SEC Form 10-Q filed by Biomerica Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
FOR
THE QUARTERLY PERIOD ENDED
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation of organization) |
(I.R.S.
Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
REGISTRANT’S TELEPHONE NUMBER:
(
Securities registered under Section 12(b) of the Exchange Act:
(Title of each class)
(Name of each exchange on which registered)
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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.
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).
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 ☐ | |
| Smaller reporting company |
||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
☐
The number of shares of the registrant’s common stock outstanding as of January 16, 2024 was .
BIOMERICA, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| November 30, 2023 | May 31, 2023 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other | ||||||||
| Total current assets | ||||||||
| Property and equipment, net of accumulated depreciation and amortization | ||||||||
| Right-of-use assets, net of accumulated amortization of $ | ||||||||
| Investments | ||||||||
| Intangible assets, net of accumulated amortization | ||||||||
| Other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Accrued compensation | ||||||||
| Advance from customers | ||||||||
| Lease liabilities, current portion | ||||||||
| Total current liabilities | ||||||||
| Lease liabilities, net of current portion | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies (Note 6) | ||||||||
| Shareholders’ Equity: | ||||||||
| Preferred stock, Series A 5% convertible, $ par value, shares authorized, issued and outstanding as of November 30, 2023 and May 31, 2023 | ||||||||
| Preferred stock, undesignated, par value, shares authorized, issued and outstanding as of November 30, 2023 and May 31, 2023 | ||||||||
| Common stock, $ par value, shares authorized, issued and outstanding at November 30, 2023 and May 31, 2023, respectively | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Shareholders’ Equity | ||||||||
| Total Liabilities and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these statements.
| 1 |
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
| For the Three Months Ended November 30, | For the Six Months Ended November 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Interest and dividend income | ||||||||||||||||
| Total other income | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted net loss per common share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common and common equivalent shares: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Other comprehensive income (loss), net of tax: | ||||||||||||||||
| Foreign currency translation | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these statements.
| 2 |
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
For the Six Months Ended November 30, 2023
| Common Stock | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Total Stockholder’s | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balances at May 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at August 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at November 30, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
For the Six Months Ended November 30, 2022
| Common Stock | Additional Paid in | Accumulated Other Comprehensive | Accumulated | Total Stockholder’s | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balances at May 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | | ||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Net proceeds from ATM | ||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at August 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Net proceeds from ATM | ||||||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | $ | ( | ) | ( | ) | ||||||||||||||||||
| Balances at November 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these statements.
| 3 |
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended November 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Provision (recovery) for allowance on accounts receivable | ( | ) | ||||||
| Inventory reserve | ( | ) | ( | ) | ||||
| Share-based compensation | ||||||||
| Amortization of right-of-use asset | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ||||||||
| Prepaid expenses and other | ||||||||
| Other assets | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ( | ) | ||||
| Accrued compensation | ( | ) | ||||||
| Advance from customers | ( | ) | ||||||
| Reduction in lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Expenditures related to intangibles | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Gross proceeds from sale of common stock | ||||||||
| Costs from sale of common stock | ( | ) | ||||||
| Proceeds from exercise of stock options | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes in cash | ( | ) | ||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental Disclosure of Cash Flow Information: | ||||||||
| Cash paid during the period for: | ||||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Write off of intangible assets, cost | $ | $ | ||||||
| Write off of intangible assets, accumulated amortization | $ | $ | ||||||
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 (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians’ offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. Our diagnostic test kits are used to analyze blood, urine, nasal or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations. The Company’s products are designed to enhance the health and well-being of people, while reducing total healthcare costs.
Our primary focus is the research, development, commercialization and eventual regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our inFoods® Technology platform that treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases. These inFoods based products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. The first product we are launching using this patented inFoods Technology is our inFoods IBS product which uses a simple blood sample to identify patient-specific foods that, when removed from their diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation. Instead of broad and difficult to manage dietary restrictions, the inFoods IBS product works by identifying a patient’s above normal immunoreactivity to a panel of specific foods that have been shown to often be problematic to IBS sufferers. A food identified as positive (causing an abnormally high immune response in the patient) is simply removed from the diet to help alleviate IBS symptoms. We have launched this product with certain large gastroenterology (“GI”) physician groups that are now offering this product to their patients. We have also recently hired an internal sales force to sign up additional GI physician groups who are interested in offering this product to their patients. As such, we are expecting growth in revenues from the launch of our inFoods IBS product in coming quarters.
Our other existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians’ offices and over-the-counter at Walmart, CVS Pharmacy and Amazon). The diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens, or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations.
Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected. We began selling these COVID-19 related diagnostic tests during fiscal 2021, and we experienced significant revenues from such sales during fiscal 2021 and 2022 with lesser sales in fiscal 2023. Due to falling demand, there were no sales of our COVID-19 related products in the six months ended November 30, 2023. As such, our COVID-19 product sales have caused significant swings in our revenues over the past nine quarters.
Our products that accounted for all of our revenues during the six months ended November 30, 2023, are primarily focused on gastrointestinal diseases, colorectal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. Most of our products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency. In addition, some products are cleared for sale in the United States by the FDA.
The unaudited condensed consolidated financial statements herein have been prepared by management pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest fiscal year ended May 31, 2023. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and six months ended November 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2024. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 25, 2023. Management has evaluated all subsequent events and transactions through the date of filing this report.
| 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 GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical practices with a customer; stock option forfeiture rates, which are calculated based on historical data; inventory obsolescence, which is based on projected and historical usage of materials; and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, the likelihood of lease extensions to occur, asset valuation, among other things; and other items that may be necessary to estimate using current, historical and judgment based information. Actual results could materially differ from those estimates.
MARKETS AND METHODS OF DISTRIBUTION
The majority of the Company’s revenues come from the sale of products that the company manufactures in the U.S. and in Mexico. Some of the raw materials used in manufacturing come from Asia and other regions of the world. Finally, most of the Company’s revenues are generated from the international sales of its products. Due to global and economic disruptions caused by the COVID-19 pandemic, the ongoing war in Ukraine and Israel, and tensions between the country of China and the United States, the Company’s operations have been negatively impacted. The Company has faced disruptions in the following areas, and may face further challenges from supply chain disruptions, cost inflation, loss of contracts and/or customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities. The Company’s current sales and marketing focus is on the sale of the inFoods IBS product which is manufactured and sold within the U.S. and the launch of our new H. Pylori test that was recently cleared for sale in the US by the FDA, which is also manufactured and sold within the U.S.
LIQUIDITY
The
Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $
On
July 20, 2020, the Company filed with the Securities and Exchange Commission (“SEC”) a Form S-3 shelf registration statement
and base prospectus which was declared effective by the SEC on September 30, 2020. This shelf registration statement registered the sale
of up to $
Under
the Company’s outstanding Registration Statement, on March 7, 2023, the Company sold
shares of common stock in a firm commitment public offering at a gross sales price of $
per share, with net total proceeds, after deducting issuance fees and expenses of $
To
replace the shelf registration statement that was set to expire on September 30, 2023, on September 27, 2023, the Company filed with
the SEC a new Form S-3 shelf registration statement and base prospectus which was declared effective by the SEC on September 29, 2023.
This new shelf registration statement registers the sale of up to $
The Company intends to use the net proceeds from past offerings and any future offerings for general corporate purposes, including, without limitation, sales and marketing activities, clinical studies, product development, making acquisitions of assets, businesses, companies or securities, capital expenditures, and for working capital needs.
Management has analyzed the cash requirements of the Company’s business through at least February 2025. As a result of cash and cash equivalents on hand on November 30, 2023, largely from the public offering, and the ability to raise additional funds if needed through the sale of shares of the Company’s common stock, management believes the Company has sufficient funds to operate through at least February 2025.
| 6 |
CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. From time to time, the Company has uninsured balances. The Company does not believe it is exposed to any significant credit risks.
Consolidated
net sales were approximately $
For
the three months ended November 30, 2023, the Company had two key customers who are located in foreign countries which accounted for
Total
gross receivables on November 30, 2023 and May 31, 2023 were approximately $
For
the three months ended November 30, 2023, the Company had five key vendors which accounted for
As
of November 30, 2023 and May 31, 2023, the Company had three and one key vendors which accounted for
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.
The Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (codified as Accounting Standards Codification (“ASC”) 326) on June 1, 2023. ASC 326 adds to U.S. GAAP the current expected credit loss (“CECL”) model, a measurement model based on expected losses rather than incurred losses. Prior to the adoption of ASC 326, the Company evaluated receivables on a quarterly basis and adjusted the allowance for doubtful accounts accordingly. Balances over ninety days old were usually reserved for unless collection was reasonably assured. Under the application of ASC 326, the Company’s historical credit loss experience provides the basis for the estimation of expected credit losses, as well as current economic and business conditions, and anticipated future economic events that may impact collectability. In developing its expected credit loss estimate, the Company evaluated the appropriate grouping of financial assets based upon its evaluation of risk characteristics, including consideration of the types of products and services sold. Account balances are written off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.
Occasionally, certain long-standing customers who routinely place large orders will have unusually large receivable balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.
As
of November 30, 2023 and May 31, 2023, the Company has established a reserve of approximately $
| 7 |
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 November 30, 2023 and May 31, 2023, the prepaids were approximately $
INVENTORIES, NET
The Company values inventory at the lower of cost (determined using a combination of specific lot identification and the first-in, first-out methods) or net realizable value. Management periodically reviews inventory for excess quantities and obsolescence. Management evaluates quantities on hand, physical condition, and technical functionality as these characteristics may be impacted by anticipated customer demand for current products and new product introductions. The reserve is adjusted based on such evaluation, with a corresponding provision included in cost of sales. Abnormal amounts of idle facility expenses, freight, handling costs and wasted material are recognized as current period charges and the allocation of fixed production overhead is based on the normal capacity of the production facilities.
Net inventories are approximately the following:
| November 30, 2023 | May 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in progress | ||||||||
| Finished products | ||||||||
| Total gross inventory | ||||||||
| Inventory reserves | ( | ) | ( | ) | ||||
| Net inventory | $ | $ | ||||||
Reserves
for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically
reserve for obsolete inventory. As of November 30, 2023, and May 31, 2023, inventory reserves were approximately $
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
INTANGIBLE ASSETS, NET
Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on ASC, ASC 350 Intangibles – Goodwill and Other (“ASC 350”). In that regard, intangible assets that have indefinite useful lives are not amortized but are tested annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired.
Intangible
assets are being amortized using the straight-line method over the useful life, not to exceed
The
Company assesses the recoverability of these intangible assets by determining whether the amortization of the asset’s balance over
its remaining life can be recovered through projected undiscounted future cash flows. The Company uses a qualitative assessment to determine
whether there was any impairment. During the six months ended November 30, 2023, there was
| 8 |
INVESTMENTS
The
Company has made investments in a privately held Polish distributor, which is primarily engaged in distributing medical products and
devices, including the distribution of the products sold by the Company. The Company invested approximately $
Equity holdings in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence (“Cost Method Holdings”) are accounted for at the Company’s initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends received are recorded as other income.
The Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. Management reviewed the underlying net assets of the Company’s equity method holding as of November 30, 2023 and determined that the Company’s proportionate economic interest in the entity indicates that the equity holding was not impaired. There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holdings during the period ended November 30, 2023.
The Company follows the guidance of ASC 718, Share-based Compensation (“ASC 718”), which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (options). The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the foreseeable future. Expected volatilities are based on weighted averages of the historical volatility of the Company’s common stock estimated over the expected term of the options. The expected forfeiture rate is based on historical forfeitures experienced. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term as historically the Company had limited exercise activity surrounding its options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under the straight-line attribution method.
The Company expensed approximately $ and $ of share-based compensation during the six months ended November 30, 2023 and 2022, respectively.
| Option Shares | Weighted Average Exercise Price | |||||||
| Options Outstanding at May 31, 2023 | $ | |||||||
| Granted | ||||||||
| Exercised | ||||||||
| Cancelled or expired | ( | ) | ||||||
| Options Outstanding at November 30, 2023 | $ | |||||||
REVENUE RECOGNITION
The Company has various contracts with customers. All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control of goods has occurred, and at which point title passes.
The Company does not typically allow for returns from customers except in the event of defective merchandise and therefore does not establish an allowance for returns. In addition, the Company has contracts with customers wherein customers receive purchase discounts for achieving specified sales volumes. The Company evaluated the status of these contracts during the six months ended November 30, 2023 and 2022 and does not believe that any additional discounts will be given through the end of the contract periods.
| 9 |
Services for contract work performed by the Company for others are invoiced and recognized as that work has been performed and as the project progresses. The Company sells clinical lab products to domestic and international distributors, including hospitals and clinical laboratories, medical research institutions, medical schools and pharmaceutical companies. OTC products are sold directly to drug stores and e-commerce customers as well as to distributors. Physician’s office products are sold to physicians and distributors, all of whom are categorized below according to the type of products sold to them. We also manufacture certain components on a contract basis for domestic and international manufacturers.
As
of November 30, 2023, the Company had approximately $
Disaggregation of revenue:
The following is a breakdown of revenues according to markets to which the products are sold:
| Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Clinical lab | $ | $ | $ | $ | ||||||||||||
| Over-the-counter | ||||||||||||||||
| Contract manufacturing | ||||||||||||||||
| Physician’s office | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
See Note 4 for additional information regarding geographic revenue concentrations.
SHIPPING AND HANDLING FEES
The Company includes shipping and handling fees billed to customers in net sales.
RESEARCH AND DEVELOPMENT
Research
and development costs are expensed as incurred. The Company expensed approximately $
INCOME TAXES
For
the three months ended November 30, 2023, the Company had an income tax expense of approximately $
The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the three months ended November 30, 2023, the Company had no accrued interest or penalties related to uncertain tax positions.
ADVERTISING COSTS
The
Company reports the cost of advertising as expense in the period in which those costs are incurred. Advertising costs were approximately
$
| 10 |
FOREIGN CURRENCY TRANSLATION
The subsidiary located in Mexico operates primarily using the Mexican peso. The subsidiary located in Germany operates primarily using the U.S. dollar, with an immaterial amount of transactions occurring using the Euro. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting translation adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss. There are no foreign currency transactions that are included in the condensed consolidated statements of operations for the three and six months ended November 30, 2023 and 2022.
RIGHT-OF-USE ASSETS AND LEASE LIABILITY
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. Leases are classified as financing or operating which will drive the expense recognition pattern. The Company has elected to exclude short-term leases. The Company leases office space and copy machines, all of which are operating leases. Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. The leases do not include the options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities using the treasury stock method. The total amount of anti-dilutive stock options not included in the loss per share calculation on November 30, 2023 and 2022 was and , respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent ASU’s issued by the FASB and guidance issued by the SEC did not, or are not believed by the management to, have a material effect on the Company’s present or future consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13. This ASU requires the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company adopted ASU 2016-03 on June 1, 2023, and the adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.
NOTE 3: SHAREHOLDERS’ EQUITY
During
the six months ended November 30, 2022, the Company sold shares of its common stock at prices ranging from $ to under
its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $
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NOTE 4: GEOGRAPHIC INFORMATION
The
Company operates as
| Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues from sales to unaffiliated customers: | ||||||||||||||||
| Asia | $ | $ | $ | $ | ||||||||||||
| Europe | ||||||||||||||||
| North America | ||||||||||||||||
| Middle East | ||||||||||||||||
| South America | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As
of November 30, 2023 and May 31, 2023, approximately $
As
of November 30, 2023 and May 31, 2023, approximately $
NOTE 5: LEASES
The
Company leases its facilities. On November 30, 2023, the Company had approximately
In addition, the Company leases a small office in Lindau, Germany on a month-to-month basis, as headquarters for BioEurope GmbH, its Germany subsidiary.
For purposes of determining straight-line rent expense, the lease term is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any renewal options periods that the Company is reasonably certain of exercising. The Company’s office and equipment leases generally have contractually specified minimum rent and annual rent increases are included in the measurement of the right-of-use asset and related lease liabilities. Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs. Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liabilities but are instead recognized as variable lease expense in the consolidated statements of operations and comprehensive loss when they are incurred.
The following table presents information on our operating leases for the three month and six month ended November 30, 2023 and 2022:
| Three Months Ended November 30, | Six Months Ended November 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating lease cost | $ | $ | $ | |||||||||||||
| Variable lease cost | ||||||||||||||||
| Short-term lease cost | $ | $ | $ | |||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
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The approximate maturity of lease liabilities as of November 30, 2023 are as follows:
| Year Ending November 30: | ||||
| Operating Leases | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total minimum future lease payments | ||||
| Less: imputed interest | ||||
| Total operating lease liabilities | $ | |||
The following table summarizes the Company’s other supplemental lease information for the six months ended November 30, 2023 and 2022:
| Six Months Ended November 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for operating lease liabilities | $ | $ | ||||||
| Weighted-average remaining lease term (years) | ||||||||
| Weighted-average discount rate | % | % | ||||||
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 material legal proceedings pending as of November 30, 2023.
NOTE 7: SUBSEQUENT EVENTS
On December 18, 2023, the Company received FDA clearance for its new HP Detect Stool Antigen ELISA test, a new product that is designed to detect the presence of the H. Pylori bacteria. The Company is now marketing this product in the U.S. and intends to initiate marketing of the product in certain international markets in the near future.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Report and the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 (our 2023 Annual Report). This discussion and analysis contains forward-looking statements that are based on our management’s current beliefs and assumptions, which statements are subject to substantial risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in Part I, Item 1A of our 2023 Annual Report.
OVERVIEW
Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH), is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians’ offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. Our diagnostic test kits are used to analyze blood, urine, nasal, or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens, or other substances, which may exist in the human body in extremely small concentrations. The Company’s products are designed to enhance the health and well-being of people, while reducing total healthcare costs.
Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products to treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases. These inFoods based products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. Our inFoods IBS product uses a simple blood sample to identify patient-specific foods that, when removed from the patient’s diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, and constipation. Instead of broad and difficult to manage dietary restrictions, the inFoods IBS product works by identifying a patient’s above normal immunoreactivity to a panel of specific foods that have been shown to often be problematic to IBS suffers. A food identified as positive, and causing an abnormally high immune response in the patient is simply removed from the diet to help alleviate IBS symptoms.
During fiscal 2022, we completed an endpoint determination clinical trial on our inFoods IBS product. This trial was conducted at Mayo Clinics in Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School Teaching Hospital, University of Texas Health Science Center at Houston, Houston Methodist, the University of Michigan, and other institutions. This double blinded, placebo-controlled trial monitored IBS patients over an 8-week treatment period to determine the efficacy of our inFoods IBS product to improve the patients’ IBS symptoms or endpoints. The trial was designed to determine the difference in the improvement in IBS symptoms for patients in the treatment arm, versus patients in the placebo arm of the trial. The top-line trial results were reported in February 2022. Multiple endpoints demonstrated statistically significant improvements for participants in the treatment arm, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in each patient subtype (including patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed). The greatest clinical improvements, including but not limited to abdominal pain and bloating, were seen in patients diagnosed with IBS-Mixed and IBS Constipation, in the top line data. The purpose of the endpoint study was designed to provide efficacy data for the product, and to determine the primary symptom endpoint, or endpoints to be used in a possible final pivotal trial that would be conducted to attain the validation data needed to apply for U.S. Food and Drug Administration (“FDA”) product clearance. We are continuing to review and refine the complete dataset and have selected the final endpoint that we would intend to use in a possible final pivotal trial. No date has yet been set for commencing this final trial.
In fiscal 2023, we worked to set up the inFoods IBS test to be performed in a CLIA certified, and College of American Pathologists (“CAP”) accredited high-complexity laboratory facility and offered as a laboratory developed test (“LDT”). During the quarter ended February 28, 2023, the CLIA lab completed all validation testing necessary for the inFoods IBS product to be offered as an LDT, and patient samples are now being run at the lab. In late fiscal 2023, we trial launched this product with one large GI physician group that is now offering this product to their patients. During fiscal 2024, we are working to optimize the process for GI physicians to order the inFoods IBS test, send patient blood samples to the CLIA lab, and receive the test results for their patients. We believe ease of order and workflow for physicians, with easy to understand and actionable results for patients, is critical to our success. We have also recently hired an internal sales force to sign up additional GI physician groups who are interested in offering this product to their patients. As such, we are expecting growth in revenues from the launch of our inFoods IBS product in coming quarters.
We are also beginning the work of selecting and validating one new disease (such as ulcerative colitis or migraines), where there is evidence that certain foods can trigger or contribute to the symptoms found in these indications. We expect any new disease we target will follow a similar development pathway as inFoods IBS in simultaneously seeking FDA clearance of the product while also launching the product as an LDT.
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We are also evaluating and pursuing partnership/licensing opportunities with U.S. and multinational companies that could help us commercialize, or accelerate revenue growth of, the inFoods products in the United States and overseas.
Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians’ offices and OTC at Walmart, Walgreens, CVS Pharmacy, Amazon, etc.). The diagnostic test kits are used to analyze blood, urine, nasal, or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens, or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations.
Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected. We began selling these COVID-19 related diagnostic tests during fiscal 2021, and we experienced significant revenues from such sales during fiscal 2021 and 2022 with lesser sales in fiscal 2023. Due to falling demand, there were no sales of our COVID-19 related products in the three months ended November 30, 2023. As such, our COVID-19 product sales have caused significant swings in our revenues over the past nine quarters.
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. On December 18, 2023, the Company received FDA clearance for the H. Pylori product to be sold in the US. Subsequently, we have now begun marketing the product in the U.S. market. We have also begun discussions with international distributors for this product and expect to see revenues both in the U.S. market and through these international channels during 2024.
The majority of our research and development efforts are focused on development and commercialization of products such as our H. Pylori product, improving and expanding the inFoods IBS product, developing other new products that utilize the inFoods platform, and developing new diagnostic products with outside medical diagnostic companies that we intend to manufacture for them.
Our existing products that contributed to our fiscal 2023 revenues are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. Most of our products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency. In addition, some products are cleared for sale in the United States by the FDA.
RESULTS OF OPERATIONS
Three months ended November 30, 2023
Net Sales and Cost of Sales
The following is a breakdown of revenues according to markets to which the products are sold:
| Three Months Ended November 30, | Increase (Decrease) | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Clinical lab | $ | 992,000 | $ | 902,000 | $ | 90,000 | 10 | % | ||||||||
| Over-the-counter | 443,000 | 466,000 | (23,000 | ) | -5 | % | ||||||||||
| Contract manufacturing | 131,000 | 52,000 | 79,000 | 152 | % | |||||||||||
| Physician’s office | 1,000 | 62,000 | (61,000 | ) | -98 | % | ||||||||||
| Total | $ | 1,567,000 | $ | 1,482,000 | $ | 85,000 | 6 | % | ||||||||
Consolidated net sales were approximately $1,567,000 for the three months ended November 30, 2023, as compared to $1,482,000 for the three months ended November 30, 2022, an increase of approximately $85,000, or 6%. This increase for the three months ended November 30, 2023, was driven primarily by larger sales in the food intolerance products and increased contract manufacturing billings. Periodic and infrequent orders may cause volatility in quarterly sales.
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Consolidated cost of sales were approximately $1,242,000, or 79% of net sales, for the three months ended November 30, 2023, as compared to $1,130,000, or 76% of net sales, for the three months ended November 30, 2022, an increase of approximately $112,000, or 10%. The increase for the three months ended November 30, 2023, was driven primarily by correlated increased sales for the quarter.
Operating Expenses
The following is a summary of operating expenses:
| Three Months Ended November 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Increase (Decrease) | ||||||||||||||||||||||
| Operating Expense | As a % of Total Revenues | Operating Expense | As a % of Total Revenues | $ | % | |||||||||||||||||||
| Selling, General and Administrative Expenses | $ | 1,521,000 | 97 | % | $ | 1,556,000 | 105 | % | $ | (35,000 | ) | -2 | % | |||||||||||
| Research and Development | $ | 412,000 | 26 | % | $ | 462,000 | 31 | % | $ | (50,000 | ) | -11 | % | |||||||||||
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were approximately $1,521,000 for the three months ended November 30, 2023, as compared to $1,556,000 for the three months ended November 30, 2022, a decrease of approximately $35,000, or 2%. For the three months ended November 30, 2023, the decrease was primarily due to an approximate $209,000 reduction in bad debt expense related to a customer in Vietnam, a $158,000 decrease in share-based compensation expenses, and a $128,000 decrease in legal expenses. These decreases were partially offset by a $160,000 increase in marketing expenses for the recent CVS retail launch, a $124,000 increase in salaries and wages for the sales and marketing team, and a $92,000 increase in expenses for marketing outside services.
Research and Development
Consolidated research and development expenses were approximately $412,000 for the three months ended November 30, 2023, as compared to $462,000 for the three months ended November 30, 2022, a decrease of approximately $50,000, or 11%. The decrease in the three months ended November 30, 2023, was primarily due to an approximate decrease of $59,000 in inFoods research expenses.
Interest and Dividend Income
Interest and dividend income were approximately $109,000 for the three months ended November 30, 2023, as compared to $41,000 for the three months ended November 30, 2022, an increase of $68,000, or 166%. The increase was primarily driven by higher market interest rates on our cash and cash equivalents.
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Six months ended November 30, 2023
Net Sales and Cost of Sales
The following is a breakdown of revenues according to markets to which the products are sold:
| Six Months Ended November 30, | Increase (Decrease) | |||||||||||||||
| 2023 | 2022 | $ | % | |||||||||||||
| Clinical lab | $ | 2,283,000 | $ | 2,048,000 | $ | 235,000 | 11 | % | ||||||||
| Over-the-counter | 745,000 | 679,000 | 66,000 | 10 | % | |||||||||||
| Contract manufacturing | 248,000 | 147,000 | 101,000 | 69 | % | |||||||||||
| Physician’s office | 5,000 | 245,000 | (240,000 | ) | -98 | % | ||||||||||
| Total | $ | 3,281,000 | $ | 3,119,000 | $ | 162,000 | 5 | % | ||||||||
Consolidated net sales were approximately $3,281,000 for the six months ended November 30, 2023, as compared to $3,119,000 for the six months ended November 30, 2022, an increase of approximately $162,000, or 5%. This increase for the six months ended November 30, 2023, was primarily driven by an increase in demand for our food intolerance products and contract manufacturing billings, which was partially offset by a reduction in Physician’s office sales associated with COVID products. Periodic and infrequent orders may cause volatility in quarterly sales.
Consolidated cost of sales were approximately $2,541,000, or 77% of net sales, for the six months ended November 30, 2023, as compared to $2,822,000, or 90% of net sales, for the six months ended November 30, 2022, a decrease of approximately $281,000, or 10%. The decrease for the six months ended November 30, 2023, was primarily driven by a $90,000 increase in salary and wages for the production team, that was more than offset by a $332,000 decrease in costs associated with reduced sales of our COVID-19 products.
Operating Expenses
The following is a summary of operating expenses:
| Six Months Ended November 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Increase (Decrease) | ||||||||||||||||||||||
| Operating Expense | As a % of Total Revenues | Operating Expense | As a % of Total Revenues | $ | % | |||||||||||||||||||
| Selling, General and Administrative Expenses | $ | 2,696,000 | 82 | % | $ | 3,210,000 | 103 | % | $ | (514,000 | ) | -16 | % | |||||||||||
| Research and Development | $ | 883,000 | 27 | % | $ | 823,000 | 26 | % | $ | 60,000 | 7 | % | ||||||||||||
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Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were approximately $2,696,000 for the six months ended November 30, 2023, as compared to $3,210,000 for the six months ended November 30, 2022, a decrease of approximately $514,000, or 16%. For the six months ended November 30, 2023, the decrease was primarily due to an approximate $429,000 reduction in bad debt expense related to a customer in Vietnam, a $327,000 decrease in share-based compensation expenses, and a $297,000 decrease in legal expenses. These decreases were partially offset by a $160,000 increase in marketing expenses for the recent CVS retail launch, a $174,000 increase in salaries and wages for the sales and marketing team, and a $61,000 increase in expenses for marketing outside services.
Research and Development
Consolidated research and development expenses were approximately $883,000 for the six months ended November 30, 2023, as compared to $823,000 for the six months ended November 30, 2022, an increase of approximately $60,000, or 7%. The increase for the six months ended November 30, 2023, was primarily due to an increase in salaries and wages of $104,000, partially offset by a decrease in share-based compensation expenses of $21,000 and lab supplies expenses of $15,000.
Interest and Dividend Income
Interest and dividend income were approximately $231,000 for the six months ended November 30, 2023, as compared to $41,000 for the six months ended November 30, 2022, an increase of $190,000, or 463%. The increase was primarily driven by higher market interest rates on our cash and cash equivalents.
LIQUIDITY AND CAPITAL RESOURCES
The following are the principal sources of liquidity:
| November 30, 2023 | May 31, 2023 | |||||||
| Cash and cash equivalents | $ | 7,134,000 | $ | 9,719,000 | ||||
| Working capital including cash and cash equivalents | $ | 8,443,000 | $ | 10,852,000 | ||||
As of November 30, 2023 and May 31, 2023, the Company had cash and cash equivalents of approximately $7,134,000 and $9,719,000, respectively. As of November 30, 2023 and May 31, 2023, the Company had working capital of approximately $8,443,000 and $10,852,000, respectively. We believe that the aggregate of our existing cash and cash equivalents is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next year. To satisfy our capital requirements, including ongoing future operations, beyond next year, we are working on increasing sales, reducing expenses and may seek to raise additional financing through debt and equity financing.
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Operating Activities
During the six months ended November 30, 2023, cash used in operating activities was approximately $2,516,000. The primary factors that contributed to this was a loss of approximately $2,639,000, non-cash expenses of $294,000, primarily associated with depreciation and amortization, provision for allowance on accounts receivable, inventory reserves, share-based compensation, and amortization of right-of-use assets. This was partially offset by changes in asset and liability accounts of approximately $171,000.
During the six months ended November 30, 2022, cash used in operating activities was approximately $2,786,000. The primary factors that contributed to this was a loss of approximately $3,698,000, non-cash expenses of $1,101,000, primarily associated with share-based compensation and provision for allowance on accounts receivable. This was partially offset by changes in asset and liability accounts of approximately $189,000.
Investing Activities
During the six months ended November 30, 2023, cash used in investing activities was approximately $27,000 for purchases of property and equipment, and $48,000 in expenditures related to patents.
During the six months ended November 30, 2022, cash used in investing activities was approximately $58,000 for purchases of property and equipment.
Financing Activities
During the six months ended November 30, 2023, cash provided by financing activities was $0, with no net proceeds from the sale of common stock or from stock option exercises.
During the six months ended November 30, 2022, cash provided by financing activities was approximately $2,015,000 which was a result of net proceeds from the sale of common stock of $1,937,000, and stock option exercises of $79,000.
OFF BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements as of November 30, 2023.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions.
We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, inventory reserves, lease liabilities and right-of-use assets. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial condition or results of operations. We suggest that our significant accounting policies be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Please refer to Note 2 for information on Significant Accounting Policies. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS AND PROCEDURES
Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives and the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective at the “reasonable assurance” level. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports that we file and submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms; and (2) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that has materially affected, or that is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business.
There were no material legal proceedings pending as of November 30, 2023.
ITEM 1A. RISK FACTORS
An investment in our common stock involves risks. Before making an investment decision, you should carefully consider all the information within this Quarterly Report, including the information contained in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our condensed consolidated financial statements and the related notes contained in Part I, Item 1 within this Quarterly Report. In addition, you should carefully consider the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report on Form 10-K, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, results of operations, financial condition, and prospects.
During the three and six months ended November 30, 2023, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2023 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
The following exhibits are filed or furnished as part of this quarterly report on Form 10-Q:
| 101 Interactive data files pursuant to Rule 405 Regulation S-T, as follows: |
| 101.INS-XBRL Instance Document |
| 101.SCH-XBRL Taxonomy Extension Schema Document |
| 101.CAL-XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF–XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB-XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE-XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101) |
* Filed herein.
** Filed herewith.
| 20 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BIOMERICA, INC. | ||
| Date: January 16, 2024 | ||
| By: | /S/ Zackary S. Irani | |
| Zackary S. Irani | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: January 16, 2024 | ||
| By: | /S/ Gary Lu | |
| Gary Lu | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
| 21 |