UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 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		95-2645573
(State or other jurisdiction of Incorporation of organization)		(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		Trading Symbols		Name of each exchange on which registered
Common Stock, par value $0.08		BMRA		Nasdaq Capital Market

 

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 ☒ 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 ☒ 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 ☒	Smaller reporting company ☒
		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 ☒

 

The number of shares of the registrant’s common stock outstanding as of October 12, 2023 was 16,821,646.

 

 

 

BIOMERICA, INC.

 

INDEX

 

PART I	Financial Information
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets (unaudited) – August 31, 2023 and May 31, 2023	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) – Three Months Ended August 31, 2023 and 2022	2
	Condensed Consolidated Statements of Shareholders’ Equity (unaudited) – Three Months Ended August 31, 2023 and 2022	3
	Condensed Consolidated Statements of Cash Flows (unaudited) – Three Months Ended August 31, 2023 and 2022	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5-12
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 Factors	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
	Signatures	19

 

 

PART I - FINANCIAL INFORMATION

SUMMARIZED FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

 

		August 31, 2023				May 31, 2023
Assets
Current Assets:
Cash and cash equivalents		$	7,988,000			$	9,719,000
Accounts receivable, net			1,430,000				722,000
Inventories, net			1,877,000				2,056,000
Prepaid expenses and other			279,000				300,000
Total current assets			11,574,000				12,797,000
Property and equipment, net of accumulated depreciation and amortization			218,000				213,000
Right-of-use assets, net of accumulated amortization of $688,000 and $617,000 as of August 31, 2023 and May 31, 2023, respectively			964,000				1,035,000
Investments			165,000				165,000
Intangible assets, net of accumulated amortization			202,000				165,000
Other assets			96,000				79,000
Total Assets		$	13,219,000			$	14,454,000
Liabilities and Shareholders’ Equity
Current Liabilities:
Accounts payable and accrued expenses		$	713,000			$	892,000
Accrued compensation			667,000				696,000
Advance from customers			60,000				60,000
Lease liabilities, current portion			306,000				297,000
Total current liabilities			1,746,000				1,945,000
Lease liabilities, net of current portion			705,000				785,000
Total Liabilities			2,451,000				2,730,000
Commitments and contingencies (Note 6)			-				-
Shareholders’ Equity:
Preferred stock, Series A 5% convertible, $0.08 par value, 571,429 shares authorized, none issued and outstanding as of August 31, 2023 and May 31, 2023			-				-
Preferred stock, undesignated, no par value, 4,428,571 shares authorized, none issued and outstanding as of August 31, 2023 and May 31, 2023			-				-
Preferred stock, value			-				-
Common stock, $0.08 par value, 25,000,000 shares authorized, 16,821,646 issued and outstanding at August 31, 2023 and May 31, 2023, respectively			1,346,000				1,346,000
Additional paid-in-capital			52,875,000				52,705,000
Accumulated other comprehensive loss			(104,000	)			(110,000	)
Accumulated deficit			(43,349,000	)			(42,217,000	)
Total Shareholders’ Equity			10,768,000				11,724,000
Total Liabilities and Shareholders’ Equity		$	13,219,000			$	14,454,000

 

The accompanying notes are an integral part of these statements.

 

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS (UNAUDITED)

 

		2023				2022
		For the Three Months Ended August 31,
		2023				2022
Net sales		$	1,713,000			$	1,637,000
Cost of sales			(1,301,000	)			(1,692,000	)
Gross profit (loss)			412,000				(55,000	)
Operating expenses:
Selling, general and administrative			1,172,000				1,654,000
Research and development			472,000				361,000
Total operating expenses			1,644,000				2,015,000
Loss from operations			(1,232,000	)			(2,070,000	)
Other income:
Interest and dividend income			123,000				-
Total other income			123,000				-
Loss before income taxes			(1,109,000	)			(2,070,000	)
Provision for income taxes			(23,000	)			(2,000	)
Net loss		$	(1,132,000	)		$	(2,072,000	)
Basic net loss per common share		$	(0.07	)		$	(0.16	)
Diluted net loss per common share		$	(0.07	)		$	(0.16	)
Weighted average number of common and
common equivalent shares:
Basic			16,821,646				13,100,407
Diluted			16,821,646				13,100,407
Net loss		$	(1,132,000	)		$	(2,072,000	)
Other comprehensive income (loss), net of tax:
Foreign currency translation			6,000				(13,000	)
Comprehensive loss		$	(1,126,000	)		$	(2,085,000	)

 

The accompanying notes are an integral part of these statements.

 

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

 

For the Three Months Ended August 31, 2022

 

		Shares				Amount				Capital				Loss				Deficit				Equity
		Common Stock								Additional Paid in				Accumulated Other Comprehensive				Accumulated				Total Shareholders’
		Shares				Amount				Capital				Loss				Deficit				Equity
Balances at May 31, 2022			12,867,924			$	1,029,000			$	42,447,000			$	(74,000	)		$	(35,077,000	)		$	8,325,000
Exercise of stock options			15,000				1,000				13,000				-				-				14,000
Net proceeds from ATM			523,977				42,000				1,722,000				-				-				1,764,000
Shares issued in connection with public offering			-				-				-				-				-				-
Foreign currency translation			-				-				-				(13,000	)			-				(13,000	)
Share-based compensation			-				-				304,000				-				-				304,000
Net loss			-				-				-				-				(2,072,000	)			(2,072,000	)
Balances at August 31, 2022			13,406,901			$	1,072,000			$	44,486,000			$	(87,000	)		$	(37,149,000	)		$	8,322,000

 

For the Three Months Ended August 31, 2023

 

		Common Stock								Additional Paid in				Accumulated Other Comprehensive				Accumulated				Total Shareholders’
		Shares				Amount				Capital				Loss				Deficit				Equity
Balances at May 31, 2023			16,821,646			$	1,346,000			$	52,705,000			$	(110,000	)		$	(42,217,000	)		$	11,724,000
Balances			16,821,646			$	1,346,000			$	52,705,000			$	(110,000	)		$	(42,217,000	)		$	11,724,000
Exercise of stock options			-				-				-				-				-				-
Net proceeds from ATM			-				-				-				-				-				-
Shares issued in connection with public offering			-				-				-				-				-				-
Foreign currency translation			-				-				-				6,000				-				6,000
Share-based compensation			-				-				170,000				-				-				170,000
Net loss			-				-				-				-				(1,132,000	)			(1,132,000	)
Balances at August 31, 2023			16,821,646			$	1,346,000			$	52,875,000			$	(104,000	)		$	(43,349,000	)		$	10,768,000
Balances			16,821,646			$	1,346,000			$	52,875,000			$	(104,000	)		$	(43,349,000	)		$	10,768,000

 

The accompanying notes are an integral part of these statements.

 

 

BIOMERICA, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		2023				2022
		For the Three Months Ended August 31,
		2023				2022
Cash flows from operating activities:
Net loss		$	(1,132,000	)		$	(2,072,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			21,000				29,000
Provision for allowance on accounts receivable			-				230,000
Inventory reserve			(140,000	)			136,000
Share-based compensation			170,000				304,000
Amortization of right-of-use asset			71,000				67,000
Changes in assets and liabilities:
Accounts receivable			(708,000	)			(388,000	)
Inventories			319,000				358,000
Prepaid expenses and other			21,000				82,000
Other assets			(17,000	)			2,000
Accounts payable and accrued expenses			(179,000	)			(301,000	)
Accrued compensation			(29,000	)			(55,000	)
Advance from customers			-				100,000
Reduction in lease liabilities			(71,000	)			(65,000	)
Net cash used in by operating activities			(1,674,000	)			(1,573,000	)
Cash flows from investing activities:
Purchases of property and equipment			(21,000	)			(34,000	)
Expenditures related to intangibles			(42,000	)			-
Net cash used in investing activities			(63,000	)			(34,000	)
Cash flows from financing activities:
Gross proceeds from sale of common stock			-				1,811,000
Costs from sale of common stock			-				(47,000	)
Proceeds from exercise of stock options			-				14,000
Net cash provided by financing activities			-				1,778,000
Effect of exchange rate changes in cash			6,000				(13,000	)
Net decrease (increase) in cash and cash equivalents			(1,731,000	)			158,000
Cash and cash equivalents at beginning of year			9,719,000				5,917,000
Cash and cash equivalents at end of the period		$	7,988,000			$	6,075,000
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Income taxes		$	23,000			$	2,000
Non-cash investing and financing activities:
Write off of intangible assets, cost		$	-			$	6,000
Write off of intangible assets, accumulated amortization		$	-			$	1,000

 

The accompanying notes are an integral part of these statements.

 

 

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 to identify patient-specific foods that, when removed from their 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 a panel of specific foods that have been shown to often be problematic to IBS sufferers. A food identified as positive (causing an abnormally high immune response in the patient) is simply removed from the diet to help alleviate IBS symptoms. We have launched this product with certain large gastroenterology (“GI”) physician groups that are now offering this product to their patients. We have also recently hired an internal sales force to sign up additional GI physician groups who are interested in offering this product to their patients. As such, we are expecting material growth in revenues from the launch of our inFoods® IBS product in coming quarters.

 

Our other 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, there were no sales of our COVID-19 related products in the three months ended August 31, 2023. As such, our COVID-19 product sales have caused significant swings in our revenues over the past eight quarters.

 

Our non-COVID-19 products that accounted for all of our revenues during the three months ended August 31, 2023, are primarily focused on gastrointestinal diseases, colorectal 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 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 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, 2023. 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, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2024. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 25, 2023. 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 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

 

The majority of the Company’s revenues come from the sale of products that the company manufactures in the U.S. and in Mexico. Some of the raw materials used in manufacturing come from Asia and other regions of the world. Finally, most of the Company’s revenues are generated from the international sales of its products. Due to global and economic disruptions caused by the COVID-19 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 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 Company’s current sales and marketing focus is on the sale of the inFoods® IBS product within the U.S. As such, going forward, the Company hopes to see reduced disruptions from the issues listed above.

 

LIQUIDITY

 

The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $43.3 million as of August 31, 2023. Management expects to continue to incur significant costs as it advances its clinical trials, product development, and commercial product launch activities. As of August 31, 2023, the Company had cash and cash equivalents of approximately $7,988,000 and working capital of approximately $9,828,000.

 

On July 20, 2020, the Company filed with the Securities and Exchange Commission (“SEC”) a Form S-3 shelf registration statement and base prospectus which was declared effective by the SEC on September 30, 2020. This shelf registration statement registered the sale of up to $90,000,000 of the Company’s equity securities during the three years ended September 30, 2023.

 

Under the Company’s outstanding Registration Statement, on March 7, 2023, the Company sold 3,333,333 shares of common stock in a firm commitment public offering at a gross sales price of $2.40 per share, with net total proceeds, after deducting issuance fees and expenses of $700,000, of approximately $7,300,000. Since the closing of the March 7, 2023 offering, the ATM has been withdrawn and is not active.

 

To replace the shelf registration statement that was set to expire on September 30, 2023, on September 27, 2023, the Company filed with the SEC a new Form S-3 shelf registration statement and base prospectus which was declared effective by the SEC on September 29, 2023. This new shelf registration statement registers the sale of up to $20,000,000 of the Company’s equity securities during the three years ending September 29, 2026.

 

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

 

 

Management has analyzed the cash requirements of the Company’s business through at least November 2024. As a result of cash and cash equivalents on hand on August 31, 2023, largely from the public offering, and the ability to raise additional funds if needed through the sale of shares of the Company’s common stock, management believes the Company has sufficient funds to operate through at least November 2024.

 

CONCENTRATION OF CREDIT RISK

 

The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. From time to time, the Company has uninsured balances. The Company does not believe it is exposed to any significant credit risks.

 

Consolidated net sales were approximately $1,713,000 for the three months ended August 31, 2023, as compared to $1,637,000 for the three months ended August 31, 2022. For the three months ended August 31, 2023 and 2022, the Company had one and two key customers who are located in foreign countries which accounted for 59% and 64% of net sales, respectively.

 

Total gross receivables on August 31, 2023 and May 31, 2023 were approximately $1,459,000 and $751,000, respectively. On August 31, 2023 and May 31, 2023, the Company had one key customer, who are located in foreign countries which accounted for a total of 67% and 35%, respectively, of gross accounts receivable.

 

For the three months ended August 31, 2023 and 2022, the Company had one key vendor which accounted for 12% and 9% of the purchases of raw materials, respectively. As of August 31, 2023 and May 31, 2023, the Company had one key vendor which accounted for 47% and 23%, 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, NET

 

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.

 

The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (codified as Accounting Standards Codification (“ASC”) 326) on June 1, 2023. ASC 326 adds to U.S. GAAP the current expected credit loss (“CECL”) model, a measurement model based on expected losses rather than incurred losses. Prior to the adoption of ASC 326, the Company evaluated receivables on a quarterly basis and adjusted the allowance for doubtful accounts accordingly. Balances over ninety days old were usually reserved for unless collection was reasonably assured. Under the application of ASC 326, the Company’s historical credit loss experience provides the basis for the estimation of expected credit losses, as well as current economic and business conditions, and anticipated future economic events that may impact collectability. In developing its expected credit loss estimate, the Company evaluated the appropriate grouping of financial assets based upon its evaluation of risk characteristics, including consideration of the types of products and services sold. Account balances are written off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

 

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, 2023 and May 31, 2023, the Company has established a reserve of approximately $29,000 for credit losses.

 

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, 2023 and May 31, 2023, the prepaids were approximately $279,000 and $300,000, 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.

 

Net inventories are approximately the following:

SCHEDULE OF NET INVENTORIES 

		August 31, 2023				May 31, 2023
Raw materials		$	1,454,000			$	1,677,000
Work in progress			793,000				869,000
Finished products			162,000				182,000
Total gross inventory			2,409,000				2,728,000
Inventory reserves			(532,000	)			(672,000	)
Net inventory		$	1,877,000			$	2,056,000

 

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, 2023, and May 31, 2023, inventory reserves were approximately $532,000 and $672,000, 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 was approximately $16,000 and $20,000 for the three months ended August 31, 2023 and 2022, 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 $5,000 and $9,000 for the three months ended August 31, 2023 and 2022, 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. During the three months ended August 31, 2023 and 2022, an impairment adjustment was made of $0 and $6,000, respectively.

 

INVESTMENTS

 

The Company has made investments in a privately held 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 August 31, 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 August 31, 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 Company expensed approximately $170,000 and $304,000 of share-based compensation during the three months ended August 31, 2023 and 2022, respectively.

 

The following summary presents the options granted, exercised, expired, canceled and outstanding for the three months ended August 31, 2023:

 SUMMARY OF OPTIONS ACTIVITY

		Option Shares				Weighted Average Exercise Price
Options Outstanding at May 31, 2023			2,342,616			$	3.52
Granted			68,000				1.18
Exercised			-				-
Cancelled or expired			(47,500	)			3.31
Options Outstanding at August 31, 2023			2,363,116			$	3.45

 

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 three months ended August 31, 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. Physician’s 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, 2023, the Company had approximately $60,000 of advances from certain foreign customers. The majority of these advances are prepayments on orders that are expected to ship during our second fiscal quarter ended November 30, 2023.

 

 

Disaggregation of revenue:

 

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

 SCHEDULE OF DISAGGREGATION REVENUE

		2023				2022
		Three Months Ended August 31,
		2023				2022
Clinical lab		$	1,289,000			$	1,146,000
Over-the-counter			303,000				213,000
Contract manufacturing			117,000				95,000
Physician’s office			4,000				183,000
Total		$	1,713,000			$	1,637,000

 

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 $472,000 and $361,000 of research and development costs during the three months ended August 31, 2023 and 2022, respectively.

 

INCOME TAXES

 

The Company had income tax expense for the three months ended August 31, 2023 of approximately $23,000, consisting of state minimum and foreign miscellaneous taxes. During the three months ended August 31, 2023, the Company had a net operating loss (“NOL”) that generated deferred tax assets for NOL carryforwards. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, the Company has determined that it is more likely than not that these deferred tax assets will not be realized. Accordingly, the Company has established a full valuation allowance against its deferred tax assets as of August 31, 2023.

 

The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the three months ended August 31, 2023, the Company had no accrued interest or penalties related to uncertain tax positions.

 

ADVERTISING COSTS

 

The Company reports the cost of advertising as expense in the period in which those costs are incurred. Advertising costs were approximately $30,000 and $18,000 for the three months ended August 31, 2023 and 2022, 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, 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. 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 at August 31, 2023 and 2022 was 2,363,116 and 2,388,616, respectively.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Recent ASU’s issued by the FASB and guidance issued by the SEC did not, or are not believed by the 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. This ASU requires 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 SEC to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company adopted ASU 2016-03 on June 1, 2023, and the adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

 

NOTE 3: SHAREHOLDERS’ EQUITY

 

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. In March 2023, we terminated the ATM offering agreement and sold 3,333,333 shares of our common stock in a firm commitment public offering under the Company’s shelf registration statement. Shares sold in the underwritten public offering were sold at a gross sales price of $2.40 per share, resulting in net proceeds from the offering, after deducting issuance fees and expenses, of approximately $7,300,000. On August 31, 2023, the Company did not have an open ATM offering in place. No shares of common stock or other equity securities of the Company were sold under the shelf registration statement during the three months ended August 31, 2023.

 

NOTE 4: GEOGRAPHIC INFORMATION

 

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

 SCHEDULE OF GEOGRAPHIC INFORMATION

		2023				2022
		Three Months Ended August 31,
		2023				2022
Revenues from sales to unaffiliated customers:
Asia		$	1,026,000			$	814,000
Europe			327,000				552,000
North America			355,000				268,000
South America			5,000				3,000
Revenues from sales to unaffiliated customers total		$	1,713,000			$	1,637,000

 

As of August 31, 2023 and May 31, 2023, approximately $610,000 and $626,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.

 

As of August 31, 2023 and May 31, 2023, approximately $16,000 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 August 31, 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 Company made a security deposit of 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. 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.

 

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 liabilities. 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 liabilities but are instead recognized as variable lease expense in the consolidated statements of operations and comprehensive loss when they are incurred.

 

The following table presents information on our operating leases for the three months ended August 31, 2023 and 2022:

 SCHEDULE OF OPERATING LEASES

		2023				2022
		Three Months Ended August 31,
		2023				2022
Operating lease cost		$	88,000			$	88,000
Variable lease cost			3,000				-
Short-term lease cost			5,000				4,000
Total lease cost		$	96,000			$	92,000

 

The approximate maturity of lease liabilities as of August 31, 2023 are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS 

Year Ending August 31:
		Operating Leases
2024		$	359,000
2025			368,000
2026			378,000
2027			6,000
Thereafter			-
Total minimum future lease payments		$	1,111,000
Less: imputed interest			100,000
Total operating lease liabilities		$	1,011,000

 

The following table summarizes the Company’s other supplemental lease information for the three months ended August 31, 2023 and 2022:

 SCHEDULE OF OTHER SUPPLEMENTAL LEASE INFORMATION

		2023				2022
		Three Months Ended August 31,
		2023				2022
Cash paid for operating lease liabilities		$	87,000			$	86,000
Weighted-average remaining lease term (years)			3.02				4.02
Weighted-average discount rate			6.50	%			6.50	%

 

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 August 31, 2023.

 

NOTE 7: SUBSEQUENT EVENTS

 

On September 15, 2023 the Company submitted to the FDA the final H. Pylori data set requested by the FDA during the FDA’s recent review of the 510-K filed by the Company. The Company received confirmation from the FDA that the data was received. The Biomerica hp+detect™ diagnostic test is designed to detect the presence of the H. pylori bacteria which infects approximately 35% of the U.S. population.

 

 

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, 2023 (our 2023 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 2023 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 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. Our inFoods® IBS product uses a simple blood sample to identify patient-specific foods that, when removed from the patient’s diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, 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 a panel of specific foods that have been shown to often be problematic to IBS suffers. A food identified as positive, and causing an abnormally high immune response in the patient is simply removed from the diet to help alleviate IBS symptoms.

 

During fiscal 2022, we completed an endpoint determination clinical trial on our inFoods® IBS product. This trial was conducted at Mayo Clinics in Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School Teaching Hospital, University of Texas Health Science Center at Houston, Houston Methodist, the University of Michigan, and other institutions. This double blinded, placebo-controlled trial monitored IBS patients over an 8-week treatment period to determine the efficacy of our inFoods® IBS product to improve the patients’ IBS symptoms or endpoints. The trial was designed to determine the difference in the improvement in IBS symptoms for patients in the treatment arm, versus patients in the placebo arm of the trial. The top-line trial results were reported in February 2022. Multiple endpoints demonstrated statistically significant improvements for participants in the treatment arm, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in each patient subtype (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 the efficacy of the product, and to determine the primary symptom endpoint, or endpoints to be used in a possible final pivotal trial that would be conducted to attain the validation data needed to apply for U.S. Food and Drug Administration (“FDA”) product clearance. We are continuing to review and refine the complete dataset and have selected the final endpoint that we would intend to use in a possible final pivotal trial. We are identifying the trial protocol for submission to the FDA, and once approved the trial would be run thereafter. The trial is expected to include the large medical institution participants that conducted the endpoint clinical trial, in addition to other new institutions and a Clinical Research Organization.

 

 

Following the successful completion and positive statistical results from the Company’s inFoods® IBS clinical trial, Biomerica received interest from Gastroenterology (“GI”) physicians who would like to order the inFoods® IBS test for their patients.

 

In fiscal 2023, we worked to set up the inFoods® IBS test to be performed in a 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 February 28, 2023, patient samples were being accepted. 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 fiscal third 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 identified as needing to be eliminated 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, we trial launched this product with one large GI physician group that are now offering this product to their patients. We have also recently hired an internal sales force to sign up additional GI physician groups who are interested in offering this product to their patients. As such, we are expecting material growth in revenues from the launch of our inFoods® IBS product in coming quarters.

 

We are also beginning the work of selecting and validating 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 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, or accelerate revenue growth of, the inFoods® products in the United States 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 at Walmart, CVS Pharmacy, Amazon, etc.). 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, there were no sales of our COVID-19 related products in the three months ended August 31, 2023. As such, our COVID-19 product sales have caused significant swings in our revenues over the past eight quarters.

 

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. Working with the FDA, in August 2023, we completed one additional set of in-lab tests that the FDA requested prior to making their final determination on clearance of the product. This set of data was sent to the FDA and our 510(k) for the H. Pylori product was resubmitted to the FDA in September 2023. Once cleared, we will begin marketing the product in the U.S. market. We have also begun discussions with international distributors for this product and expect to see revenues both in the U.S. market and through these international channels during 2024.

 

The majority of our research and development efforts are focused on development and commercialization of non-COVID related products such as our H. Pylori product, and our inFoods® IBS product.

 

Our existing products that contributed to our fiscal 2023 revenues 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

 

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)
		2023				2022				$				%
Clinical lab		$	1,289,000			$	1,146,000			$	143,000				12	%
Over-the-counter			303,000				213,000				90,000				42	%
Contract Manufacturing			117,000				95,000				22,000				23	%
Physician’s office			4,000				183,000				(179,000	)			-98	%
Total		$	1,713,000			$	1,637,000			$	76,000				5	%

 

Consolidated net sales was approximately $1,713,000 for the three months ended August 31, 2023, as compared to $1,637,000 for the three months ended August 31, 2022, an increase of approximately $76,000, or 5%. This increase for the three months ended August 31, 2023, was driven primarily by demand for our clinical lab products in Asia and OTC products in the United States which was partially offset by a reduction in Physician’s office sales associated to COVID products. Periodic and infrequent orders may cause volatility in quarterly sales.

 

Consolidated cost of sales was approximately $1,301,000, or 76% of net sales, for the three months ended August 31, 2023, as compared to $1,692,000, or 107% of net sales, for the three months ended August 31, 2022, a decrease of approximately $391,000, or 23%. The decrease for the three months ended August 31, 2023, was driven primarily by the decrease in volume of COVID products and related inventory write-offs.

 

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		$	1,172,000				68	%		$	1,654,000				101	%		$	(482,000	)			-29	%
Research and Development		$	472,000				28	%		$	361,000				22	%		$	111,000				31	%

 

Selling, General and Administrative Expenses

 

Consolidated selling, general and administrative expenses were approximately $1,172,000 for the three months ended August 31, 2023, as compared to $1,654,000 for the three months ended August 31, 2022, a decrease of approximately $481,000, or 29%. The decrease in the three months ended August 31, 2023, was primarily due to approximate decreases in bad debt expense of $220,000, share-based compensation of $123,000, and legal expense of $170,000.

 

Research and Development

 

Consolidated research and development expenses were approximately $472,000 for the three months ended August 31, 2023, as compared to $361,000 for the three months ended August 31, 2022, an increase of approximately $111,000, or 31%. The increase in the three months ended August 31, 2023, was primarily due to R&D wages.

 

Interest and Dividend Income

 

Interest and dividend income were approximately $123,000 for the three months ended August 31, 2023, as compared to $0 for the three months ended August 31, 2022, an increase of $123,000, or 100%. The $123,000 increase was due to market interest rates on our cash balance, which, on August 31, 2022, the cash balance had not been invested.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

The following are the principal sources of liquidity:

 

		August 31, 2023				May 31, 2023
Cash and cash equivalents		$	7,988,000			$	9,719,000
Working capital including cash and cash equivalents		$	9,828,000			$	10,852,000

 

As of August 31, 2023 and May 31, 2023, the Company had cash and cash equivalents of approximately $7,988,000 and $9,719,000, respectively. As of August 31, 2023 and May 31, 2023, the Company had working capital of approximately $9,828,000 and $10,852,000, 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, including ongoing future operations, beyond next year, we are working on increasing sales, reducing expenses and may seek to raise additional financing through debt and equity financing.

 

Operating Activities

 

During the three months ended August 31, 2023, cash used in operating activities was approximately $1,674,000. The primary factors that contributed to this were a loss of approximately $1,132,000, non-cash expenses of $122,000, primarily associated with depreciation and amortization, share-based compensation, inventory reserves and amortization of right-of-use assets. This was partially offset by changes in asset and liability accounts of $664,000.

 

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 were a loss of approximately $2,072,000, non-cash expenses of $766,000, primarily associated with depreciation and amortization, share-based compensation, account receivables provision, and inventory reserves. This was partially offset by changes in asset and liability accounts of $267,000.

 

Investing Activities

 

During the three months ended August 31, 2023, cash used in investing activities was approximately $63,000. During the three months ended August 31, 2023, the Company purchased approximately $21,000 of property and equipment and had $42,000 in expenditures related to patents.

 

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

 

Financing Activities

 

During the three months ended August 31, 2023, cash provided by financing activities was $0, with no net proceeds from the sale of common stock or from stock option exercises.

 

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.

 

OFF BALANCE SHEET ARRANGEMENTS

 

There were no off-balance sheet arrangements as of August 31, 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, 2023.

 

 

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, 2023. 

 

ITEM 1A. RISKS 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 2023 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, 2023, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report on Form 10-K.

 

ITEM 5. OTHER INFORMATION

 

None.

 

 

ITEM 6. EXHIBITS

 

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

 

Exhibit No.		Description
3.2*		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 — 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.

 

 

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 12, 2023
		By:	/S/ Zackary S. Irani
			Zackary S. Irani
			Chief Executive Officer
			(Principal Executive Officer)
Date:	October 12, 2023
		By:	/S/ Gary Lu
			Gary Lu
			Chief Financial Officer
			(Principal Financial Officer)