UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 28,NOVEMBER 30, 2022
ORor
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 001-37863
BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation of organization) |
(I.R.S. Employer |
(Address of principal executive offices) | 92614 (Zip Code) |
--------------------------------------------------------------------------------------------------------------------------------------------------------------------REGISTRANT'S TELEPHONE NUMBER:
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17571 Von Karman Avenue, Irvine, CA 92614
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949)949) 645-2111
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(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant tounder 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) |
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| BMRA |
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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] |
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| 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, 2022 January 11, 2023was 12,851,924.13,479,413.
BIOMERICA, INC.
INDEX
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| 1 | |
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| 2 | |
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| 3 | |
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| 4 | |
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| Notes to Condensed Consolidated Financial Statements (unaudited) | 5 - |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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17 - 18 | ||
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18 | ||
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PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC. AND SUBSIDIARIES
BIOMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
February 28, 2022 (Unaudited) | ||||||
May 31, 2021 | ||||||
Assets |
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Current Assets: |
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Cash and cash equivalents | $ | 10,173,808 | $ | 4,199,311 | ||
Accounts receivable, less allowance for doubtful accounts |
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| 1,158,738 |
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| 1,455,051 |
Inventories, net | 3,231,430 | 3,206,255 | ||||
Prepaid expenses and other |
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| 667,129 |
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| 370,290 |
Total current assets | 15,231,105 | 9,230,907 | ||||
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Property and equipment, net of accumulated depreciation and amortization | 263,048 | 310,520 | ||||
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Right of use assets, net of accumulated amortization | 1,367,863 | 1,553,081 | ||||
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Investments | 165,324 | 165,324 | ||||
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Intangible assets, net of accumulated amortization | 386,013 | 294,830 | ||||
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Other assets |
| 146,980 |
| 264,151 | ||
Total Assets |
| $ | 17,560,333 |
| $ | 11,818,813 |
Liabilities and Shareholders' Equity |
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Current Liabilities: |
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Accounts payable and accrued expenses | $ | 2,608,840 | $ | 583,380 | ||
Accrued compensation |
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| 537,284 |
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| 388,896 |
Advances from customers | 3,213,052 | - | ||||
Lease liability, current portion |
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| 338,744 |
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| 327,944 |
Total current liabilities | 6,697,920 | 1,300,220 | ||||
Lease liability, net of current portion |
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| 1,104,611 |
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| 1,291,570 |
Total Liabilities |
| 7,802,531 |
| 2,591,790 | ||
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Commitments and contingencies (Notes 1 and 6) | ||||||
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Shareholders' Equity: | ||||||
Preferred stock, Series A 5% convertible, $0.08 par value, |
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| - |
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| - |
Preferred stock, undesignated, 0 par value, | - | - | ||||
Common stock, $0.08 par value, |
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| 1,028,152 |
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| 984,571 |
Additional paid-in-capital | 42,108,865 | 38,836,743 | ||||
Accumulated other comprehensive loss |
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| (60,857) |
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| (47,956) |
Accumulated deficit |
| (33,318,358) |
| (30,546,335) | ||
Total Shareholders' Equity |
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| 9,757,802 |
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| 9,227,023 |
Total Liabilities and Shareholders' Equity | $ | 17,560,333 | $ | 11,818,813 |
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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November 30, 2022 | May 31, 2022 | ||||
Assets |
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Current Assets: |
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Cash and cash equivalents | $ | 5,066,521 | $ | 5,916,983 | |
Accounts receivable, less allowance for doubtful accounts |
| 850,014 |
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| 773,818 |
Inventories, net of inventory reserves | 2,061,444 | 2,416,447 | |||
Prepaid expenses and other |
| 120,721 |
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| 320,283 |
Total current assets | 8,098,700 | 9,427,531 | |||
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Property and equipment, net of accumulated depreciation and amortization | 236,719 | 214,487 | |||
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Right of use assets, net of accumulated amortization | 1,169,456 | 1,301,834 | |||
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Investments | 165,324 | 165,324 | |||
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Intangible assets, net of accumulated amortization | 157,694 | 169,516 | |||
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Other assets |
| 79,654 |
| 95,588 | |
Total Assets | $ | 9,907,547 |
| $ | 11,374,280 |
Liabilities and Shareholders' Equity |
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Current Liabilities: |
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Accounts payable and accrued expenses | $ | 670,074 | $ | 972,372 | |
Accrued compensation |
| 697,179 |
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| 646,944 |
Advance from customers | 49,013 | 50,670 | |||
Lease liability, current portion |
| 346,937 |
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| 341,296 |
Total current liabilities | 1,763,203 | 2,011,282 | |||
Lease liability, net of current portion |
| 901,449 |
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| 1,038,284 |
Total Liabilities |
| 2,664,652 |
| 3,049,566 | |
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Commitments and contingencies (Notes 5 and 6) | |||||
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Shareholders' Equity: | |||||
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Common stock, $0.08 par value, | 1,078,353 | 1,029,432 | |||
Additional paid-in-capital |
| 45,035,298 |
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| 42,446,597 |
Accumulated other comprehensive loss | (95,413) | (73,936) | |||
Accumulated deficit |
| (38,775,343) |
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| (35,077,379) |
Total Shareholders' Equity |
| 7,242,895 |
| 8,324,714 | |
Total Liabilities and Shareholders' Equity | $ | 9,907,547 |
| $ | 11,374,280 |
The accompanying notes are an integral part of these statements. |
1
BIOMERICA, INC. AND SUBSIDIARIES
BIOMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
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Three Months Ended February 28, | Nine Months Ended February 28, | |||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||
Net sales |
| $ | 7,660,501 |
| $ | 3,628,638 |
| $ | 13,569,188 |
| $ | 6,144,970 |
Cost of sales |
| (5,987,277) |
| (3,702,069) |
| (11,213,175) |
| (5,791,593) | ||||
Gross profit (loss) |
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| 1,673,224 |
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| (73,431) |
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| 2,356,013 |
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| 353,377 |
Operating expenses: |
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Selling, general and administrative | 1,323,725 | 1,527,947 | 3,618,258 | 4,238,737 | ||||||||
Research and development |
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| 456,998 |
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| 563,967 |
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| 1,515,384 |
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| 1,892,033 |
Total operating expense |
| 1,780,723 |
| 2,091,914 |
| 5,133,642 |
| 6,130,770 | ||||
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Loss from operations |
| (107,499) |
| (2,165,345) |
| (2,777,629) |
| (5,777,393) | ||||
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Other income: | ||||||||||||
Dividend and interest income |
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| 6,019 |
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| 37,687 |
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| 19,740 |
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| 53,761 |
Loss before income taxes |
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| (101,480) |
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| (2,127,658) |
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| (2,757,889) |
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| (5,723,632) |
(Provision) benefit for income taxes |
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| (2,688) |
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| 3,117 |
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| (14,134) |
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| (11,401) |
Net loss |
| $ | (104,168) |
| $ | (2,124,541) |
| $ | (2,772,023) |
| $ | (5,735,033) |
Basic net loss per common share |
| $ | (0.01) |
| $ | (0.18) |
| $ | (0.22) |
| $ | (0.49) |
Diluted net loss per common share |
| $ | (0.01) |
| $ | (0.18) |
| $ | (0.22) |
| $ | (0.49) |
Weighted average number of common and |
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Basic |
| 12,820,481 |
| 11,905,492 |
| 12,611,760 |
| 11,802,803 | ||||
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Diluted |
| 12,820,481 |
| 11,905,492 |
| 12,611,760 |
| 11,802,803 | ||||
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Net loss | $ | (104,168) | $ | (2,124,541) | $ | (2,772,023) | $ | (5,735,033) | ||||
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Other comprehensive loss, net of tax: | ||||||||||||
Foreign currency translation |
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| (2,538) |
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| (5,437) |
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| (12,901) |
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| (8,687) |
Comprehensive loss | $ | (106,706) | $ | (2,129,978) | $ | (2,784,924) | $ | (5,743,720) |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
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| Three Months Ended |
| Six Months Ended | ||||||||
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| November 30, 2022 |
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| November 30, 2021 |
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| November 30, 2022 |
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| November 30, 2021 |
Net sales | $ | 1,481,915 |
| $ | 4,646,900 |
| $ | 3,119,350 |
| $ | 5,908,687 |
Cost of sales |
| (1,130,040) |
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| (3,875,141) |
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| (2,822,430) |
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| (5,225,898) |
Gross profit |
| 351,875 |
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| 771,759 |
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| 296,920 |
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| 682,789 |
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Operating expenses: |
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Selling, general and administrative |
| 1,556,022 |
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| 1,353,587 |
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| 3,209,843 |
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| 2,423,442 |
Research and development |
| 461,941 |
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| 547,933 |
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| 823,112 |
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| 929,477 |
Total operating expenses |
| 2,017,963 |
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| 1,901,520 |
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| 4,032,955 |
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| 3,352,919 |
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Loss from operations |
| (1,666,088) |
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| (1,129,761) |
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| (3,736,035) |
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| (2,670,130) |
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Other income: |
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Dividend and interest income |
| 41,254 |
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| 6,916 |
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| 41,282 |
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| 13,721 |
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Loss before income taxes |
| (1,624,834) |
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| (1,122,845) |
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| (3,694,753) |
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| (2,656,409) |
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Provision for income taxes |
| (1,254) |
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| (2,429) |
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| (3,211) |
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| (11,446) |
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Net loss | $ | (1,626,088) |
| $ | (1,125,274) |
| $ | (3,697,964) |
| $ | (2,667,855) |
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Basic net loss per common share | $ | (0.12) |
| $ | (0.09) |
| $ | (0.28) |
| $ | (0.21) |
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Diluted net loss per common share | $ | (0.12) |
| $ | (0.09) |
| $ | (0.28) |
| $ | (0.21) |
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Weighted average number of common and |
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Basic |
| 13,455,166 |
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| 12,592,341 |
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| 13,271,845 |
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| 12,509,110 |
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Diluted |
| 13,455,166 |
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| 12,592,341 |
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| 13,271,845 |
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| 12,509,110 |
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Net loss | $ | (1,626,088) |
| $ | (1,125,274) |
| $ | (3,697,964) |
| $ | (2,667,855) |
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Other comprehensive loss, net of tax: |
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Foreign currency translation |
| (8,950) |
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| (4,750) |
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| (21,477) |
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| (10,363) |
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Comprehensive loss | $ | (1,635,038) |
| $ | (1,130,024) |
| $ | (3,719,441) |
| $ | (2,678,218) |
The accompanying notes are an integral part of these statements. |
2
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)
BIOMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) | |||||||||||||||||||
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For the Nine Months Ended February 28, 2021 (As Restated) | |||||||||||||||||||
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| Common Stock |
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Series A 5% Convertible Preferred Stock |
| Additional |
| Accumulated Other |
| Accumulated |
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| Shares | Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Loss |
| Deficit |
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| Total | ||||
Balances, May 31, 2020, restated | 11,740,089 | $ | 939,205 |
| 321,429 | $ | 25,714 |
| $ | 36,388,056 |
| $ | (39,841) |
| $ | (23,100,081) |
| $ | 14,213,053 |
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Exercise of stock options | 81,750 |
| 6,540 |
| - |
| - |
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| 89,915 |
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| - |
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| - |
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| 96,455 |
Net proceeds from ATM | 158,889 |
| 12,711 |
| - |
| - |
|
| 998,764 |
|
| - |
|
| - |
|
| 1,011,475 |
Foreign currency translation | - |
| - |
| - |
| - |
|
| - |
|
| (8,687) |
|
| - |
|
| (8,687) |
Conversion of preferred to common stock | 321,429 |
| 25,714 |
| (321,429) |
| (25,714) |
|
| - |
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| - |
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| - |
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| - |
Compensation expense in connection with options granted | - |
| - |
| - |
| - |
|
| 1,022,320 |
|
| - |
|
| - |
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| 1,022,320 |
Net loss | - |
| - |
| - |
| - |
|
| - |
|
| - |
|
| (5,735,033) |
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| (5,735,033) |
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Balances, February 28, 2021, restated | 12,302,157 | $ | 984,170 |
| - | $ | - |
| $ | 38,499,055 |
| $ | (48,528) |
| $ | (28,835,114) |
| $ | 10,599,583 |
| |||||||||||||||||||
For the Nine Months Ended February 28, 2022 | |||||||||||||||||||
| |||||||||||||||||||
| Common Stock |
| Series A 5% Convertible Preferred Stock |
|
Additional |
| Accumulated |
|
Accumulated |
|
|
| |||||||
| Shares | Amount |
| Shares |
| Amount |
| Paid-in Capital |
| Loss |
| Deficit |
| Total | |||||
Balances, May 31, 2021 | 12,307,157 | $ | 984,571 |
| - | $ | - |
| $ | 38,836,743 |
| $ | (47,956) |
| $ | (30,546,335) |
| $ | 9,227,023 |
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Exercise of stock options | 23,500 |
| 1,880 |
| - |
| - |
|
| 37,295 |
|
| - |
|
| - |
|
| 39,175 |
Net proceeds from ATM | 521,267 |
| 41,701 |
| - |
| - |
|
| 2,275,459 |
|
| - |
|
| - |
|
| 2,317,160 |
Foreign currency translation | - |
| - |
| - |
| - |
|
| - |
|
| (12,901) |
|
| - |
|
| (12,901) |
Compensation expense in connection with options granted | - |
| - |
| - |
| - |
|
| 959,368 |
|
| - |
|
| - |
|
| 959,368 |
Net loss | - |
| - |
| - |
| - |
|
| - |
|
| - |
|
| (2,772,023) |
|
| (2,772,023) |
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Balances, February 28, 2022 | 12,851,924 | $ | 1,028,152 |
| - | $ | - |
| $ | 42,108,865 |
| $ | (60,857) |
| $ | (33,318,358) |
| $ | 9,757,802 |
|
| Common Stock |
| Additional Paid-in Capital |
| Accumulated Other Loss |
| Accumulated Deficit |
|
Total | |||||||
| Shares |
| Amount |
|
|
|
| |||||||||
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 |
| Common Stock |
|
Additional Paid-in Capital |
| Accumulated Other Loss |
| Accumulated Deficit |
|
|
| ||||||
| 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 |
The accompanying notes are an integral part of these statements. |
3
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
BIOMERICA, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||
Nine Months Ended February 28, | ||||||
2021 (As Restated) | ||||||
2022 | ||||||
Cash flows from operating activities: |
|
|
|
|
|
|
Net loss |
| $ | (2,772,023) |
| $ | (5,735,033) |
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | ||||||
Depreciation and amortization |
|
| 102,272 |
|
| 94,550 |
Change in allowance on accounts receivable | (817,122) | 578,438 | ||||
Inventory reserve |
|
| 270,805 |
|
| 1,437,547 |
Stock option expense | 959,368 | 1,022,320 | ||||
Amortization of right-of-use asset |
|
| 189,696 |
|
| 173,919 |
Changes in assets and liabilities: | ||||||
Accounts receivable |
|
| 1,113,435 |
|
| (690,691) |
Inventories | (295,980) | (1,446,766) | ||||
Prepaid expenses and other |
|
| (296,839) |
|
| 734,966 |
Reduction in lease liability | (180,637) | (156,384) | ||||
Other assets |
|
| 117,171 |
|
| (114,664) |
Accounts payable and accrued expenses | 2,025,460 | (230,575) | ||||
Accrued compensation |
|
| 148,388 |
|
| 88,309 |
Advances from customers |
| 3,213,052 |
| - | ||
Net cash provided by (used in) operating activities |
|
| 3,777,046 |
|
| (4,244,064) |
Cash flows from investing activities: |
|
|
|
|
|
|
Increase in intangibles | (113,436) | (116,881) | ||||
Purchases of property and equipment |
|
| (32,547) |
|
| (106,760) |
Net cash used in investing activities |
| (145,983) |
| (223,641) | ||
|
|
|
|
|
|
|
Cash flows from financing activities: | ||||||
Proceeds from sale of common stock, net |
|
| 2,317,160 |
|
| 1,011,475 |
Proceeds from exercise of stock options |
| 39,175 |
| 96,455 | ||
Net cash provided by financing activities |
|
| 2,356,335 |
|
| 1,107,930 |
Effect of exchange rate changes in cash |
|
| (12,901) |
|
| (8,687) |
Net increase (decrease) in cash and cash equivalents | 5,974,497 | (3,368,462) | ||||
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
| 4,199,311 |
| 8,641,027 | ||
|
|
|
|
|
|
|
Cash and cash equivalents at end of period | $ | 10,173,808 | $ | 5,272,565 | ||
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: | ||||||
Cash paid during the period for: |
|
|
|
|
|
|
Income taxes | $ | 13,334 | $ | 13,730 | ||
|
|
|
|
|
|
|
Non-cash investing and financing activities: | ||||||
Increase in right-of-use asset due to lease extension or establishment |
| $ | 4,478 |
| $ | - |
Increase in lease liability due to lease extension or establishment | $ | 4,478 | $ | - |
|
| Six Months Ended | ||||
| November 30, 2022 |
| November 30, 2021 | ||
Cash flows from operating activities: |
|
|
|
|
|
Net loss | $ | (3,697,964) |
| $ | (2,667,855) |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 47,690 |
|
| 68,668 |
Provision for allowance on accounts receivable |
| 369,003 |
|
| (809,638) |
Inventory reserve |
| (71,633) |
|
| 181,825 |
Stock option expense |
| 621,985 |
|
| 634,019 |
Amortization of right-of-use asset |
| 134,467 |
|
| 126,039 |
Changes in assets and liabilities: |
|
|
|
|
|
Accounts receivable |
| (445,199) |
|
| 1,139,450 |
Inventories |
| 426,636 |
|
| 42,229 |
Prepaid expenses and other |
| 199,562 |
|
| (726,460) |
Other assets |
| 15,933 |
|
| 114,570 |
Accounts payable and accrued expenses |
| (302,299) |
|
| 997,327 |
Accrued compensation |
| 50,235 |
|
| 285,431 |
Advance from customers |
| (1,657) |
|
| 2,150,466 |
Reduction in lease liability |
| (133,283) |
|
| (117,321) |
Net cash (used in) provided by operating activities |
| (2,786,524) |
|
| 1,418,750 |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Expenditures related to intangibles |
| - |
|
| (108,917) |
Purchases of property and equipment |
| (58,098) |
|
| (18,212) |
Net cash used in investing activities |
| (58,098) |
|
| (127,129) |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
Gross proceeds from sale of common stock |
| 1,988,422 |
|
| 1,751,222 |
Costs from sale of common stock |
| (51,940) |
|
| (67,108) |
Proceeds from exercise of stock options |
| 79,155 |
|
| 34,480 |
Net cash provided by financing activities |
| 2,015,637 |
|
| 1,718,594 |
|
|
|
|
|
|
Effect of exchange rate changes on cash |
| (21,477) |
|
| (10,363) |
Net (decrease) increase in cash and cash equivalents |
| (850,462) |
|
| 2,999,852 |
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
| 5,916,983 |
|
| 4,199,311 |
|
|
|
|
|
|
Cash and cash equivalents at end of the period | $ | 5,066,521 |
| $ | 7,199,163 |
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information: |
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
Income taxes | $ | 3,211 |
| $ | 10,646 |
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
Increase in right-of-use asset due to CPI rent adjustment | $ | 2,089 |
| $ | - |
Increase in lease liability due to CPI rent adjustment | $ | 2,089 |
| $ | - |
Write off of intangible assets, cost | $ | 6,489 |
| $ | - |
Write off of intangible assets, accumulated amortization | $ | 850 |
| $ | - |
The accompanying notes are an integral part of these statements. |
4
BIOMERICA, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
Biomerica, Inc. and its subsidiaries (collectively the “Company”, “Biomerica”, “we”, “us”, or “our”)(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 (in homephysicians' offices and physicians' offices) over-the-counter through drugstores and online)and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. 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. We are currently working with key gastroenterology (GI) physician groups who are interested in offering this product to their patients. As such, we are expecting to begin generating revenues from the launch of our InFoods® IBS product during our fiscal third quarter ending February 28, 2023.
Our existing medical diagnostic products that are in the market are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians' offices and drugstores likeover-the-counter at Walmart, Amazon, and Walgreens). OurThe 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 the Company does offerwe 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, approximately 13% of our revenues during the six months ended November 30, 2022 were from sales of our COVID-19 related products, as compared to 57% of our revenue during the six months ended November 30, 2021.
The otherOur non-COVID-19 products we sellthat accounted for approximately 87% and 43% of our revenues during the six months ended November 30, 2022 and 2021, respectively, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. Most of our commercial 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 U.S.United States by the FDA.
The information set forth in these condensedunaudited consolidated financial statements isherein have been prepared by management pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). The accompanying interim unaudited consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest fiscal year ended May 31, 2022. Accordingly, certain information and reflects all adjustments which,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, are necessary to present a fair statement of the consolidated results of operations of Biomerica, Inc. and subsidiaries, for the periods indicated. It does not include all information and footnotesadjustments considered necessary for a fair presentation have been included. Operating results for the six months ended November 30, 2022 are not necessarily indicative of financial position,the results of operations, and cash flows in conformity with accounting principles generally accepted inthat may be expected for the United States of America. All adjustments that were made are of a normal recurring nature.
The unaudited, condensedfiscal year ending May 31, 2023. For further information, refer to the audited consolidated financial statements and notes are presented as permitted bythereto for the requirements for Form 10-Q and do not contain certain informationfiscal year ended May 31, 2022 included in the annual financial statements and notes. The condensed consolidated balance sheet data as of May 31, 2021 was derived from restated, audited financial statements. The accompanying interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in theCompany's Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”)SEC on August 27, 2021 for29, 2022. Management has evaluated all subsequent events and transactions through the fiscal year ended May 31, 2021, which have been restated as described in our Form 10-K/A as filed on October 14, 2021. The resultsdate of operations for the interim periods are not necessarily indicative of results to be achieved for the full fiscal year.
CORRECTION OF AN ERROR
As disclosed in our Form 10-K/A for the year ended May 31, 2021, filed on October 14, 2021, during the process of preparing our financial statements for the quarter ended August 31, 2021, we determined that our calculation of non-cash stock-based compensation expense related to issued stock options in previously issued financial statements was incorrect. Our calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation expense. Additionally, our calculation expensed the option at vesting dates versus pro-rata over the period the requisite service was provided. As a result of these errors, certain previously reported amounts in the condensed consolidated statement of operations, condensed consolidated statement of stockholders’ equity and condensed consolidated statement of cash flows for the periods ended February 28, 2021, were materially misstated; accordingly, we have restated the prior period financial statements. See Note 8 to these Financial Statements.filing this report.
5
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 past practicesexperience 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, and the ongoing war in Ukraine, the Company’s operations have been negatively impacted.The Company has faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, cost inflation, loss of contracts and/or customers, closure of the Company’s manufacturing or distribution facilities or of the facilities of the Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities. These ongoing pandemic and war 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 $33.3$38.8 million as of February 28,November 30, 2022. Management expects to continue to incur significant costs as it advances its clinical trials, product launches, and product development activities. As of November 30, 2022, the Company had cash and cash equivalents of approximately $5,067,000 and working capital of approximately $6,335,000.
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 purposesthe sale of raising up to $15,000,000 toof shares of our common stock in an at-the-market offering (“ATM Offering”) under the base prospectus filed with the SEC on July 21, 2020 and included in theshelf registration statement, on Form S-3 (File No. 333-239980) that was declared effective by the SEC on September 30, 2020. The shares included inof which approximately $9,400,000, remains available for sale under the prospectus supplement may be sold pursuant to the terms of an At-The- Market Issuance Sales Agreement between the Company and B. Riley Securities, Inc., as sales agent, the ATM Agreement.supplement.
The Company intends to use the net proceeds from such offering for general corporate purposes, including, without limitation, sales and marketing activities, clinical studies and product development, making acquisitions of assets, businesses, companies or securities, capital expenditures, and for working capital needs.
Under an ATM Agreement, sales of shares are deemed to be sold “at the market offerings” as defined in Rule 415 promulgated under the Securities Act. The sales agent under the ATM AgreementOffering agrees to use commercially reasonable efforts to sell on the Company’s behalf all of the shares requested to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and the Company. The Company has no obligation to sell any of the shares under the ATM Agreement,Offering, and may at any time suspend offers under, or terminate the ATM Agreement.Offering.
During the six months ended November 30, 2022, the Company sold 565,664 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 $1,988,000 and net proceeds to the Company approximately of $1,936,000 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,November 30, 2022, and the ability to raise additional funds, including through the ATM AgreementOffering noted above,management believes the Company has sufficient funds to operate through May 2023.at least February 2024.
6
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. As of February 28,November 30, 2022, the Company had approximately $9,765,000$4,825,000 of uninsured cash. The Company does not believe it is exposed to any significant credit risks.
6Consolidated net sales were approximately $1,482,000 and $4,647,000 for the three months ended November 30, 2022 and 2021, respectively, and
approximately $3,119,000 and $5,909,000 forTable of Contents the six months ended November 30, 2022 and 2021, respectively.
For the ninethree months ended February 28,November 30, 2022 and 2021, the Company had three two and twoone key customers who are located in foreign countriesAsia and the United States which accounted for 75%48% and 66%59% of net consolidated sales, respectively. For At February 28,the six months ended November 30, 2022 andMay 31, 2021, the Company had one and two key customers who are located in Asia which accounted for 44% and 66% of net consolidated sales, respectively.
Total gross receivables on November 30, 2022 and May 31, 2022 were approximately $1,372,000 and $927,000, respectively. On November 30, 2022 and May 31, 2022, the Company had two and one key customers who are located in foreign countries which accounted for a total of 67%75% and 73%50%, respectively, of gross accounts receivable.
For the ninethree months ended February 28,November 30, 2022 and 2021, the Company had one keykey vendor which accounted for 85% 12% and 62%83% of the purchases of raw materials, respectively. As of February 28,For the six months ended November 30, 2022 and May 31, 2021, the the Company had one key vendor which accounted for 80% 8% and 17%77% of the purchases of raw materials, respectively.
As of November 30, 2022 and May 31, 2022, the Company had one and two key vendors which accounted for 27% and 69%, respectively, of accounts payable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits and money market accounts with original maturities of less than three months.
ACCOUNTS RECEIVABLE
The Company extends unsecured credit to its customers on a regular basis. International accounts are usually required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria. Based on various criteria, initial credit levels for individual distributors are approved by designated officers and managers of the Company. All increases in credit limits are also approved by designated upper-level management. Management evaluates receivables on a quarterly basis and adjusts the allowance for doubtful accounts accordingly. Balances over ninety days old are usually reserved for unless collection is reasonably assured.
Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.
TheAs of November 30, 2022 and May 31, 2022, the Company has established a reserve of approximately $20,000$522,000 and $153,000, respectively, for doubtful accounts as of February 28, 2022.accounts.
PREPAID EXPENSES AND OTHER
The Company occasionally prepays for items such as inventory, insurance, and other items. These items are reported as prepaid expenses and other, until either the inventory is physically received, or the insurance and other items are expensed.
As of February 28,November 30, 2022 and May 31, 2021,2022, theprepaid expenses and other were approximately $667,000$121,000 and $320,000,$370,000, respectively. The prepaid expenses and other balance were, composed of prepayments to raw materials suppliers, 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 inventory reserve (as described below) 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 November 30, 2022, and May 31, 2022, inventory reserves were approximately $774,000 and $846,000, respectively.
7
Net inventories are approximately the following:
February 28, | May 31, | November 30, 2022 |
| May 31, 2022 | |||||||
Raw materials |
| $ | 1,360,000 |
| $ | 1,583,000 | $ | 1,685,000 |
| $ | 1,717,000 |
Work in progress | 714,000 | 1,006,000 | 811,000 | 763,000 | |||||||
Finished products |
|
| 1,157,000 |
|
| 617,000 |
| 339,000 |
|
| 782,000 |
Total | $ | 3,231,000 | $ | 3,206,000 | |||||||
Total gross inventory | $ | 2,835,000 | $ | 3,262,000 | |||||||
Inventory reserves |
| (774,000) |
|
| (846,000) | ||||||
Net inventory | $ | 2,061,000 | $ | 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 carrying value to estimated net realizable value or to specifically reserve for obsolete inventory that the Company intends to dispose of. As of February 28, 2022 and May 31, 2021, inventory reserves were approximately $1,888,000 and $1,617,000, respectively. Of the inventory reserve as of February 28, 2022, approximately $1,686,000 was related to a market downturn in our COVID-19 antibody test and materials, as the market shifted to COVID-19 PCR viral tests and antigen tests.
7
Table of Contentsinventory.
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost. Expenditures for additions and major improvements are capitalized. Repairs and maintenance costs are charged to operations as incurred. When property and equipment are sold, retired or otherwise disposed of, the related cost and accumulated depreciation or amortization are removed from the accounts, and gains or losses from sales, retirements and dispositions are credited or charged to income.
Depreciation and amortization are provided over the estimated useful lives of the related assets, ranging from 5 to 10 years, using the straight-line method. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the lease. Depreciation and amortization expense on property and equipment were approximately $16,000 and $26,000 for the three months ended February 28,November 30, 2022 and 2021, respectively, and approximately $80,000 $36,000 and $78,000$54,000 for the ninesix months ended February 28,November 30, 2022 and 2021, respectively 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.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 $8,000$3,000 and $4,000$7,000 for the three months ended February 28,November 30, 2022 and 2021, respectively, and approximately $22,000$12,000 and $16,000$14,000 for the ninesix months ended February 28,November 30, 2022 and 2021, 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. The Company uses a qualitative assessment to determine whether there was any impairment. NoAs of November 30, 2022 and 2021, an impairment adjustment was required as made of February 28, 2022 or 2021.$6,000 and $0, respectively.
INVESTMENTS
From time-to-time, the Company makes investments in privately-heldprivately held companies. The Company determines whether the fair values of any investments in privately-held entities have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable. If the Company considers any such decline to be other than temporary (based on various factors, including historical financial results, and the overall health of the investee’s industry), a write-down to estimated fair value is recorded. Investments represent the Company’s equity investment in a Polish-based distribution companyPolish distributor, which is primarily engaged in distributing medical products and devices, including those manufacturedthe distribution of the products sold by the Company, and in certain cases, manufacturing the products they sell. Company. The Company currently has not written downinvested approximately $165,000 into the investmentPolish distributor and has no information that would indicate the carrying value is greater than the fair value. The Company owns approximately 6% of the Polish distribution company, and accordingly, appliesinvestee.
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, method to accountminus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the investment. Underidentical or a similar holding or security of the cost method, investmentssame issuer. Dividends received are recorded at cost, with gains and losses recognizedas other income.
8
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 November 30, 2022 and determined that the sale date, and income recorded when received.Company's proportionate economic interest in the entity indicates that the equity holding was not impaired. There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holding during the period ended November 30, 2022.
SHARE-BASED COMPENSATION
The Company follows the guidance of the accounting provisions of Accounting Standards CodificationASC 718, Share-based Compensation (“ASC 718”), which requires the use of the fair-value based method to determine compensation expense for all arrangements under which employees directors and others are grantedreceive shares of the Company’s common stock or equity instruments (stock options)(options). The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricingoption-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 ofthe expected term. The grant date fair value of the award is recognized under the straight-line attribution method.
8The Company expensed
Tableapproximately $622,000 and $634,000 of Contentsstock-based compensation during the six months ended November 30, 2022 and 2021, respectively.
The following summary presents the options and warrants granted, exercised, expired, canceled and outstanding for the ninesix months endedended February 28, November 30, 2022:
Option Shares | Exercise Price Weighted Average | Option Shares | Exercise Price Weighted Average | ||||||
Outstanding May 31, 2021 |
| 2,081,366 |
| $ | 3.59 | ||||
Outstanding May 31, 2022 | 2,321,616 |
| $ | 3.72 | |||||
Granted | 307,000 | 4.44 | 146,000 | 3.37 | |||||
Exercised |
| (23,500) |
| 1.71 | (46,500) |
|
| 1.73 | |
Cancelled or expired | (28,750) | 3.49 | (82,500) |
| 5.07 | ||||
Outstanding February 28, 2022 |
| 2,336,116 |
| $ | 3.72 | ||||
Outstanding November 30, 2022 | 2,338,616 |
| $ | 3.69 |
During the ninesix months ended February 28,November 30, 2022, options to purchase 23,50046,500 shares of common stock were exercised at prices ranging from $1.20$0.82 to $3.62.$2.68. Total net proceeds to the Company were $39,175.approximately $79,000.
During the ninesix months ended February 28,November 30, 2022, the Company granted 307,000146,000 options to purchase common stock at an average purchase price of $4.44.$3.37, with the majority of those options issued to the Company’s new Chief Commercial Officer, who is managing the commercialization and roll-out of the InFoods IBS test.
REVENUE RECOGNITION
The Company has various contracts with customers. All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control of goods has occurred and at which point title passes.
The Company does not typically allow for returns from international customers except in the event of defective merchandise and therefore does not establish an allowance for returns. The Company does allow for a return merchandise allowance of approximately one percent of sales to certain domestic retailers. This allowance reduces revenue recognition by approximately one percent and is included in sales discounts. In addition, the Company has contracts with customers wherein theycustomers receive purchase discounts for achieving specified sales volumes. The Company evaluated the status of these contracts as of February 28,during the six months ended November 30, 2022 and 2021, and does not believe that any additional discounts will be given through the end of the contract periods.
Services for contract workswork performed by the Company for others are invoiced and recognized as that work that 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.
During the quarter ended February 28,9
As of November 30, 2022, the Company had approximately $3,213,000$49,000 of advances from certain foreign customers. The majority of these advances are prepayments on orders that are expected to ship during our fourththird quarter ended May 31, 2022.ending February 28, 2023.
Disaggregation of revenue:
The following is a breakdown of revenues according to markets to which the products are sold:
Three Months Ended | Nine Months Ended | Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 | 2022 |
| 2021 |
| 2022 |
| 2021 | |||||||||||
Physician's office |
| $ | 6,518,000 |
| $ | 2,384,000 |
| $ | 10,134,000 |
| $ | 2,735,000 | ||||||||||||
Clinical lab | 731,000 | 967,000 | 2,259,000 | 2,441,000 |
| $ | 902,000 |
| $ | 642,000 |
| $ | 2,048,000 |
| $ | 1,528,000 | ||||||||
Over-the-counter |
| 244,000 |
|
| 148,000 |
|
| 857,000 |
|
| 605,000 | 466,000 | 534,000 | 679,000 | 613,000 | |||||||||
Physician's office |
|
| 62,000 |
|
| 3,359,000 |
|
| 245,000 |
|
| 3,616,000 | ||||||||||||
Contract manufacturing |
|
| 167,000 |
|
| 130,000 |
|
| 319,000 |
|
| 364,000 |
|
| 52,000 |
|
| 112,000 |
|
| 147,000 |
|
| 152,000 |
Total | $ | 7,660,000 | $ | 3,629,000 | $ | 13,569,000 | $ | 6,145,000 | $ | 1,482,000 | $ | 4,647,000 | $ | 3,119,000 | $ | 5,909,000 |
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.
9
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The Company expensed approximately $457,000$462,000 and $564,000$548,000 of research and development costs during the three months ended February 28,November 30, 2022 and 2021, respectively, and approximately $1,515,000$823,000 and $1,892,000$929,000 of research and development costs during the ninesix months ended February 28,November 30, 2022 and 2021, respectively.
INCOME TAXES
The Company has provided a full valuation allowance on deferred income tax assets of approximately $6,479,000 $7,748,000 and $5,904,000$6,967,000 as of February 28,November 30, 2022 and May 31, 2021,2022, 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 adjustments to foreign currency losstransactions that are included in the condensed consolidated statements of operations for the three and ninesix months ended February 28,November 30, 2022 and 2021.
RIGHT-OF-USE ASSETS AND LEASE LIABILITY
The Company follows the guidance of ASC 842, Leases, which requires lessees to recognize most leases on the balance sheet with a corresponding right-of-use asset. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent theour 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. The Company has elected to exclude short-term 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 February 28,on November 30, 2022 and 2021 was 2,336,1162,338,616 and 1,360,192,2,059,116, respectively.
10
RECENT ACCOUNTING PRONOUNCEMENTS
Recent ASUsASU's issued by the Financial Accounting Standards BoardFASB and guidance issued by the Securities and Exchange Commission (“SEC”)SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. In November 2019, the FASB issued ASU 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.
RECLASSIFICATIONS
Certain comparative figures in the November 30, 2021 condensed consolidated statement of operations have been reclassified to conform to the current period presentation.
NOTE 3: SHAREHOLDERS’ EQUITY
Stock option expense during the ninesix months ended February 28,November 30, 2022 and 2021 was approximately $959,000$622,000 and $1,022,000 (as restated, see Note 8 to these Financial Statements),$634,000, respectively.
During the ninesix months ended February 28,November 30, 2022, the Company sold 521,267565,664 shares of its common stock at prices ranging from $4.02$3.15 to $5.63$4.26 under its January 22, 2021 prospectus supplementForm S-3 Registration Statement and the ATM Agreement (see Note 2 to these Financial Statements)Offering which resulted in gross proceeds of approximately $2,402,000$1,988,000 and net proceeds to the Company of approximately $2,317,000$1,936,000 after deducting commissions for each sale and legal, accounting, and other fees related to the filing of the Form S-3.ATM Offering.
10
NOTE 4: GEOGRAPHIC INFORMATION
The Company operates as 1one segment. Geographic information regarding net sales is approximately as follows:
Three Months Ended | Nine Months Ended | Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
Revenues from sales to unaffiliated customers: |
|
|
|
|
|
| ||||||||||||||||||
Asia |
| $ | 4,877,000 |
| $ | 756,000 |
| $ | 8,925,000 |
| $ | 1,653,000 |
| $ | 663,000 |
| $ | 3,373,000 |
| $ | 1,477,000 |
| $ | 4,048,000 |
Europe |
| 2,416,000 |
|
| 2,611,000 |
|
| 3,683,000 |
|
| 3,781,000 | 415,000 | 796,000 | 967,000 | 1,267,000 | |||||||||
North America | 286,000 | 133,000 | 820,000 | 374,000 |
|
| 401,000 |
|
| 429,000 |
|
| 669,000 |
|
| 534,000 | ||||||||
South America |
| 81,000 |
|
| 64,000 |
|
| 87,000 |
|
| 146,000 | 3,000 | 3,000 | 6,000 | 6,000 | |||||||||
Middle East |
| - |
| 65,000 |
| 54,000 |
| 191,000 |
|
| - |
|
| 46,000 |
|
| - |
|
| 54,000 | ||||
$ | 7,660,000 | $ | 3,629,000 | $ | 13,569,000 | $ | 6,145,000 | $ | 1,482,000 | $ | 4,647,000 | $ | 3,119,000 | $ | 5,909,000 |
As of February 28,November 30, 2022, and May 31, 2021,2022, approximately $142,000 $685,000 and $803,000$621,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.
As of February 28,November 30, 2022, and May 31, 2021,2022, approximately $19,000 and $25,000$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 June 18, 2009,November 30, 2022, the Company entered into an agreement to lease a buildinghad approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California.California, which it has been leasing since 2009. The lease commenced September 1, 2009 and endedfor 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 exercised its option to extendextended its lease until August 31, 2021. The initial base rent for the lease extension was $21,000 per month, increasing to $23,637 through August 31, 2021. On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years through August 2026. Theyears. When the Company extended its lease in April 2021, it was also granted an additional five yearsfive-year lease extension option through August 2031.option. The current rent is currently $25,588approximately $26,000 per month. The security deposit is approximately $22,000.
11
Table of $22,078 remains the same. Contents
In November 2016, the Company’s Mexican subsidiary, Biomerica de Mexico, entered into a ten-year10-year lease for approximately 8,1048,100 square feet at a monthly rent of $2,926.manufacturing space. The Company has one 10-year option to renew at the end of the initial lease period. The yearly ratecurrent rent is subject to an annual adjustment for inflation according to the United States Bureau of Labor Statistics Consumer Price Index for All Urban Consumers. The monthly rate is currently $3,438. Biomerica, Inc. is not a guarantor of such lease.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.
RentTotal gross rent expense in the U.S.United States for the ninesix months ended February 28,November 30, 2022 and 2021 was approximately $230,000$154,000 and $227,000, respectively.$155,000, respectively. Rent expense for the Mexico facility for the ninesix months ended February 28,November 30, 2022 and 2021 was approximately $31,000.$21,000 and $21,000, 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 optionoptions periods that the Company is reasonably certain of exercising. The Company’s office and equipment leases generally have contractually specified minimum rent and annual rent increases are included in the measurement of the right-of-use asset and related lease liability. Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs. Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liability but are instead recognized as variable lease expense in the Consolidated Statements of Operations and Comprehensive Loss when they are incurred.
Supplemental cash flow information related to leases for the ninesix months endedended February 28, November 30, 2022:
Operating cash flows from operating leases |
| $ | 252,252 |
|
Right-of-use assets obtained in exchange for | $ | - | ||
Weighted average remaining lease term (in years) |
|
| 4.53 |
|
Weighted average discount rate | 6.50 | % |
11
Operating cash flows from operating leases $ 174,322 Right-of-use assets obtained in exchange for $ - Weighted average remaining lease term (in years) 3.77 Weighted average discount rate 6.50% The approximate maturity of lease liabilities as of Less than 1 year $ 349,000 1 to 2 years 359,000 2 to 3 years 370,000 3 to 4 years 381,000 4 to 5 years 201,000 Total undiscounted lease payments 1,660,000 Less imputed interest 217,000 Total operating lease liabilities $ 1,443,000 Less than 1 year $ 357,000 1 to 2 years 368,000 2 to 3 years 379,000 3 to 4 years 298,000 4 to 5 years 0 Total undiscounted lease payments 1,402,000 Less imputed interest 154,000 Total operating lease liabilities $ 1,248,000 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 12 As Previously Reported Adjustments As Restated Cost of sales $ 3,667,143 $ 34,926 $ 3,702,069 Gross Profit (38,505) (34,926) (73,431) Operating Expenses: Selling, general and administrative 1,278,393 249,554 1,527,947 Research and development 563,216 751 563,967 Total operating expense 1,841,609 250,305 2,091,914 Loss from operations (1,880,114) (285,231) (2,165,345) Loss before income taxes (1,842,427) (285,231) (2,127,658) Net loss $ (1,839,310) $ (285,231) $ (2,124,541) Basic net loss per common share $ (0.15) $ (0.03) $ (0.18) Diluted net loss per common share $ (0.15) $ (0.03) $ (0.18) Comprehensive loss $ (1,844,747) $ (285,231) $ (2,129,978) As Previously Reported Adjustments As Restated Cost of sales $ 5,639,103 $ 152,490 $ 5,791,593 Gross Profit 505,867 (152,490) 353,377 Operating Expenses: Selling, general and administrative 3,697,804 540,933 4,238,737 Research and development 1,824,312 67,721 1,892,033 Total operating expense 5,522,116 608,654 6,130,770 Loss from operations (5,016,249) (761,144) (5,777,393) Loss before income taxes (4,962,488) (761,144) (5,723,632) Net loss $ (4,973,889) $ (761,144) $ (5,735,033) Basic net loss per common share $ (0.42) $ (0.07) $ (0.49) Diluted net loss per common share $ (0.42) $ (0.07) $ (0.49) Comprehensive loss $ (4,982,576) $ (761,144) $ (5,743,720) As Previously Reported Adjustments As Restated Cash flows from operating activities: Net loss $ (4,973,889) $ (761,144) $ (5,735,033) Adjustments to reconcile net loss to net cash used in operating activities: Stock option expense 261,176 761,144 1,022,320 Net cash used in operating activities (4,244,064) - (4,244,064) Cash and cash equivalents at end of period $ 5,272,565 $ - $ 5,272,565 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 OVERVIEW Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) Our primary focus is the research, development, commercialization, and Following the successful completion and positive results from the Company’s InFoods® IBS clinical trial, we’ve seen significant interest from Gastroenterology (GI) physicians who would like to provide the InFoods® IBS Product to their patients immediately. Therefore, while we are proceeding with the work needed to seek FDA clearance for this product, we also are currently preparing to launch the InFoods® IBS product through a CLIA-certified, high-complexity laboratory facility that will be offering the product as a laboratory developed test (LDT). Our expectation is that we will begin to generate revenues from this product during our fiscal third quarter. In preparation for the launch of this LDT, we are in negotiations with large physician groups that would like to offer the LDT to their IBS patients. We are also beginning the work of selecting and validating at least one new disease (such as ulcerative colitis or migraines), where there is evidence that certain foods can trigger or contribute to the symptoms found in these indications. We expect any new disease we target will follow a similar development pathway as InFoods IBS in simultaneously seeking FDA clearance of the We will also continue to evaluate partnership/licensing opportunities, as they arise, with Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter drugstores like Walmart and Walgreens). The diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens, or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations. During fiscal 2022, we finalized development of our H. Pylori diagnostic test that indicates if a patient is infected with the H. Pylori bacteria. H. Pylori infection is extremely common, and if left untreated, can lead to ulcers and possibly stomach cancers. During our fourth quarter of fiscal 2022, we applied for FDA clearance of this product though a 510(k) premarket submission. We have been in communications with the FDA answering certain follow-up questions and providing additional data as requested. We are currently collecting and providing additional data as requested from the FDA. Once cleared, we will begin marketing the product in the U.S. market. Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected. While Our non-COVID-19 products that accounted for approximately 87% of our revenues during the six months ended November 30, 2022, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. 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 RESULTS OF OPERATIONS Three months ended 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 Increase (Decrease) 2022 2021 $ % Physician's office $ 6,518,000 $ 2,384,000 $ 4,134,000 173% Clinical lab 731,000 967,000 (236,000) -24% Over-the-counter 244,000 148,000 96,000 65% Contract manufacturing 167,000 130,000 37,000 28% Total $ 7,660,000 $ 3,629,000 $ 4,031,000 111% Three Months Ended November 30, Increase (Decrease) 2022 2021 $ % Clinical lab $ 902,000 $ 642,000 $ 260,000 40% Over-the-counter 466,000 534,000 (68,000) -13% Physician's office 62,000 3,359,000 (3,297,000) -98% Contract manufacturing 52,000 112,000 (60,000) -54% Total $ 1,482,000 $ 4,647,000 $ (3,165,000) -68% Consolidated net sales were approximately Consolidated cost of sales Operating Expenses The following is a summary of operating expenses: Three Months Ended February 28, Three Months Ended November 30, 2022 2021 Increase (Decrease) 2022 2021 Increase (Decrease) Operating Expense As a % of Operating Expense As a % of $ % Operating Expense As a % of Operating Expense As a % of $ % Selling, General and $ 1,324,000 17% $ 1,528,000 42% $ (204,000) -13% $ 1,556,000 105% $ 1,354,000 29% $ 202,000 15% Research and Development $ 457,000 6% $ 564,000 16% $ (107,000) -19% $ 462,000 31% $ 548,000 12% $ (86,000) -16% Selling, General and Administrative Expenses Consolidated selling, general and administrative expenses were approximately Research and Development Consolidated research and development expenses were approximately Interest and Dividend Income Interest and dividend income were approximately 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 Increase (Decrease) Six Months Ended November 30, Increase (Decrease) 2022 2021 $ % 2022 20201 $ % Physician's office $ 10,134,000 $ 2,735,000 $ 7,399,000 271% Clinical lab 2,259,000 2,441,000 (182,000) -7% $ 2,048,000 $ 1,528,000 $ 520,000 34% Over-the-counter 857,000 605,000 252,000 42% 679,000 613,000 66,000 11% Physician's office 245,000 3,616,000 (3,371,000) -93% Contract manufacturing 319,000 364,000 (45,000) -12% 147,000 152,000 (5,000) -3% Total $ 13,569,000 $ 6,145,000 $ 7,424,000 121% $ 3,119,000 $ 5,909,000 $ (2,790,000) -47% Consolidated net sales were approximately Consolidated cost of sales Operating Expenses The following is a summary of operating expenses: Nine Months Ended February 28, Six Months Ended November 30, 2022 2021 Increase (Decrease) 2022 2021 Increase (Decrease) Operating Expense As a % of Operating Expense As a % of $ % Operating Expense As a % of Operating Expense As a % of $ % Selling, General and $ 3,618,000 27% $ 4,239,000 69% $ (621,000) -15% $ 3,210,000 103% $ 2,423,000 41% $ 787,000 32% Research and Development $ 1,515,000 11% $ 1,892,000 31% $ (377,000) -20% $ 823,000 26% $ 929,000 16% $ (106,000) -11% Selling, General and Administrative Expenses Consolidated selling, general and administrative expenses were approximately Research and Development Consolidated research and development expenses were approximately Interest and Dividend Income Interest and dividend income were approximately LIQUIDITY AND CAPITAL RESOURCES The following are the principal sources of liquidity: February 28, May 31, 2021 November 30, 2022 May 31, 2022 Cash and cash equivalents $ 10,174,000 $ 4,199,000 $ 5,067,000 $ 5,917,000 Working capital including cash and cash equivalents $ 8,533,000 $ 7,931,000 $ 6,335,000 $ 7,416,000 As of Operating Activities During the six months ended November 30, 2021, cash provided by operating activities 16 Investing Activities During the Table of Contents
new operating lease liabilitiesFebruary 28,November 30, 2022 are as follows: While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible the outcome of such legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. February 28,November 30, 2022.CONTRACTS AND LICENSING AGREEMENTSNoneNOTE 7: SUBSEQUENT EVENTSNone.NOTE 8: RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTSDuring September 2021, the Company determined that errors were included in the previously issued financial statements as described below. As a result, we restated our financial statements for the periods ended February 28, 2021.The Company discovered the errors listed below. The restatement corrects these errors.Our non-cash stock-based compensation expenses calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service and vesting had occurred, which resulted in an understatement of stock compensation expense. Additionally, our calculation expensed all issued options at vesting dates versus pro- rata over the period the requisite service was provided.Stock-based compensation expense shown on the statement of operations is a non-cash expense, and impacts accumulated deficit and additional paid-in capital on the balance sheet. However, this does not impact the Company’s cash, revenues or other aspects of ongoing operations.The restatement for the quarter ended February 28, 2021 resulted in no changes in the provision for income taxes.The effect of the restatement on the consolidated statement of operations for the three months ended February 28, 2021 is as follows:The effect of the restatement on the consolidated statement of operations for the nine months ended February 28, 2021 is as follows:13The effect of the restatement on the consolidated statement of cash flows for the period ended February 28, 2021 is as follows:II,I, Item 81 of this Report.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 thisour 2022 Annual Report. , is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (in homephysicians' offices and physicians' offices)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.developmentin certain cases regulatory approval, of revolutionary, patented, diagnostic-guided therapy or DGT,(“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. If these DGT products prove effectiveThe 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. We are currently working with key gastroenterology (GI) physician groups who are interested in offering this product to their clinical trials,patients. As such, we are expecting to begin generating revenues from the launch of our InFoods® IBS product during our fiscal third quarter ending February 28, 2023. Due to the proprietary (patented) nature of this product and are ultimately cleared for sale by the U.S. Food and Drug Administration,size of the market, we believe our InFoods IBS product has the revenue potential to the Company is significant. become a significant revenue opportunity.We recentlyDuring fiscal 2022, we completed an endpoint determination clinical trial on our InFoods® IBS product. This trial was conducted at the Mayo ClinicsClinic 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.symptoms or endpoints. The top-line trial results were reported in February 2022. Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in all patient subtypes (including patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed). The greatest clinical improvements, including but not limited to abdominal pain and bloating, were seen in patients diagnosed with IBS-Mixed and IBS-Constipation, in the top line data. The purpose of the endpoint study was to determine the efficacy of the product. A secondary purpose was to determine the primary symptom endpoint, or endpoints tothat could be used in a final pivotal trial that will be conducted to attain the validation data needed to apply for FDAU.S. Food and Drug Administration (“FDA”) clearance for the product. We are now in the process of reviewing the complete data-setdataset and selecting the target endpoint(s) to be used in the pivotal trial. We are also writingpreparing the protocols for this trial and expect to present these protocols to the FDA over the next several months, with the intention of beginning the trial in calendar year 2022.trial. The trial is expected to include the large medical institution participants that conducted the endpoint trial, in addition to other new institutions and a Clinical Research Organization. clinical research organization.diagnostic guided therapy.product while also initially launching the product as an LDT.U.SU.S. and multinational companies that could help us commercialize the InFoods products in the U.S and overseas.1413the Company does offerwe 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, approximately 13% of our revenues during the six months ended November 30, 2022 were from sales of our COVID-19 related products.The otherWhile limited sales continue to occur in our COVID-19 products, we sellvirtually all of our research and development efforts are focused on development and commercialization of non-COVID-19 related products such as our H. Pylori product, and our InFoods® IBS product.U.S.United States by the FDA.While sales continue to occur in our COVID-19 products, 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.We also recently added several new employees in our sales and marketing department in order to increase sales of existing products during fiscal 2022. Through these efforts, our EZ Detect colon disease home screening test is seeing a significant increased interest from retailers such as Walmart, distributors, and screening programs in other countries.As disclosed in Note 8 of Item 1 to these unaudited condensed consolidated financial statements, during the fiscal quarter ended November 30, 2021, we determined that our calculation of non-cash stock-based compensation expense related to issued stock options in previously issued financial statements was incorrect. Our calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation expense. Additionally, our calculation expensed the option at vesting dates versus pro rata over the period the requisite service was provided. These errors resulted in an understatement of stock compensation expense during the nine months ended February 28, 2021, and periods prior to May 31, 2020, resulting in a cumulative adjustment to equity accounts. As a result, our previously issued financial statements for the nine months ended February 28, 2021 have been restated.February 28,November 30, 2022
February 28,, $7,660,000$1,482,000 for the three months ended February 28,November 30, 2022, as compared to $3,629,000$4,647,000 for the three months ended November 30, 2021, a decrease of approximately $3,165,000, or 68%. This decrease for the three months ended February 28, 2021.November 30, 2022, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia. Excluding COVID-19 product sales, consolidated net sales were approximately $1,423,000 for the three months ended November 30, 2022, This representsas compared to $1,316,000 for the three months ended November 30, 2021, an increase of approximately $4,031,000$107,000, or 111%8%. The increase for the three months ended February 28, 2022, as compared to the three months ended February 28, 2021, was primarily due to the sale of our COVID-19 product to distributorsPeriodic and infrequent orders may cause volatility in Asia and Europe.quarterly sales.waswere approximately $5,987,000$1,130,000, or 78%76% of net sales, for ththee three months ended February 28,November 30, 2022, as compared to $3,702,000$3,875,000, or 102%83% of net sales, for the three months ended February 28, 2021.November 30, 2021, This represents an increasea decrease of approximately $2,285,000$2,745,000, or 62%71%. The increasedecrease for the three months ended February 28, 2022, as compared to the three months ended February 28, 2021,November 30, 2022, was driven primarily due to the saleby a decrease in volume of our COVID-19 product to distributors in Asia and Europe.product.1514
Total Revenues
Total Revenues
Total Revenues
Total Revenues
Administrative Expenses $1,324,000$1,556,000 for the three months ended February 28,November 30, 2022, as compared to $1,528,000$1,354,000 for the three months ended February 28, 2021. This represents a decreaseNovember 30, 2021, an increase of approximately $204,000$202,000, or 13%15%. The decreaseincrease in the three months ended February 28,November 30, 2022, was primarily due to a reduction ofapproximate increases in bad debt expense partially offset by increasesof $130,000 related to a customer in compensationVietnam and outside services expense.legal expense of $40,000 related to patent activity. $457,000 $462,000 for the three months ended February 28,November 30, 2022, as compared to $564,000$548,000 for the three months ended February 28, 2021. This representsNovember 30, 2021, a decrease of approximately $107,000$86,000, or 19%16%. The decrease in the three months ended February 28,November 30, 2022, was primarily due to a result of decreasesreduction in costs related to the research, development, and validation of COVID-19 tests.research.$6,000 for the three months ended February 28, 2022, as compared to $38,000$41,000 for the three months ended February 28, 2021. This represents a decreaseNovember 30, 2022, as compared to $7,000 for the three months ended November 30, 2021, an increase of $32,000$34,000, or 84%497%. The increase was primarily driven by interest income on our cash and cash equivalents that resulted from higher current period interest rates.NineSix months ended February 28,November 30, 2022
February 28, $13,569,000$3,119,000 for the ninesix months ended February 28,November 30, 2022, as compared to $6,145,000$5,909,000 for the ninesix months ended February 28, 2021.November 30, 2021, a decrease of approximately $2,790,000, or 47%. This representsdecrease for the six months ended November 30, 2022, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia, which was partially offset by an increase in demand for our food intolerance product in Asia. Excluding COVID-19 product sales, consolidated net sales were approximately $2,709,000 for the six months ended November 30, 2022, as compared to $2,350,000 for the six months ended November 30, 2021, an increase of approximately $7,424,000$359,000, or 121%15%. The increase for the nine months ended February 28, 2022, as compared to the nine months ended February 28, 2021, was primarily due to the sale of our COVID-19 product to distributorsPeriodic and infrequent orders may cause volatility in Asia and Europe.quarterly sales.waswere approximately $11,213,000$2,822,000, or 83%90% of net sales, for the ninesix months ended February 28,November 30, 2022, as compared to $5,792,000$5,226,000, or 94%88% of net sales, for the ninesix months ended February 28, 2021. This represents an increaseNovember 30, 2021, a decrease of approximately $5,421,000$2,404,000, or 94%46%. The increasedecrease for the ninesix months ended February 28,November 30, 2022, as compared to the nine months ended February 28, 2021,was driven primarily due to the saleby a decrease in volume of our COVID-19 product to distributors in Asia and Europe.product.1615
Total Revenues
Total Revenues
Total Revenues
Total Revenues
Administrative Expenses $3,618,000$3,210,000 for the ninesix months ended February 28,November 30, 2022, as compared to $4,239,000$2,423,000 for the ninesix months ended February 28, 2021. This represents a decreaseNovember 30, 2021, an increase of approximately $621,000$787,000, or 15%32%. The decreaseincrease in the ninesix months ended February 28,November 30, 2022, was primarily due to a reduction ofapproximate increases in bad debt expense partially offset by increases in compensationof $428,000 related to Vietnam customer, legal expense of $105,000 related to patent activity, and outsideconsulting services expense.of $136,000 related to our online presence at Amazon and Walmart.$1,515,000$823,000 for the ninesix months ended February 28,November 30, 2022, as compared to $1,892,000$929,000 for the ninesix months ended February 28, 2021. This representsNovember 30, 2021, a decrease of approximately $377,000$106,000, or 20%11%. The decrease in the ninesix months ended February 28,November 30, 2022, was primarily due to a result of decreasesreduction in costs related to the research, development, and validation of COVID-19 tests.research.$20,000$41,000 for the ninesix months ended February 28,November 30, 2022, as compared to $54,000$14,000 for the ninesix months ended February 28, 2021. This represents a decreaseNovember 30, 2021, an increase of $34,000$27,000, or 63%201%. The increase was primarily driven by interest income on our cash and cash equivalents that resulted from higher current period interest rates.
2022February 28,November 30, 2022 and May 31, 2021, we2022, the Company had cash and cash equivalents of approximately $10,174,000$5,067,000 and $4,199,000, respectively,$5,917,000, respectively. As of November 30, 2022 and May 31, 2022, the Company had working capital of approximately $8,533,000 $6,335,000 and $7,931,000,$7,416,000, respectively. As a resultWe believe that the aggregate of our existing cash and cash equivalents on hand is sufficient to meet our operating cash requirements and strategic objectives for growth for at February 28, 2022, andleast the next year. To satisfy our abilitycapital requirements beyond the next year, including ongoing future operations, we may seek to raise additional fundsfinancing through debt and equity financings, including use of our ATM Agreement, management believes we have sufficient funds to operate through the next twelve months or more.offering.CashDuring the six months ended November 30, 2022, cash used in operating activities was approximately $2,787,000. The primary factors that contributed to this was a loss of approximately $3,698,000, non-cash expenses of $1,102,000, primarily associated with stock-based compensation and account receivables provision. This was partially offset by changes in asset and liability accounts that used a net amount of cash of approximately $191,000.ofwas approximately $3,777,000 during the nine months ended February 28, 2022, reflects$1,419,000. The primary factors that contributed to this was a net loss of approximately $2,772,000 and$2,668,000, non-cash adjustmentsexpenses of $705,000 $201,000, primarily associated with depreciation, amortization, stock-based compensation, adjustments to allowance for doubtful accounts, and inventory reserves.reserves. In addition, we realizedbenefited from an increase in net working capitalcustomer advances of approximately $5,844,000 primarily driven by an increase$2,150,000, a decrease in advances from customersaccounts receivable of $1,139,000, and changes in other asset and liability accounts payable. For the nine months ended February 28, 2021, cash used by operating activities of approximately $4,244,000 reflects a net loss$597,000.CashDuring the six months ended November 30, 2022, cash used in investing activities was approximately $58,000 for purchases of property and equipment.ninesix months ended February 28, 2022,November 30, 2021, cash used in investing activities was approximately $33,000$18,000 for purchases of property and equipment, and $113,000 for increased intangibles. Cash used in investing activities for the nine months ended February 28, 2021, was approximately $107,000 for purchases of property and equipment and $117,000 for increased intangibles.
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Table of Contents$109,000 expenditures related to patents.
Financing Activities
CashDuring the six months ended November 30, 2022, cash provided by financing activities for the nine months ended February 28, 2022,was approximately $2,356,000$2,016,000 which was a result of stock option exercises of $39,000 and net proceeds from the sale of common stock of $2,317,000. Cash$1,937,000, and stock option exercises of $79,000.
During the six months ended November 30, 2021, cash provided by financing activities for the nine months ended February 28, 2021, was approximately $1,108,000$1,719,000 which was a result of stock option exercises of $96,000 andnet proceeds from the sale of commentcommon stock of $1,011,000.$1,684,000, and stock option exercises of $35,000.
OFF BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements as of February 28,November 30, 2022.
CRITICAL ACCOUNTING POLICIES
The preparation of condensed 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, accounts receivablebad debts, inventory overhead application, inventory reserves, inventory valuation, lease liabilities and right-of-use assets, and stock- based compensation.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. SeePlease refer to Note 2 to these Financial Statements 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.
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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. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible the outcome of such legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.
There were no legal proceedings pending as of February 28,November 30, 2022.
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ITEM 1A. RISKS AND UNCERTAINTIES.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 20212022 Annual Report on Form 10-K/A,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 ninesix months ended February 28,November 30, 2022, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 20212022 Annual Report on Form 10-K/A.10-K.
ITEM 5. OTHER INFORMATION
See Note 8 to the Financial Statements for discussion of our prior period financial restatements.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:
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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.
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