company is actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, and seek additional financing through debt or equity. The company has filed a new shelf registration statement to issue up to $20 million in common stock and has already raised $567,000 through an at-the-market (ATM) offering. However, the amount of capital that can be raised through the ATM offering is highly dependent on the trading volume and price of the company’s stock.

Outlook and Risks

The company’s future viability depends on the successful execution of its strategic plans, securing additional financing, and achieving profitable operations. The company faces several risks, including the need to generate more revenue from international opportunities and new product launches, the ability to manage operating expenses and maintain gross margins, the capacity to retain key employees, and regulatory constraints on capital raising.

Overall, the company’s financial performance for the reported periods shows some progress in revenue growth and cost reduction, but significant challenges remain in terms of profitability and liquidity. The company’s ability to navigate these challenges and secure its long-term future will be crucial in the coming months and years.