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BIOMERICA INC - Quarter Report: 2022 August (Form 10-Q)

 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2022 or

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number:  001-37863

 

BIOMERICA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

Incorporation of organization)

 

95-2645573

(I.R.S. Employer
Identification No.)



17571 Von Karman Avenue, Irvine, CA

(Address of principal executive offices)

 

92614

(Zip Code)

 

REGISTRANT'S TELEPHONE NUMBER:

(949) 645-2111

 

Securities registered under Section 12(b) of the Exchange Act:

 

(Title of each class)

COMMON STOCK, PAR VALUE $0.08

 

(Name of each exchange on which registered)

NASDAQ Capital Market

 

(Trading symbol)

BMRA

 

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

         Yes [X] No [_]

 

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

         Yes [X] No [_]

 

Indicate by check mark whether the registrant is a large accelerated, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer,", "accelerated filer,", "smaller reporting company", and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]

 

Accelerated filer   [  ]

Non-accelerated filer   [X]

 

Smaller reporting company [X]

 

 

Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [_]

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

 

         Yes [_] No [X]

 

The number of shares of the registrant's common stock outstanding as of October 11, 2022 was 13,427,651.

 


 

BIOMERICA, INC.

 

INDEX

 

PART I

Financial Information

 

 

 

 

Item 1.     

Financial Statements:

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) –August 31, 2022 and May 31, 2022

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) – Three Months Ended August 31, 2022 and 2021

2

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity (unaudited) – Three Months Ended August 31, 2022 and 2021

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) – Three Months Ended August 31, 2022 and 2021

4

 

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

5 - 13

 

 

 

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

13 - 16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

17

 

 

 

Item 4. 

Controls and Procedures

17

 

 

 

PART II

Other Information

 

 

 

 

Item 1.

Legal Proceedings

17

 

 

 

Item 1A.

Risks and Uncertainties

17

 

 

 

Item 5.

Other Information

17

 

 

 

Item 6.

Exhibits

18

 

 

 

 

Signatures

19

 


Table of Contents


PART I - FINANCIAL INFORMATION

SUMMARIZED FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

August 31, 2022

 

May 31, 2022

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

6,075,037

$

5,916,983

Accounts receivable, less allowance for doubtful accounts

        of $383,106 and $153,231 as of August 31, 2022 and May 31, 2022, respectively

 

932,273

 

 

773,818

Inventories, net of inventory reserves
        of $981,814 and $845,549 as of August 31, 2022 and May 31, 2022, respectively

1,921,734

2,416,447

Prepaid expenses and other

 

238,762

 

 

320,283

Total current assets

9,167,806

9,427,531

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization

        of $1,325,561 and $1,305,360 as of August 31, 2022 and May 31, 2022, respectively

227,908

214,487

 

 

 

 

 

 

Right of use assets, net of accumulated amortization

         of $791,859 and $724,802 as of August 31, 2022 and May 31, 2022, respectively

1,234,777

1,301,834

 

 

 

 

 

 

Investments

165,324

165,324

 

 

 

 

 

 

Intangible assets, net of accumulated amortization

         of $21,271 and $18,994 as of August 31, 2022 and May 31, 2022, respectively

160,750

169,516

 

 

 

 

 

 

Other assets

 

93,509

 

95,588

Total Assets

$

11,050,074

 

$

11,374,280

Liabilities and Shareholders' Equity

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

$

671,240

$

972,372

Accrued compensation

 

591,948

 

 

646,944

Advance from customers

150,523

50,670

Lease liability, current portion

 

343,889

 

 

341,296

Total current liabilities

1,757,600

2,011,282

Lease liability, net of current portion

 

970,890

 

 

1,038,284

Total Liabilities

 

2,728,490

 

3,049,566

 

 

 

 

 

 

Commitments and contingencies (Notes 5 and 6)

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

Common stock, $0.08 par value,

25,000,000 shares authorized, 13,406,901 and 12,867,924 issued and outstanding at

August 31, 2022 and May 31, 2022,  respectively

1,072,550

1,029,432

Additional paid-in-capital

 

44,484,752

 

 

42,446,597

Accumulated other comprehensive loss

(86,463)

(73,936)

Accumulated deficit

 

(37,149,255)

 

 

(35,077,379)

Total Shareholders' Equity

 

8,321,584

 

8,324,714

Total Liabilities and Shareholders' Equity

$

11,050,074

 

$

11,374,280

The accompanying notes are an integral part of these statements.

 

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Table of Contents

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS (UNAUDITED)

 

 

Three Months Ended

 

August 31, 2022

 

August 31, 2021

Net sales

$

1,637,435

 

$

1,261,787

Cost of sales

 

(1,692,390)

 

 

(1,350,757)

Gross loss

 

(54,955)

 

 

(88,970)

           

Operating expenses:

 

 

 

 

 

Selling, general and administrative

 

1,653,821

   

1,069,855

Research and development

 

361,171

 

 

381,544

Total operating expenses

 

2,014,992

 

 

1,451,399

 

 

 

 

 

 

Loss from operations

 

(2,069,947)

 

 

(1,540,369)

 

 

 

 

 

 

Other income:

         

Dividend and interest income

 

28

 

 

6,805

Interest expense

 

-

   

-

Total other income

 

28

 

 

6,805

 

 

 

 

 

 

Loss before income taxes

 

(2,069,919)

 

 

(1,533,564)

           

Provision for income taxes

 

(1,957)

 

 

(9,017)

           

Net loss

$

(2,071,876)

 

$

(1,542,581)

           

Basic net loss per common share

$

(0.16)

 

$

(0.12)

           

Diluted net loss per common share

$

(0.16)

 

$

(0.12)

           

Weighted average number of common and
common equivalent shares:

 

 

 

 

 

Basic

 

13,100,407

 

 

12,426,784

           

Diluted

 

13,100,407

 

 

12,426,784

           

Net loss

$

(2,071,876)

 

$

(1,542,581)

           

Other comprehensive loss, net of tax:

 

 

 

 

 

Foreign currency translation

 

(12,527)

 

 

(5,613)

 

 

 

 

 

 

Comprehensive loss

$

(2,084,403)

 

$

(1,548,194)

 

The accompanying notes are an integral part of these statements.

 

2


Table of Contents

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

 

For the Three Months Ended August 31, 2021

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

Comprehensive

Loss

 

 

 

 

 

 

Common Stock  

 

Additional

 Paid-in Capital

 

 

Accumulated

Deficit

 

 

 

 

Shares

 

Amount

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, May 31, 2021, restated

12,307,157

 

 $

984,571

 

 $

38,836,743

 

 $

(47,956)

 

 $

(30,546,335)

 

 $

9,227,023

Exercise of stock options

1,500

120

3,775

-

-

3,895

Net proceeds from ATM

201,553

 

 

16,124

 

 

784,586

 

 

-

 

 

-

 

 

800,710

Foreign currency translation

-

-

-

(5,613)

-

(5,613)

Stock option expense

-

 

 

-

 

 

319,622

 

 

-

 

 

-

 

 

319,622

Net loss

-

 

 

-

 

-

 

-

 

(1,542,581)

 

(1,542,581)

Balances, August 31, 2021

12,510,210

 

 $

1,000,815

 

 $

39,944,726

 

 $

(53,569)

 

 $

(32,088,916)

 

 $

8,803,056

For the Three Months Ended August 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Other

Comprehensive

Loss

 

 

 

 

Common Stock  

 

Additional

 Paid-in Capital

 

Accumulated

Deficit

 

 

 

 

Shares

 

Amount

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, May 31, 2022

12,867,924

 

 $

1,029,432

 

 $

42,446,597

 

 $

(73,936)

 $

(35,077,379)

 $

8,324,714

Exercise of stock options

15,000

1,200

12,750

-

-

13,950

Net proceeds from ATM

523,977

 

 

41,918

 

 

1,721,650

 

 

-

 

-

 

1,763,568

Foreign currency translation

-

-

-

(12,527)

-

(12,527)

Stock option expense

-

 

 

-

 

 

303,755

 

 

-

 

-

 

303,755

Net loss

-

 

 

-

 

-

 

-

 

(2,071,876)

 

(2,071,876)

Balances, August 31, 2022

13,406,901

 

 $

1,072,550

 

 $

44,484,752

 

 $

(86,463)

 $

(37,149,255)

 $

8,321,584

The accompanying notes are an integral part of these statements.

 

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Table of Contents


BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

Three Months Ended

 

 

August 31, 2022

 

August 31, 2021

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(2,071,876)

 

$

(1,542,581)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

28,971

 

 

34,722

Provision for allowance on accounts receivable

 

 

229,875

 

 

(94,891)

Inventory reserve

 

 

136,265

 

 

179,744

Stock option expense

 

 

303,755

 

 

319,622

Amortization of right-of-use asset

 

 

67,057

 

 

62,897

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(388,330)

 

 

777,752

Inventories

 

 

358,448

 

 

164,732

Prepaid expenses and other

 

 

81,521

 

 

55,069

Reduction in lease liability

 

 

(64,801)

 

 

(55,649)

Other assets

 

 

2,076

 

 

(2,431)

Accounts payable and accrued expenses

 

 

(301,132)

 

 

58,024

Accrued compensation

 

 

(54,996)

 

 

118,826

Advance from customers

 

 

99,853

 

 

-

Net cash (used in) provided by operating activities

 

 

(1,573,314)

 

 

75,836

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Expenditures related to intangibles

 

 

-

 

 

(72,375)

Purchases of property and equipment

 

 

(33,623)

 

 

(5,141)

Net cash used in investing activities

 

 

(33,623)

 

 

(77,516)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Gross proceeds from sale of common stock

 

 

1,810,927

 

 

838,333

Costs from sale of common stock

 

 

(47,359)

 

 

(37,622)

Proceeds from exercise of stock options

 

 

13,950

 

 

3,895

Net cash provided by financing activities

 

 

1,777,518

 

 

804,606

 

 

 

 

 

 

 

Effect of exchange rate changes in cash

 

 

(12,527)

 

 

(5,613)

Net increase in cash and cash equivalents

 

 

158,054

 

 

797,313

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

 

5,916,983

 

 

4,199,311

 

 

 

 

 

 

 

Cash and cash equivalents at end of the period

 

$

6,075,037

 

$

4,996,624

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Income taxes

 

$

1,957

 

$

9,017

 

 

 

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

Write off of intangible assets, cost

 

$

6,489

 

$

-

Write off of intangible assets, accumulated amortization

 

$

850

 

$

-

 

The accompanying notes are an integral part of these statements.

 

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BIOMERICA, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

NOTE 1:  BASIS OF PRESENTATION

 

Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians' offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. Our diagnostic test kits are used to analyze blood, urine, nasal or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations. 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 (“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. 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.   

 

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 at Walmart, Amazon, 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 or is currently infected. 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 of 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.  

 

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. These diagnostic test products utilize immunoassay technology. Most of our products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency. In addition, some products are cleared for sale in the United States by the FDA.

 

The unaudited consolidated financial statements herein have been prepared by management pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). The accompanying interim unaudited consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest fiscal year ended May 31, 2022. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended August 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2023. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2022 included in the Company's Annual Report on Form 10-K filed with the SEC on August 29, 2022. Management has evaluated all subsequent events and transactions through the date of filing this report.

 

 

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NOTE 2:  SIGNIFICANT ACCOUNTING POLICIES

 

PRINCIPLES OF CONSOLIDATION

 

The condensed consolidated financial statements include the accounts of Biomerica, Inc. as well as its German subsidiary (BioEurope GmbH) and Mexican subsidiary (Biomerica de Mexico). All significant intercompany accounts and transactions have been eliminated in consolidation.

 

ACCOUNTING ESTIMATES

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical practices with a customer; stock option forfeiture rates, which are calculated based on historical data; inventory obsolescence, which is based on projected and historical usage of materials; and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, the likelihood of lease extensions to occur, asset valuation, among other things; and other items that may be necessary to estimate using current, historical and judgment based information. Actual results could materially differ from those estimates.

 

MARKETS AND METHODS OF DISTRIBUTION

 

Due to the Coronavirus global pandemic, and the economic disruptions that have followed, the Company’s operations have been negatively impacted. The Company has faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, cost inflation, loss of contracts and/or customers, closure of the Company’s manufacturing or distribution facilities or of the facilities of the Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities. These ongoing pandemic related disruptions have materially negatively impacted the Company’s operations and financial performance and may continue to have significant material negative impacts on the Company.

 

LIQUIDITY

 

The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $37.1 million as of August 31, 2022. Management expects to continue to incur significant costs as it advances its clinical trials and product development activities. As of August 31, 2022, the Company had cash and cash equivalents of approximately $6,075,000 and working capital of approximately $7,410,000.

 

On July 21, 2020, the Company filed with the SEC a “shelf” registration statement on Form S-3. The registration statement registers common shares that may be issued by the Company in a maximum aggregate amount of up to $90,000,000.  Shares of the Company’s common stock may be sold from time to time under this registration statement for up to three years from the filing date. On January 22, 2021, the Company filed a prospectus supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering (“ATM Offering”) under the shelf registration statement, of which approximately $9,600,000, remains available for sale under the prospectus supplement.

 

The Company intends to use the net proceeds from such offering for general corporate purposes, including, without limitation, sales and marketing activities, clinical studies and product development, making acquisitions of assets, businesses, companies or securities, capital expenditures, and for working capital needs.

 

The sales agent under the ATM Offering agrees to use commercially reasonable efforts to sell on the Company’s behalf all of the shares requested to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and the Company. The Company has no obligation to sell any of the shares under the ATM Offering, and may at any time suspend offers under, or terminate the ATM Offering.

During the quarter ended August 31, 2022, the Company sold 523,977 shares of its common stock at prices ranging from $3.15 to $3.55 under its ATM Offering which resulted in gross proceeds of approximately $1,811,000 and net proceeds to the Company approximately of $1,764,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

As a result of cash and cash equivalents on hand at August 31, 2022, and the ability to raise additional funds, including through the ATM Offering noted above, management believes the Company has sufficient funds to operate through at least November 2023.

 

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CONCENTRATION OF CREDIT RISK

 

The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. As of August 31, 2022, the Company had approximately $5,834,000 of uninsured cash. The Company does not believe it is exposed to any significant credit risks.

 

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. For the three months ended August 31, 2022 and 2021, the Company had two key customers who are located in foreign countries which accounted for 64% and 60% of net consolidated sales, respectively.

 

Total gross receivables on August 31, 2022 and May 31, 2022 were approximately $1,315,000 and $927,000, respectively. On August 31, 2022 and May 31, 2022, the Company had two and one key customers who are located in foreign countries which accounted for a total of 67% and 50%, respectively, of gross accounts receivable.

 

For the three months ended August 31, 2022 and 2021, the Company had one key vendor which accounted for 9% and 17% of the purchases of raw materials, respectively. As of August 31, 2022 and May 31, 2022, the Company had one and two key vendors which accounted for 11% and 69%, respectively, of accounts payable.

 

CASH AND CASH EQUIVALENTS

 

Cash and cash equivalents consist of demand deposits and money market accounts with original maturities of less than three months.

 

ACCOUNTS RECEIVABLE

 

The Company extends unsecured credit to its customers on a regular basis. International accounts are usually required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria. Based on various criteria, initial credit levels for individual distributors are approved by designated officers and managers of the Company. All increases in credit limits are also approved by designated upper-level management. Management evaluates receivables on a quarterly basis and adjusts the allowance for doubtful accounts accordingly. Balances over ninety days old are usually reserved for unless collection is reasonably assured.  

 

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.

 

As of August 31, 2022 and May 31, 2022, the Company has established a reserve of approximately $383,000 and $153,000, respectively, for doubtful accounts.

 

PREPAID EXPENSES AND OTHER

 

The Company occasionally prepays for items such as inventory, insurance, and other items.  These items are reported as prepaid expenses and other, until either the inventory is physically received, or the insurance and other items are expensed.

 

As of August 31, 2022 and May 31, 2022, the prepaid expenses and other were approximately $239,000 and $320,000, respectively, composed of prepayments to insurance and various other suppliers.

 

INVENTORIES, NET

 

The Company values inventory at the lower of cost (determined using a combination of specific lot identification and the first-in, first-out methods) or net realizable value. Management periodically reviews inventory for excess quantities and obsolescence. Management evaluates quantities on hand, physical condition, and technical functionality as these characteristics may be impacted by anticipated customer demand for current products and new product introductions. The reserve is adjusted based on such evaluation, with a corresponding provision included in cost of sales. Abnormal amounts of idle facility expenses, freight, handling costs and wasted material are recognized as current period charges and the allocation of fixed production overhead is based on the normal capacity of the production facilities.

 

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Net inventories are approximately the following:

 

August 31, 2022

 

May 31, 2022

Raw materials

$

1,732,000

 

$

1,717,000

Work in progress

723,000

763,000

Finished products

 

449,000

 

 

782,000

Total gross inventory

$

2,904,000

$

3,262,000

Inventory reserves

 

(982,000)

 

 

(846,000)

Net inventory

$

1,922,000

$

2,416,000

 

Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically reserve for obsolete inventory. As of August 31, 2022, and May 31, 2022, inventory reserves were approximately $982,000 and $846,000, respectively.

 

PROPERTY AND EQUIPMENT, NET

 

Property and equipment are stated at cost. Expenditures for additions and major improvements are capitalized. Repairs and maintenance costs are charged to operations as incurred. When property and equipment are sold, retired or otherwise disposed of, the related cost and accumulated depreciation or amortization are removed from the accounts, and gains or losses from sales, retirements and dispositions are credited or charged to income.

 

Depreciation and amortization are provided over the estimated useful lives of the related assets, ranging from 5 to 10 years, using the straight-line method. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the lease. Depreciation and amortization expense on property and equipment were approximately $20,000 and $28,000 for the three months ended August 31, 2022 and 2021, respectively.

 

INTANGIBLE ASSETS, NET

 

Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on Accounting Standards Codification (“ASC”), ASC 350 Intangibles – Goodwill and Other (“ASC 350”). In that regard, intangible assets that have indefinite useful lives are not amortized but are tested at least annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired.

 

Intangible assets are being amortized using the straight-line method over the useful life, not to exceed 18 years for marketing and distribution rights, 10 years for purchased technology use rights, and 20 years for patents. Amortization expense was approximately $9,000 and $7,000 for the three months ended August 31, 2022 and 2021, respectively.

 

The Company assesses the recoverability of these intangible assets by determining whether the amortization of the asset’s balance over its remaining life can be recovered through projected undiscounted future cash flows. The Company uses a qualitative assessment to determine whether there was any impairment. As of August 31, 2022 and 2021, an impairment adjustment was made of $6,000 and $0, respectively.

 

INVESTMENTS

 

From time-to-time, the Company makes investments in privately held companies. Investments represent the Company’s investment in a Polish distributor, which is primarily engaged in distributing medical products and devices. The Company owns approximately 6% of the investee and invested approximately $165,000 into the Polish distributor.

 

Equity holdings in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence ("Cost Method Holdings") are accounted for at the Company's initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends received are recorded as other income.

The Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. Management reviewed the underlying net assets of the Company's equity method holding as of August 31, 2022 and determined that the Company's proportionate economic interest in the entity indicates that the equity holding was not impaired. There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holding during the period ended August 31, 2022.

 

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SHARE-BASED COMPENSATION

 

The Company follows the guidance of ASC 718, Share-based Compensation (“ASC 718”), which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (options). The fair value of each option award is estimated on the date of grant using the Black-Scholes options-pricing model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the foreseeable future. Expected volatilities are based on weighted averages of the historical volatility of the Company’s common stock estimated over the expected term of the options. The expected forfeiture rate is based on historical forfeitures experienced. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term as historically the Company had limited exercise activity surrounding its options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under the straight-line attribution method.

 

The Company expensed approximately $304,000 and $320,000 of stock-based compensation during the three months ended August 31, 2022 and 2021, respectively.

 

The following summary presents the options granted, exercised, expired, canceled and outstanding for the three months ended August 31, 2022:

 

Option Shares

Exercise Price

Weighted Average

Outstanding May 31, 2022

2,321,616

 

$

3.72

Granted

146,000

3.37

Exercised

(15,000)

 

 

0.95

Cancelled or expired

(64,000)

 

4.78

Outstanding August 31, 2022

2,388,616

 

$

3.69

                                                                                                                                                       

During the three months ended August 31, 2022, options to purchase 15,000 shares of common stock were exercised at prices ranging from $0.82 to $1.20. Total net proceeds to the Company were approximately $14,000.

 

During the three months ended August 31, 2022, the Company granted 146,000 options to purchase common stock at an average purchase price of $3.37, with the majority of those options issued to the Company’s new Chief Commercial Officer, who is managing the commercialization and roll-out of the InFoods IBS test.

 

REVENUE RECOGNITION

 

The Company has various contracts with customers.  All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control of goods has occurred and at which point title passes.

 

The Company does not typically allow for returns from international customers except in the event of defective merchandise and therefore does not establish an allowance for returns. The Company does allow for a return merchandise allowance of approximately one percent of sales to certain domestic retailers. This allowance reduces revenue recognition by approximately one percent, and is included in sales discounts. In addition, the Company has contracts with customers wherein they receive purchase discounts for achieving specified sales volumes. The Company evaluated the status of these contracts during the three months ended August 31, 2022 and 2021, and does not believe that any additional discounts will be given through the end of the contract periods.

 

Services for contract work performed by the Company for others are invoiced and recognized as that work has been performed and as the project progresses. The Company sells clinical lab products to domestic and international distributors, including hospitals and clinical laboratories, medical research institutions, medical schools and pharmaceutical companies. OTC products are sold directly to drug stores and e-commerce customers as well as to distributors.  Physicians’ office products are sold to physicians and distributors, all of whom are categorized below according to the type of products sold to them. We also manufacture certain components on a contract basis for domestic and international manufacturers.

 

As of August 31, 2022, the Company had approximately $151,000 of advances from certain foreign customers. The majority of these advances are prepayments on orders that are expected to ship during our second quarter ended November 30, 2022.

 

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Disaggregation of revenue:

 

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

               

 

 

Three Months Ended August 31,

 

 

2022

2021

Clinical lab

 

 $

1,146,000

 

 $

886,000

Over-the-counter

 

 

213,000

 

 

79,000

Physician's office

 

 

183,000

 

 

257,000

Contract manufacturing

 

 

95,000

 

 

40,000

Total

 

 $

1,637,000

 

 $

1,262,000

 

See Note 4 for additional information regarding revenue concentrations.

 

SHIPPING AND HANDLING FEES

 

The Company includes shipping and handling fees billed to customers in net sales.

 

RESEARCH AND DEVELOPMENT

 

Research and development costs are expensed as incurred. The Company expensed approximately $361,000 and $382,000 of research and development costs during the three months ended August 31, 2022 and 2021, respectively.

 

INCOME TAXES

 

The Company has provided a full valuation allowance on deferred income tax assets of approximately $7,402,000 and $6,967,000 as of August 31, 2022 and May 31, 2022, respectively.  

 

ADVERTISING COSTS

 

The Company reports the cost of advertising as expense in the period in which those costs are incurred. Advertising costs were approximately $18,000 and $8,000 for the three months ended August 31, 2022 and 2021, respectively.

 

FOREIGN CURRENCY TRANSLATION

 

The subsidiary located in Mexico operates primarily using the Mexican peso. The subsidiary located in Germany operates primarily using the U.S. dollar, with an immaterial amount of transactions occurring using the Euro. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting translation adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss. There are no foreign currency transactions that are included in the consolidated statements of operations for the three months ended August 31, 2022 and 2021.

 

RIGHT-OF-USE ASSETS AND LEASE LIABILITY

 

Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.  Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term.  Leases are classified as financing or operating which will drive the expense recognition pattern. The Company has elected to exclude short-term leases.  The Company leases office space and copy machines, all of which are operating leases.  Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise.  The leases do not include the options to purchase the leased property.  The depreciable life of assets and leasehold improvements are limited by the expected lease term.

 

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NET LOSS PER SHARE

 

Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities using the treasury stock method. The total amount of anti-dilutive stock options not included in the loss per share calculation at August 31, 2022 and 2021 was 2,388,616 and 2,081,116, respectively.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent ASU's issued by the FASB and guidance issued by the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

 

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. In November 2019, the FASB issued ASU 201·9- 10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates," which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company is currently reviewing the requirements of this ASU to determine its impact on the Company’s consolidated results of operations and financial position.

 

RECLASSIFICATIONS

 

Certain comparative figures in the August 31, 2021 condensed consolidated statement of operations have been reclassified to conform to the current period presentation.

 

NOTE 3:  SHAREHOLDERS’ EQUITY

 

Stock option expense during the three months ended August 31, 2022 and 2021 was approximately $304,000 and $320,000, respectively.

During the three months ended August 31, 2022, the Company sold 523,977 shares of its common stock at prices ranging from $3.15 to $3.55 under its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $1,811,000 and net proceeds to the Company of approximately $1,764,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

 

NOTE 4:  GEOGRAPHIC INFORMATION

 

The Company operates as one segment. Geographic information regarding net sales is approximately as follows:

 

Three Months Ended August 31,

2022

2021

Revenues from sales to unaffiliated customers:

Asia

$

814,000

 

$

675,000

Europe

552,000

471,000

North America

 

268,000

 

 

105,000

South America

3,000

3,000

Middle East

 

-

 

 

8,000

$

1,637,000

$

1,262,000

 

As of August 31, 2022, and May 31, 2022, approximately $725,000 and $621,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.

 

As of August 31, 2022, and May 31, 2022, approximately $20,000 and $17,000 of Biomerica’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

 

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NOTE 5:  LEASES

 

The Company leases its facilities. On August 31, 2022, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, which it has been leasing since 2009. The lease for its headquarters expired on August 31, 2016.  The Company had an option to extend the term of its lease for two additional sixty-month periods. On November 30, 2015, the Company exercised its option to extend its lease for an additional sixty-month period and entered into the First Amendment to Lease wherein it extended its lease until August 31, 2021. On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years.  When the Company extended its lease in April 2021, it was also granted an additional five-year lease extension option. The current rent is approximately $26,000 per month. The security deposit is approximately $22,000. 

 

In November 2016, the Company’s Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space. The Company has one 10-year option to renew at the end of the initial lease period. The current rent is approximately $3,400 per month. Biomerica de Mexico also leases a smaller unit on a month-to-month basis for use in one manufacturing process.

 

In addition, the Company leases a small office in Lindau, Germany on a month-to-month basis, as headquarters for BioEurope GmbH, its Germany subsidiary.

 

Total gross rent expense in the United States for the three months ended August 31, 2022 and 2021 was approximately $78,000 and $78,000, respectively.  Rent expense for the Mexico facility for the three months ended August 31, 2022 and 2021 was approximately $11,000 and $10,000, respectively.

 

For purposes of determining straight-line rent expense, the lease term is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any renewal options periods that the Company is reasonably certain of exercising. The Company’s office and equipment leases generally have contractually specified minimum rent and annual rent increases are included in the measurement of the right-of-use asset and related lease liability.  Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs. Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liability but are instead recognized as variable lease expense in the Consolidated Statements of Operations and Comprehensive Loss when they are incurred.  

 

Supplemental cash flow information related to leases for the three months ended August 31, 2022:  

 

Operating cash flows from operating leases     

 

 $

86,000

Right-of-use assets obtained in exchange for

   new operating lease liabilities

 

 

 

$

 

-

Weighted average remaining lease term (in years)

 

 

4.02

Weighted average discount rate

 

 

6.50%

 

The approximate maturity of lease liabilities as of August 31, 2022 are as follows:

 

Less than 1 year

 

 $

354,000

1 to 2 years

 

 

364,000

2 to 3 years

 

 

375,000

3 to 4 years

 

 

387,000

4 to 5 years

 

 

8,000

Total undiscounted lease payments

 

 

1,488,000

Less imputed interest

 

 

173,000

Total operating lease liabilities

 

 $

1,315,000

 

According to the terms of the lease in Irvine, the Company is also responsible for routine repairs of the building and for certain increases in property tax.

 

The Company also has various insignificant leases for office equipment.

 

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NOTE 6:  COMMITMENTS AND CONTINGENCIES

 

LITIGATION

 

The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business.

 

There were no legal proceedings pending as of August 31, 2022.

 

NOTE 7:  SUBSEQUENT EVENTS

 

On September 29, 2022, the Company announced that its Aware® Breast Self Exam device and EZ Detect Colon Disease test are being sold on Amazon and fulfilled by Amazon.   

 

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Report and the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022 (our 2022 Annual Report). This discussion and analysis contains forward-looking statements that are based on our management’s current beliefs and assumptions, which statements are subject to substantial risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in Part I, Item 1A of our 2022 Annual Report. 

 

OVERVIEW

 

Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians' offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. Our diagnostic test kits are used to analyze blood, urine, nasal or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations. 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. 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. 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.  

 

During fiscal 2022, we completed an endpoint determination clinical trial on our InFoods® IBS product. This trial was conducted at the Mayo Clinic centers 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 or endpoints. 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 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. 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. 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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Following the successful completion and positive results from the Company’s InFoods® IBS clinical trial, we’ve seen significant interest from Gastroenterology (GI) physicians who would like to provide the InFoods® IBS Product to their patients immediately.  Therefore, while we are proceeding with the work needed to seek FDA clearance for this product, we also are currently preparing to launch the InFoods® IBS product through a CLIA-certified, high-complexity laboratory facility that will be offering the product as a laboratory developed test (LDT). Our expectation is that we will begin to generate revenues from this product during our fiscal third quarter. In preparation for the launch of this LDT, we are in negotiations with large physician groups that would like to offer the LDT to their IBS patients.

 

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 simultaneously seeking FDA clearance of the product while also initially launching the product as an LDT.

 

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.

 

During fiscal 2022, we finalized development of our H. Pylori diagnostic test that indicates if a patient is infected with the H. Pylori bacteria. H. Pylori infection is extremely common, and if left untreated, can lead to ulcers and possibly stomach cancers. During our fourth quarter of fiscal 2022, we applied for FDA clearance of this product though a 510(k) premarket submission. 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. Once cleared, we will begin marketing the product in the U.S. market.

 

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 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. 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. These diagnostic test products utilize immunoassay technology. Most of our products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency. In addition, some products are cleared for sale in the United States by the FDA.

 

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RESULTS OF OPERATIONS

 

Three months ended August 31, 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,

 

Increase (Decrease)

 

2022

 

2021

 

$

 

%

Clinical lab

$

1,146,000

 

$

886,000

 

$

    260,000

 

 

      29%

Over-the-counter

 

213,000

   

79,000

   

134,000

   

170%

Physician's office

 

183,000

 

 

257,000

 

 

(74,000)

 

 

-29%

Contract Manufacturing

 

95,000

 

 

40,000

 

 

55,000

 

 

138%

Total

$

1,637,000

 

$

1,262,000

 

$

375,000

 

 

30%

 

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. 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.

 

Operating Expenses

 

The following is a summary of operating expenses:

 

 

Three Months Ended August 31,

 

 

2023

2022

 

Increase (Decrease)

 

Operating Expense

As a % of Total Revenues

Operating Expense

As a % of Total Revenues

$

%

Selling, General and Administrative Expenses

$

1,654,000

 

101%

 

$

1,070,000

 

85%

 

$

584,000

 

      55%

Research and Development

$

361,000

 

22%

 

$

381,000

 

30%

 

$

(20,000)

 

-5%

 

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.

 

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.

 

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.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following are the principal sources of liquidity:

 

 

 

August 31, 2022

May 31, 2022

Cash and cash equivalents

 

$

6,075,000

 

 $

5,917,000

Working capital including cash and cash equivalents

 

$

7,410,000

 

 $

7,416,000

 

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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. 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. To satisfy our capital requirements beyond the next year, including ongoing future operations, we may seek to raise additional financing through debt and equity financings, including use of our ATM offering.

 

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.

 

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.

 

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.

 

OFF BALANCE SHEET ARRANGEMENTS

 

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

 

CRITICAL ACCOUNTING POLICIES

 

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions.

 

We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, inventory reserves, lease liabilities and right-of-use assets. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. 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. Please refer to Note 2 for information on Significant Accounting Policies. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

 

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives and the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the "reasonable assurance" level. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms; and (2) accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1.  LEGAL PROCEEDINGS

 

The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business.

 

There were no legal proceedings pending as of August 31, 2022. 

 

ITEM 1A.  RISKS AND UNCERTAINTIES.

 

An investment in our common stock involves risks. Before making an investment decision, you should carefully consider all the information within this Quarterly Report, including the information contained in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as in our condensed consolidated financial statements and the related notes contained in Part I, Item 1 within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2022 Annual Report on Form 10-K, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, results of operations, financial condition, and prospects.

 

During the three months ended August 31, 2022, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2022 Annual Report on Form 10-K.

 

ITEM 5.  OTHER INFORMATION

 

On October 11, 2022, the board of directors of the Company approved and adopted the Amended and Restated Bylaws of the Company, which became effective the same day, in order to, among other things (i) update the name of the Company from “Nuclear Medical Systems, Inc.” to “Biomerica, Inc.”, (ii) change the annual meeting date from October 15 to any such date that the Board shall fix each year, (iii) change the voting standard for all matters other than election of directors from a plurality vote to a majority vote, (iv) update the requirements for the list of stockholders, (v) revise the indemnification provisions, and (vi) add new forum selection provisions.

 

The preceding summary of the Amended and Restated Bylaws is qualified in its entirety by reference to, and should be read in connection with, the complete copy of the Amended and Restated Bylaws filed herewith as Exhibit 3.1.

 

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ITEM 6.  EXHIBITS.

 

The following exhibits are filed or furnished as part of this quarterly report on Form 10-Q:

 

Exhibit No.

 

Description

 

 

 

 

 

 

  3.1

*

 

Amended and Restated Bylaws of the Company

 

 

 

 

 

 

31.1

**

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — Zackary S. Irani

 

 

 

 

 

 

31.2

**

 

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act — Steve Sloan

 

 

 

 

 

 

32.1

**

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act — Zackary S. Irani

 

 

 

 

 

 

32.2

**

 

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act — Steve Sloan

 

 

 

 

 

101       Interactive data files pursuant to Rule 405 Regulation S-T, as follows:

 

          101.INS-XBRL Instance Document

 

          101.SCH-XBRL Taxonomy Extension Schema Document

          101.CAL-XBRL Taxonomy Extension Calculation Linkbase Document

          101.DEF–XBRL Taxonomy Extension Definition Linkbase Document

          101.LAB-XBRL Taxonomy Extension Label Linkbase Document

          101.PRE-XBRL Taxonomy Extension Presentation Linkbase Document

          104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101)

 

                  * Filed herein.

 

               

    ** Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 


 

BIOMERICA, INC.

 

 

 

Date:  October 13, 2022

 

 

                                        

By: 

/S/ Zackary S. Irani

 

 

Zackary S. Irani

                                           

Chief Executive Officer

                                           

(Principal Executive Officer)

 

 

 

Date:  October 13, 2022

 

 

 

By: 

/S/ Steve Sloan

 

 

Steve Sloan

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

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