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BIOMERICA INC - Quarter Report: 2023 February (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 FEBRUARY 28, 2023 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 filer, 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 April 14, 2023 was 16,821,646.

 


 

BIOMERICA, INC.

 

INDEX

 

PART I

Financial Information

 

 

 

 

Item 1.     

Financial Statements:

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) – February 28, 2023 and May 31, 2022

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) – Three and Nine Months Ended February 28, 2023 and 2022

2

 

 

 

 

Condensed Consolidated Statements of Shareholders’ Equity (unaudited) – Three and Nine Months Ended February 28, 2023 and 2022

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited) – Nine Months Ended February 28, 2023 and 2022

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 - 18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

18

 

 

 

Item 4. 

Controls and Procedures

18

 

 

 

PART II

Other Information

 

 

 

 

Item 1.

Legal Proceedings

18

 

 

 

Item 1A.

Risk Factors

19

 

 

 

Item 5.

Other Information

19

 

 

 

Item 6.

Exhibits

20

 

 

 

 

Signatures

21

 



Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

 

February 28, 2023

 

May 31, 2022

Assets

 

 

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

$

3,345,212

 

$

5,916,983

Accounts receivable, less allowance for doubtful accounts
    of $17,432 and $153,231 as of Feburary 28, 2023 and May 31, 2022, respectively

 

754,559

 

 

773,818

Inventories, net of inventory reserves
    of $807,576 and $845,549 as of Feburary 28, 2023 and May 31, 2022, respectively

 

2,064,152

 

 

2,416,447

Prepaid expenses and other

 

318,448

 

 

320,283

Total current assets

 

6,482,371

 

 

9,427,531

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation and amortization 
    of $1,316,268 and $1,305,360 as of Feburary 28, 2023 and May 31, 2022, respectively

 

227,589

 

 

214,487

 

 

 

 

 

 

Right of use assets, net of accumulated amortization
    of $927,077 and $724,802 as of Feburary 28, 2023 and May 31, 2022, respectively

 

1,101,648

 

 

1,301,834

 

 

 

 

 

 

Investments

 

165,324

 

 

165,324

 

 

 

 

 

 

Intangible assets, net of accumulated amortization
    of $27,383 and $18,994 as of Feburary 28, 2023 and May 31, 2022, respectively

 

154,638

 

 

169,516

 

 

 

 

 

 

Other assets

 

78,598

 

 

95,588

Total Assets

$

8,210,168

 

$

11,374,280

 

 

 

 

 

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Accounts payable and accrued expenses

$

387,228

 

$

972,372

Accrued compensation

 

520,457

 

 

646,944

Advance from customers

 

138,013

 

 

50,670

Lease liability, current portion

 

349,410

 

 

341,296

Total current liabilities

 

1,395,108

 

 

2,011,282

Lease liability, net of current portion

 

828,944

 

 

1,038,284

Total Liabilities

 

2,224,052

 

 

3,049,566

 

 

 

 

 

 

Commitments and contingencies (Notes 5-7)

 

 

 

 

 

 

 

 

 

 

 

Shareholders' Equity:

 

 

 

 

 

 

 

 

 

 

 

Common stock, $0.08 par value,
25,000,000 shares authorized, 13,488,313 and 12,867,924 issued and outstanding at
Feburary 28, 2023 and May 31, 2022,  respectively

 

1,079,065

 

 

1,029,432

Additional paid-in-capital

 

45,443,164

 

 

42,446,597

Accumulated other comprehensive loss

 

(110,911)

 

 

(73,936)

Accumulated deficit

 

(40,425,202)

 

 

(35,077,379)

Total Shareholders' Equity

 

5,986,116

 

 

8,324,714

Total Liabilities and Shareholders' Equity

$

8,210,168

 

$

11,374,280

 

The accompanying notes are an integral part of these statements.

 

1


Table of Contents

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS (UNAUDITED)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

February 28, 2023

 

February 28, 2022

 

February 28, 2023

 

February 28, 2022

Net sales

 

$

1,111,442

 

$

7,660,501

 

$

4,230,792

 

$

13,569,188

Cost of sales

 

 

(991,169)

 

 

(5,987,277)

 

 

(3,813,599)

 

 

(11,213,175)

Gross profit

 

 

120,273

 

 

1,673,224

 

 

417,193

 

 

2,356,013

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

 

1,379,412

 

 

1,393,619

 

 

4,589,255

 

 

3,817,061

Research and development

 

 

392,031

 

 

387,104

 

 

1,215,143

 

 

1,316,581

Total operating expenses

 

 

1,771,443

 

 

1,780,723

 

 

5,804,398

 

 

5,133,642

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(1,651,170)

 

 

(107,499)

 

 

(5,387,205)

 

 

(2,777,629)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

Dividend and interest income

 

 

36,086

 

 

6,019

 

 

77,368

 

 

19,740

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(1,615,084)

 

 

(101,480)

 

 

(5,309,837)

 

 

(2,757,889)

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

(34,775)

 

 

(2,688)

 

 

(37,986)

 

 

(14,134)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,649,859)

 

$

(104,168)

 

$

(5,347,823)

 

$

(2,772,023)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

 

$

(0.12)

 

$

(0.01)

 

$

(0.40)

 

$

(0.22)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per common share

 

$

(0.12)

 

$

(0.01)

 

$

(0.40)

 

$

(0.22)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common and
common equivalent shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

13,481,490

 

 

12,820,481

 

 

13,340,958

 

 

12,611,760

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

13,481,490

 

 

12,820,481

 

 

13,340,958

 

 

12,611,760

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(1,649,859)

 

$

(104,168)

 

$

(5,347,823)

 

$

(2,772,023)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation

 

 

(15,498)

 

 

(2,538)

 

 

(36,975)

 

 

(12,901)

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss

 

$

(1,665,357)

 

$

(106,706)

 

$

(5,384,798)

 

$

(2,784,924)

 

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)

 

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

Exercise of stock options

31,500

2,520

62,685

-

-

65,205

Net proceeds from ATM

41,012

 

 

3,283

 

 

169,631

 

 

-

 

 

-

 

 

172,914

Foreign currency translation

-

-

-

(8,950)

-

(8,950)

Stock option expense

-

 

 

-

 

 

318,230

 

 

-

 

 

-

 

 

318,230

Net loss

-

 

-

 

-

 

-

 

(1,626,088)

 

(1,626,088)

Balances, November 30, 2022

13,479,413

 

 

1,078,353

 

 

45,035,298

 

 

(95,413)

 

 

(38,775,343)

 

 

7,242,895

Net proceeds from ATM

8,900

712

24,038

-

-

24,750

Foreign currency translation

-

 

 

-

 

 

-

 

 

(15,498)

 

 

-

 

 

(15,498)

Stock option expense

-

-

383,828

-

-

383,828

Net loss

-

 

 

-

 

 

-

 

 

-

 

 

(1,649,859)

 

 

(1,649,859)

Balances, Feburary 28, 2023

13,488,313

$

1,079,065

$

45,443,164

$

(110,911)

$

(40,425,202)

$

5,986,116

 

                 

Accumulated Other

Comprehensive

Loss

   

Accumulated

Deficit

     
 

Common Stock

 

Additional

 Paid-in Capital

   

 

     
 

Shares

 

Amount

     

 

 

Total

Balances, May 31, 2021

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

Exercise of stock options

20,000

   

1,600

   

28,985

   

-

   

-

   

30,585

Net proceeds from ATM

162,117

 

 

12,970

 

 

870,443

 

 

-

 

 

-

 

 

883,413

Foreign currency translation

-

   

-

   

-

   

(4,750)

   

-

   

(4,750)

Stock option expense

-

 

 

-

 

 

314,397

 

 

-

 

 

-

 

 

314,397

Net loss

-

 

 

-

 

 

-

 

 

-

 

 

(1,125,274)

 

 

(1,125,274)

Balances, November 30, 2021

12,692,327

 

 

1,015,385

 

 

41,158,551

 

 

(58,319)

 

 

(33,214,190)

 

 

8,901,427

Exercise of stock options

2,000

   

160

   

4,535

   

-

   

-

   

4,695

Net proceeds from ATM

157,597

 

 

12,607

 

 

620,430

 

 

-

 

 

-

 

 

633,037

Foreign currency translation

-

   

-

   

-

   

(2,538)

   

-

   

(2,538)

Stock option expense

-

 

 

-

 

 

325,349

 

 

-

 

 

-

 

 

325,349

Net loss

-

 

 

-

 

 

-

 

 

-

 

 

(104,168)

 

 

(104,168)

Balances, Feburary 28, 2022

12,851,924

 

$

1,028,152

 

$

42,108,865

 

$

(60,857)

 

$

(33,318,358)

 

$

9,757,802

                                 

The accompanying notes are an integral part of these statements.

 

3


Table of Contents


BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

Nine Months Ended

 

February 28, 2023

 

February 28, 2022

Cash flows from operating activities:

 

 

 

 

 

Net loss

$

(5,347,823)

 

$

(2,772,023)

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

 

 

 

 

 

Depreciation and amortization

 

65,640

   

102,272

Recovery for allowance on accounts receivable

 

(135,799)

 

 

(817,122)

Inventory reserve

 

(37,973)

   

270,805

Stock option expense

 

1,005,813

 

 

959,368

Amortization of right-of-use asset

 

202,275

   

189,696

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

155,058

   

1,113,435

Inventories

 

390,268

 

 

(295,980)

Prepaid expenses and other

 

1,835

   

(296,839)

Other assets

 

16,986

 

 

117,171

Accounts payable and accrued expenses

 

(585,144)

   

2,025,460

Accrued compensation

 

(126,487)

 

 

148,388

Advance from customers

 

87,343

   

3,213,052

Reduction in lease liability

 

(203,315)

 

 

(180,637)

Net cash (used in) provided by operating activities

 

(4,511,323)

 

 

3,777,046

 

 

 

 

 

 

Cash flows from investing activities:

         

Expenditures related to intangibles

 

-

 

 

(113,436)

Purchases of property and equipment

 

(63,860)

 

 

(32,547)

Net cash used in investing activities

 

(63,860)

 

 

(145,983)

           

Cash flows from financing activities:

 

 

 

 

 

Gross proceeds from sale of common stock

 

2,014,054

   

2,401,734

Costs from sale of common stock

 

(52,822)

 

 

(84,574)

Proceeds from exercise of stock options

 

79,155

 

 

39,175

Net cash provided by financing activities

 

2,040,387

 

 

2,356,335

           

Effect of exchange rate changes on cash

 

(36,975)

 

 

(12,901)

Net (decrease) increase in cash and cash equivalents

 

(2,571,771)

   

5,974,497

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

5,916,983

 

 

4,199,311

 

 

 

 

 

 

Cash and cash equivalents at end of the period

$

3,345,212

 

$

10,173,808

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information:

         

Cash paid during the period for:

 

 

 

 

 

Income taxes

$

37,986

 

$

13,334

           

The accompanying notes are an integral part of these statements.

 

4


Table of Contents

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 (“OTC”) 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 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 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 causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms. Following the successful completion and positive statistical results from the Company’s InFoods IBS clinical trial (run at several prominent centers including Mayo Clinic, Beth Israel Deaconess Medical Center Inc. - a Harvard Medical School Teaching Hospital, Houston Methodist Hospital, and the University of Michigan) which was completed in early calendar 2022, Biomerica received interest from Gastroenterology (“GI”) physicians who would like to order the InFoods IBS test for their patients even prior to the product receiving FDA clearance. As such, we are currently working with key GI physician groups who are interested in offering this product to their patients. Given this, during the third quarter ended February 28, 2023, we worked to set up the InFoods® IBS test to be performed in a Clinical Laboratory Improvement Amendments (“CLIA”) certified, and College of American Pathologists (“CAP”) accredited high-complexity laboratory facility and offered as a laboratory developed test (“LDT”). During the quarter ended February 28, 2023, the CLIA lab completed all validation testing necessary for the InFoods IBS product to be offered as an LDT and, as of quarter end, is now accepting patient samples. We also worked to optimize the process for GI physicians to order the InFoods IBS test, send patient blood samples to the CLIA lab and receive the test results for their patients. We believe ease of order and workflow for physicians, with easy to understand and actionable results for patients, is critical to our success. During the quarter, we also set up customer service and payment systems, along with a dedicated website for patients to receive answers to questions they may have about the test and attain information about how to eliminate a specific food from their diet. This is especially important for foods that are ingredients in common processed foods like milk, eggs and wheat.  As of the end of the fiscal third quarter, the product is now available to physicians and their patients.

 

Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians' offices and OTC 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. In fiscal 2022, we generated revenues from the international sale 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 for such tests, the Company generated 0.4% of our sales  during the three months ended February 28, 2023, as compared to 79% of our revenue during the three months ended February 28, 2022..  Further, during the nine months ended February 28, 2023 6% of our sales were generated from our COVID-19 related products, as compared to 80% of our revenue during the nine months ended February 28, 2022.  

 

Our non-COVID-19 products that accounted for approximately 94% and 20% of our revenues during the nine months ended February 28, 2023 and 2022, respectively, 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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The unaudited condensed 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 condensed 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 accounting principles generally accepted in the United States of America (“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 nine months ended February 28, 2023 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.

 

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 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 experience 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 global and economic disruptions caused by the Coronavirus global pandemic, the ongoing war in Ukraine, and tensions between the country of China and the United States, 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 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. The pandemic, war and geopolitical 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 $40.4 million as of February 28, 2023. Management expects to continue to incur significant costs as it advances its clinical trials, product launches, and product development activities. As of February 28, 2023, the Company had cash and cash equivalents of approximately $3,345,000 and working capital of approximately $5,087,000.

 

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 $9,400,000, remained available for sale under the prospectus supplement as of the third quarter ended February 28, 2023. 

 

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Following the end of the third quarter, the Company closed a public offering on March 7, 2023 of an aggregate of 3,333,333 shares of its common stock, par value $0.08 per share at a price to the public of $2.40 per share for total gross proceeds of $8 million, before deducting underwriting discounts and commissions and other offering-related expenses payable by the Company. In conjunction with the public offering of shares of the Company’s common stock, the Company suspended its at-the-market sales agreement.

 

The Company intends to use the net proceeds from the prior sale of shares under the at-the-market agreement 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 had agreed 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 had no obligation to sell any of the shares under the ATM Offering, and maintained the ability to suspend offers under, or terminate the ATM Offering.

During the nine months ended February 28, 2023, the Company sold 573,889 shares of its common stock at prices ranging from $3.15 to $4.26 under its ATM Offering which resulted in gross proceeds of approximately $2,014,000 and net proceeds to the Company approximately of $1,961,000 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 February 28, 2023, plus the net proceeds from the public offering of common shares which closed in early March 2023, management believes the Company has sufficient funds to operate through at least September 2024.

 

CONCENTRATION OF CREDIT RISK

 

The Company’s primary banking partners are Bank of America and Merrill Lynch. The Company maintains cash balances in accounts at financial institutions in excess of amounts insured by federal agencies, as well as substantial cash reserves in investment grade money market accounts and in U.S. treasury bills. As of February 28, 2023, the Company had approximately $3,095,000 of uninsured cash. The Company does not believe it is exposed to any significant credit risks.

 

For the three months ended February 28, 2023, the Company had one key customer who is located in Asia which accounted for 22%. For the three months ended February 28, 2022, the Company had three key customers who are located in Asia and the United States which accounted for 79% of net consolidated sales. For the nine months ended February 28, 2023, the Company had one key customer who is located in Asia which accounted for 38%. For the nine months ended February 28, 2022, the Company had three key customers who are located in Asia and the United States which accounted for 75% of net consolidated sales.

 

Total gross receivables on February 28, 2023 and May 31, 2022 were approximately $772,000 and $927,000, respectively. On February 28, 2023, the Company had two customers which accounted for a total of 44% of gross receivables. On May 31, 2022 the Company had one key customer which accounted for a total of 50% of gross receivables.

 

For the three months ended February 28, 2023, the Company had two key vendors which accounted for 31% of the purchase of raw materials. For the three months ended February 28, 2022, the Company had one key vendor which accounted for 92% of the purchase of raw materials.

 

For the nine months ended February 28, 2023, there was no individual vendor that comprised more than 10% of the Company’s purchases.. For the nine months ended February 28, 2022, the Company had one key vendor which accounted for 85% of the purchase of raw materials.

 

As of February 28, 2023, the Company had one key vendor which accounted for 18% of accounts payable. As of May 31, 2022, the Company had two key vendors which accounted for 69%.

 

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.  

 

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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 February 28, 2023 and May 31, 2022, the Company has established a reserve of approximately $17,000 and $153,000, respectively, for doubtful accounts. During the quarter ended February 28, 2023, the Company reduced gross accounts receivable and the allowance for doubtful accounts by $465,000 for a 2022 COVID product related customer that is not expected to be collected.

 

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 February 28, 2023 and May 31, 2022, the prepaid expenses and other were approximately $318,000 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. As of February 28, 2023, and May 31, 2022, inventory reserves were approximately $808,000 and $846,000, respectively.

 

Net inventories are approximately the following:

 

February 28, 2023

May 31, 2022

Raw materials

 

$

1,714,000

 

$

1,717,000

Work in progress

924,000

763,000

Finished products

 

 

234,000

 

 

782,000

Total gross inventory

$

2,872,000

$

3,262,000

Inventory reserves

 

 

(808,000)

 

 

(846,000)

Total

$

2,064,000

$

2,416,000

 

Reserves for inventory obsolescence and/or inventory that management believes is in excess of an amount that can be sold in the near future, are recorded as necessary to reduce obsolete and excess inventory to estimated net realizable value or to specifically reserve for obsolete inventory.

 

PROPERTY AND EQUIPMENT, NET

 

Property and equipment are stated at cost. Expenditures for additions and major improvements are capitalized. Repair 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 $15,000 and $26,000 for the three months ended February 28, 2023 and 2022, respectively, and approximately $51,000 and $80,000 for the nine months ended February 28, 2023 and 2022, respectively

 

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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 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 20 years for patents, 18 years for marketing and distribution rights, and 10 years for purchased technology use rights. Amortization expenses were approximately $3,000 and $8,000 for the three months ended February 28, 2023 and 2022, respectively, and approximately $15,000 and $22,000 for the nine months ended February 28, 2023 and 2022, respectively. Amortizing intangible assets are tested for impairment if management determines that events or changes in circumstances indicate that the asset might be impaired.

 

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. As of February 28, 2023 and 2022, an impairment adjustment was made of $6,000 and $0, respectively.

 

INVESTMENTS

 

The Company has made investments in privately held companies. These investments represent the Company’s investment in a Polish distributor, which is primarily engaged in distributing medical products and devices, including the distribution of the products sold by the Company. The Company invested approximately $165,000 into the Polish distributor and owns approximately 6% of the investee.

 

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 February 28, 2023 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 Holdings during the period ended February 28, 2023.

 

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 option-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 following summary presents the options granted, exercised, expired, canceled and outstanding for the nine months ended February 28, 2023:

 

Option Shares

Exercise Price Weighted Average

Outstanding May 31, 2022

 

2,321,616

 

$

3.72

Granted

146,000

3.37

Exercised

 

(46,500)

 

 

1.73

Cancelled or expired

(107,750)

 

4.76

Outstanding February 28, 2023

 

2,313,366

 

$

3.69

 

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During the nine months ended February 28, 2023, options to purchase 46,500 shares of common stock were exercised at prices ranging from $0.82 to $2.68. Total net proceeds for the Company were approximately $79,000.

 

During the nine months ended February 28, 2023, 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 customers except in the event of defective merchandise and therefore does not establish an allowance for returns. In addition, the Company has contracts with customers wherein customers receive purchase discounts for achieving specified sales volumes. The Company evaluated the status of these contracts during the nine months ended February 28, 2023 and 2022, 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 February 28, 2023, the Company had approximately $138,000 of advances from certain foreign customers. The majority of these advances are prepayments on orders that are expected to ship during our fourth fiscal quarter ending May 31, 2023.

 

Disaggregation of revenue:

 

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

              

 

 

Three Months Ended February 28,

 

Nine Months Ended February 28,

 

 

2023

 

2022

 

2023 

 

2022

Clinical lab

 

$

532,000

 

$

731,000

 

$

2,580,000

 

$

2,259,000

Over-the-counter

 

 

292,000

 

 

244,000

 

 

  971,000

 

 

857,000

Contract manufacturing

 

 

284,000

 

 

167,000

 

 

 431,000

 

 

319,000

Physician's office

 

 

4,000

 

 

6,518,000

 

 

 249,000

 

 

10,134,000

Total

 

$

1,112,000

 

$

7,660,000

 

$

 4,231,000

 

$

13,569,000

 

See Note 4 for additional information regarding geographic 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 $392,000 and $387,000 of research and development costs during the three months ended February 28, 2023 and 2022, respectively, and approximately $1,215,000 and $1,317,000 of research and development costs during the nine months ended February 28, 2023 and 2022, respectively.

 

INCOME TAXES

 

The Company has provided a full valuation allowance on net deferred income tax assets of approximately $8,088,000 and $6,967,000 as of February 28, 2023 and May 31, 2022, respectively.  

 

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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 condensed consolidated statements of operations for the three and nine months ended February 28, 2023 and 2022.

 

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 of 12 months or less, and as a result, those lease payments are recognized in operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.  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.

 

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 on February 28, 2023 and 2022 was 2,313,366 and 2,336,116, respectively.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

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 2019-10, "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.

 

Other recent Accounting Standards Updates (”ASU's”) issued by the Financial Accounting Standards Board (“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.

 

RECLASSIFICATIONS

 

Certain comparative figures in the February 28, 2022 condensed consolidated statement of operations have been reclassified to conform to the current period presentation.

 

NOTE 3:  SHAREHOLDERS’ EQUITY

 

Stock option expense during the nine months ended February 28, 2023 and 2022 was approximately $1,006,000 and $959,000, respectively.

During the nine months ended February 28, 2023, the Company sold 573,889 shares of its common stock at prices ranging from $3.15 to $4.26 under its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $2,014,000 and net proceeds to the Company of approximately $1,961,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

 

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NOTE 4:  GEOGRAPHIC INFORMATION

 

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

 

 

 

Three Months Ended February 28,

 

Nine Months Ended February 28,

 

 

2023

 

2022

 

2023

 

2022

Revenues from sales to unaffiliated customers:

 

 

 

 

 

 

 

 

 

 

 

 

Asia

 

$

345,000

 

$

4,877,000

 

$

1,822,000

 

$

8,925,000

Europe

 

 

301,000

 

 

2,416,000

 

 

1,268,000

 

 

3,683,000

North America

 

 

461,000

 

 

286,000

 

 

1,130,000

 

 

820,000

South America

 

 

5,000

 

 

81,000

 

 

11,000

 

 

87,000

Middle East

 

 

-

 

 

-

 

 

-

 

 

54,000

 

 

$

1,112,000

 

$

7,660,000

 

$

4,231,000

 

$

13,569,000

 

As of February 28, 2023, and May 31, 2022, approximately $672,000 and $621,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.

 

As of February 28, 2023, and May 31, 2022, approximately $18,000 and $17,000 of Biomerica’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

 

NOTE 5:  LEASES

 

The Company leases its facilities. On February 28, 2023, 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 $3,600 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 nine months ended February 28, 2023 and 2022 was approximately $230,000 and $230,000, respectively.  Rent expense for the Mexico facility for the nine months ended February 28, 2023 and 2022 was approximately $32,000 and $31,000, 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 when they are incurred. 

 

Supplemental cash flow information related to leases for the nine months ended February 28, 2023:  

 

Operating cash flows from operating leases     

 

$

   263,000

Right-of-use assets obtained in exchange for
    new operating lease liabilities

 

$

 -

Weighted average remaining lease term (in years)

 

 

3.53

Weighted average discount rate

 

 

6.50%

 

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The approximate maturity of lease liabilities as of February 28, 2023 are as follows:

 

Less than 1 year

 

$

    360,000

1 to 2 years

 

 

370,000

2 to 3 years

 

 

382,000

3 to 4 years

 

 

201,000

4 to 5 years

 

 

0

Total undiscounted lease payments

 

 

    1,313,000

Less imputed interest

 

 

135,000

Total operating lease liabilities

 

$

 1,178,000

 

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.

 

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 February 28, 2023.

 

NOTE 7:  SUBSEQUENT EVENTS

 

The Company closed a public offering on March 7, 2023 of an aggregate of 3,333,333 shares of its common stock, par value $0.08 per share at a price to the public of $2.40 per share for total gross proceeds of $8 million, before deducting underwriting discounts and commissions and other offering-related expenses payable by the Company.

 

The Company intends to use the net proceeds of the offering for general corporate purposes, including, without limitation, setting up and conducting clinical studies, expanding sales and marketing activities for existing and new products, research and development of new products, acquisitions, capital expenditures, and for other general working capital needs.

 

In conjunction with the public offering of shares of the Company’s common stock, the Company suspended its at-the-market sales agreement.

 

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 (“OTC”) 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.

 

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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 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 causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms. Following the successful completion and positive statistical results from the Company’s InFoods IBS clinical trial mentioned below, Biomerica received interest from Gastroenterology (GI) physicians who would like to order the InFoods IBS test for their patients even prior to the product receiving FDA Clearance. Given this, during the third quarter ended February 28, 2023, we worked to set up the InFoods® IBS test to be performed in a CLIA-certified, and CAP accredited high-complexity laboratory facility and offered as a laboratory developed test (LDT). During the quarter, the CLIA lab completed all validation testing necessary for the InFoods IBS product to be offered as an LDT and, as of quarter end, is now accepting patient samples. We also worked to optimize the process for GI physicians to order the InFoods IBS test, send patient blood samples to the CLIA lab and receive the test results for their patients. We believe ease of order and workflow for physicians, with easy to understand and actionable results for patients, is critical to our success. During the quarter, we also set up customer service and payment systems, along with a dedicated website for patient to receive answers to questions they may have about the test and attain information about how to eliminate a specific food from their diet. This is especially important for foods that are ingredients in common processed foods like milk, eggs and wheat.  As of the end of the fiscal third quarter, the product is now available to physicians and their patients. 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. 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 identified by our InFoods® IBS product 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 evaluate the product and 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 a follow-on pivotal trial. We are also determining 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 along with a clinical research organization.

 

We are also beginning the work of selecting 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 OTC 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 communication with the FDA answering certain follow-up questions and providing additional data as requested. 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. market.

 

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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. In fiscal 2022 and 2023 we generated revenues from the international sale 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 for such tests, the Company generated no revenues during the three months ended February 28, 2023 from the sale of COVID-19 related products.  Further, during the nine months ended February 28, 2023 0% of our sales were generated from our COVID-19 related products, as compared to 80% of our revenue during the nine months ended February 28, 2022.

 

Our research and development efforts are substantially focused on development and commercialization of our H. Pylori product, our InFoods® IBS product, and certain other diagnostic products that we are developing for others under contract R&D agreement, where we expect to be the contract manufacturers for these third-party diagnostic companies. 

 

Our products that accounted for approximately 87% of our revenues during the nine months ended February 28, 2023, 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.

 

RESULTS OF OPERATIONS

 

Three months ended February 28, 2023

 

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 February 28,

Increase (Decrease)

2023

2022

$

%

Clinical lab

$

532,000

 

$

731,000

 

$

(199,000)

 

-27%

Over-the-counter

292,000

244,000

48,000

20%

Contract manufacturing

 

284,000

 

 

167,000

 

 

117,000

 

70%

Physician's office

 

4,000

 

6,518,000

 

(6,514,000)

-100%

Total

$

1,112,000

 

$

7,660,000

 

$

(6,548,000)

 

-85%

 

Consolidated net sales were approximately $1,112,000 for the three months ended February 28, 2023, as compared to $7,660,000 for the three months ended February 28, 2022, a decrease of approximately $6,548,000, or 85%. This decrease for the three months ended February 28, 2023, 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 $1,108,000 for the three months ended February 28, 2023, as compared to $1,316,000 for the three months ended February 28, 2022, a decrease of approximately $174,000, or 13%. Periodic and infrequent orders may cause volatility in quarterly sales.

              

Consolidated cost of sales was approximately $991,000, or 89% of net sales, for the three months ended February 28, 2023, as compared to $5,987,000, or 78% of net sales, for the three months ended February 28, 2022, a decrease of approximately $4,996,000, or 83%. The decrease for the three months ended February 28, 2023, 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 February 28,

2023

2022

Increase (Decrease)

Operating Expense

As a % of Total Revenues

Operating Expense

As a % of Total Revenues

$

%

Selling, General and Administrative Expenses

$

1,379,000

 

124%

 

$

1,394,000

 

18%

 

$

(15,000)

 

-1%

Research and Development

$

392,000

35%

$

387,000

5%

$

5,000

1%

 

Selling, General and Administrative Expenses

 

Consolidated selling, general and administrative expenses were approximately $1,379,000 for the three months ended February 28, 2023, as compared to $1,394,000 for the three months ended February 28, 2022, a decrease of approximately $15,000, or 1%.

 

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Research and Development

 

Consolidated research and development expenses were approximately $392,000 for the three months ended February 28, 2023, as compared to $387,000 for the three months ended February 28, 2022, an increase of approximately $5,000, or 1%.

 

Interest and Dividend Income

 

Interest and dividend income were approximately $36,000 for the three months ended February 28, 2023, as compared to $6,000 for the three months ended February 28, 2022, an increase of $30,000, or 500%. The increase was primarily driven by higher interest yields on our cash and cash equivalents.

 

Nine months ended February 28, 2023

 

Net Sales and Cost of Sales

 

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

 

Nine Months Ended February 28,

Increase (Decrease)

2023

2022

$

%

Clinical lab

$

2,580,000

 

$

2,259,000

 

$

321,000

 

14%

Over-the-counter

971,000

857,000

114,000

13%

Contract manufacturing

 

431,000

 

 

319,000

 

 

112,000

 

35%

Physician's office

 

249,000

 

10,134,000

 

(9,885,000)

-98%

Total

$

4,231,000

 

$

13,569,000

 

$

(9,338,000)

 

-69%

 

Consolidated net sales were approximately $4,231,000 for the nine months ended February 28, 2023, as compared to $13,569,000 for the nine months ended February 28, 2022, a decrease of approximately $9,338,000, or 69%. This decrease for the nine months ended February 28, 2023, 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 $3,982,000 for the nine months ended February 28, 2023, as compared to $3,435,000 for the nine months ended February 28, 2022, an increase of approximately $547,000, or 16%. Periodic and infrequent orders may cause volatility in quarterly sales.

              

Consolidated cost of sales was approximately $3,814,000, or 90% of net sales, for the nine months ended February 28, 2023, as compared to $11,213,000, or 82% of net sales, for the nine months ended February 28, 2022, a decrease of approximately $7,399,000, or 66%. The decrease for the nine months ended February 28, 2023, was driven primarily by a decrease in volume of our COVID-19 product.

 

Operating Expenses

 

The following is a summary of operating expenses:

 

 

Nine Months Ended February 28,

2023

2022

Increase (Decrease)

Operating Expense

As a % of Total Revenues

Operating Expense

As a % of Total Revenues

$

%

Selling, General and Administrative Expenses

$

4,589,000

 

108%

 

$

3,817,000

 

28%

 

$

772,000

 

20%

Research and Development

$

1,215,000

29%

$

1,317,000

10%

$

(102,000)

-8%

 

Selling, General and Administrative Expenses

 

Consolidated selling, general and administrative expenses were approximately $4,589,000 for the nine months ended February 28, 2023, as compared to $3,817,000 for the nine months ended February 28, 2022, an increase of approximately $772,000, or 20%. The increase in the nine months ended February 28, 2023, was primarily due to approximate increases in bad debt expense of $428,000 related to a Vietnam customer, legal expenses of $105,000 related to patent activity, and consulting services of $136,000 related to our online presence at Amazon and Walmart.

 

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Research and Development

 

Consolidated research and development expenses were approximately $1,215,000 for the nine months ended February 28, 2023, as compared to $1,317,000 for the nine months ended February 28, 2022, a decrease of approximately $102,000, or 8%. The decrease in the months ended February 28, 2023, was primarily due to lower research expenditures.

 

Interest and Dividend Income

 

Interest and dividend income were approximately $77,000 for the nine months ended February 28, 2023, as compared to $20,000 for the nine months ended February 28, 2022, an increase of $57,000, or 285%. 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:

 

February 28, 2023

May 31, 2022

Cash and cash equivalents

$

3,345,000

 

$

5,917,000

Working capital including cash and cash equivalents

$

5,087,000

$

7,416,000

 

As of February 28, 2023 and May 31, 2022, the Company had cash and cash equivalents of approximately $3,345,000 and $5,917,000, respectively. As of February 28, 2023 and May 31, 2022, the Company had working capital of approximately $5,087,000 and $7,416,000, respectively. We believe that the aggregate of our existing cash and cash equivalents held at the end of the fiscal third quarter, combined with the approximate $7.4 million in net proceeds from the public offering of common shares that was closed in early March 2023, is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next 18 to 24 months. To satisfy our capital requirements beyond that point, including ongoing future operations, we may seek to raise additional financing through debt and equity financing.

 

Operating Activities

 

During the nine months ended February 28, 2023, cash used in operating activities was approximately $4,511,000. The primary factors that contributed to this were a net loss of approximately $5,348,000, partially offset by non-cash expenses of $1,100,000, primarily associated with stock-based compensation and account receivables provisions.

 

During the nine months ended February 28, 2022, cash provided by operating activities was approximately $3,777,000. The primary factors that contributed to this was a loss of approximately $2,772,000, non-cash expenses of $705,000, primarily associated with depreciation, amortization, stock-based compensation, adjustments to allowance for doubtful accounts, and inventory reserves. In addition, we realized an increase in net working capital of approximately $5,844,000 primarily driven by an increase in advances from customers and accounts payable.

 

Investing Activities

 

During the nine months ended February 28, 2023, cash used in investing activities was approximately $64,000 for purchases of property and equipment.

 

During the nine months ended February 28, 2022, cash used in investing activities was approximately $33,000 for purchases of property and equipment, and $113,000 expenditures related to patents.

 

Financing Activities

 

During the nine months ended February 28, 2023, cash provided by financing activities was approximately $2,040,000 which was a result of net proceeds from the sale of common stock of $1,961,000, and stock option exercises of $79,000.

 

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

 

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OFF BALANCE SHEET ARRANGEMENTS

 

There were no off-balance sheet arrangements as of February 28, 2023.

 

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.

 

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 February 28, 2023. 

 

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ITEM 1A.  RISK FACTORS.

 

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 nine months ended February 28, 2023, 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

 

None.


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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

 

 

 

 

 

 

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 — Gary Lu

 

 

 

 

 

 

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 — Gary Lu

 

 

 

 

 

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:  April 14, 2023

 

 

                                        

By: 

/S/ Zackary S. Irani

 

 

Zackary S. Irani

                                           

Chief Executive Officer

                                           

(Principal Executive Officer)

 

 

 

Date:  April 14, 2023

 

 

 

By: 

/S/ Gary Lu

 

 

Gary Lu

 

 

Chief Financial Officer

 

 

(Principal Financial Officer)

 

21