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)
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(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)
The
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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 ☐
No
The number of shares of the registrant’s common stock outstanding as of April 14, 2025 was .
BIOMERICA, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| February 28, 2025 | May 31, 2024 | |||||||
| 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 of $ | ||||||||
| Right-of-use assets, net of accumulated amortization of $ | ||||||||
| Investments | ||||||||
| Intangible assets, net of accumulated amortization of $ | ||||||||
| 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 February 28, 2025 and May 31, 2024 | ||||||||
| Preferred stock, undesignated, par value, shares authorized, issued and outstanding as of February 28, 2025 and May 31, 2024 | ||||||||
| Common stock, $ par value, shares authorized, and issued and outstanding at February 28, 2025 and May 31, 2024, 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)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| February 28, 2025 | February 29, 2024 | February 28, 2025 | February 29, 2024 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross (loss) 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 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Benefit (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 Nine Months Ended February 29, 2024 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balances at May 31, 2023 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at August 31, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at November 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation | - | |||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at February 29, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| For the Nine Months Ended February 28, 2025 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balances at May 31, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at August 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net proceeds from ATM | ||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at November 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Foreign currency translation | - | ( | ) | ( | ) | |||||||||||||||||||
| Net proceeds from ATM | ||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Share-based compensation | - | |||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balances at February 28, 2025 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these statements.
| 3 |
BIOMERICA, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended | ||||||||
| February 28, 2025 | February 29, 2024 | |||||||
| 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 for credit losses | ( | ) | ||||||
| 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 | ( | ) | ||||||
| Deferred offering costs | ||||||||
| 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 | $ | $ | ||||||
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 global 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 products utilize immunoassay technology to analyze blood, urine, nasal, or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, and to measure the level of specific hormones, antibodies, antigens, or other substances, which may exist in the human body in extremely small concentrations. Our other existing products are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. 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 products are directed at chronic inflammatory illnesses that are widespread, common, and address very large markets. Our inFoods® IBS product 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, and constipation. Instead of broad and difficult to manage dietary restrictions, the inFoods® IBS product works by identifying specific foods that may be causing an abnormally high immune response in the patient, which in turn can lead to abdominal pain and cramping, bloating, diarrhea and constipation. A food identified as positive, which is causing an abnormal immune response in the patient, is simply removed from the diet to help alleviate IBS symptoms.
Our existing medical diagnostic products are sold worldwide primarily in two markets: a) clinical laboratories and b) point-of-care (physicians’ offices and over-the-counter). Most of our products have been granted Conformite Europeenne (“CE”) marked regulatory clearance for sale throughout Europe, and/or are 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, 2024. 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 nine months ended February 28, 2025 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2025. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2024 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 28, 2024. 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
In order to prepare our consolidated financial statements in conformity with GAAP, we must 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. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Different assumptions or conditions may cause actual results to differ materially from these estimates. We monitor significant estimates made during the preparation of our financial statements on an ongoing basis. 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, right-of-use assets and share-based compensation. 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 the Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q.
MARKETS AND METHODS OF DISTRIBUTION
The majority of the Company’s revenues come from the sale of products it manufactures in the U.S. and Mexico, with certain raw materials sourced from the U.S. Asia and other regions. The Company’s diagnostic business serves a diverse customer base that includes both domestic and international distributors, as well as hospitals, clinical laboratories, medical research institutions, pharmaceutical companies, wholesalers, physicians’ offices, and direct sales to consumers from its website. A significant portion of the Company’s revenues are derived from international sales.
The Company employs a Director of Sales and Marketing for Europe and South America, based in Germany, who has over 20 years of experience in diagnostics and life sciences. This individual’s international business experience and multilingual capabilities have facilitated strong relationships across Europe, Eastern Europe, Middle East, Latin America, Canada, and the U.S. The Company expects continued growth through the addition of new distributors and product lines in these regions.
The Company markets its diagnostic products through distributors, advertising in medical and trade journals, trade show exhibitions, direct mailings, and through its internal sales team. The two primary markets the Company targets are clinical laboratories and patient point-of-care testing
LIQUIDITY AND GOING CONCERN
The Company has incurred net losses and negative
cash flows from operations and has an accumulated deficit of approximately $
On July 21, 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. The 2020 Shelf Registration Statement registered common shares that could be issued by the Company in a
maximum aggregate amount of up to $
On January 22, 2021, the Company filed a prospectus
supplement to the base prospectus included in a registration statement filed with the SEC on July 21, 2020, and declared effective by
the SEC on September 30, 2020, for purposes of selling up to $
During the year ended May 31, 2023, the Company
sold shares of its common stock at prices ranging from $ to $ pursuant to the 2021 ATM Offering, which resulted in gross
proceeds of approximately $
| 6 |
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 $
As part of our financing plan, on
September 28, 2023, we filed a new “shelf” registration statement on Form S-3 with the SEC, to replace the expiring S-3
that was filed in July 2020, which was declared effective on September 29, 2023, allowing the Company to issue up to $
The Company intends to use the net proceeds from any funds raised through the ATM offering for general corporate purposes, including, but not limited to, sales and marketing activities, clinical studies and product development, acquisitions of assets, businesses, companies, or securities, capital expenditures, and working capital needs.
During the nine months ended February 28, 2025,
the Company sold shares of its common stock at prices ranging from $ to $ pursuant to the May 2024 ATM Offering, which
resulted in gross proceeds of approximately $
Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from each financial statement issuance date to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern over the next twelve months is influenced by several factors, including:
| ● | Our need and ability to generate additional revenue from international opportunities and sales within the US of existing products, and from our new product launches; | |
| ● | Our need to access the capital and debt markets to meet current obligations and fund operations; | |
| ● | Our capacity to manage operating expenses and maintain or increase gross margins as we grow; | |
| ● | Our ability to retain key employees and maintain critical operations with a substantially reduced workforce; and | |
| ● | Certain SEC regulations that limit the amount of capital the Company can raise through issuance of its equity. |
Management has analyzed the Company’s cash flow requirements through May 2026 and beyond. Based on this analysis, we believe our current cash and cash equivalents are insufficient to meet our operating cash requirements and strategic growth objectives for the next twelve months.
To address our capital needs and sustain operations beyond the next year, we are actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, seek additional financing through debt or equity, and seek other strategic alternatives. While we are committed to these plans, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements.
As part of our efforts to reduce costs, we are
executing significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. These
measures included a workforce reduction of nearly 15% in July 2024 and a substantial reduction in other operating expenses. Additionally,
we have successfully raised $
| 7 |
These factors raise substantial doubt about the Company’s ability to continue as a going concern. Our future viability depends on the successful execution of our strategic plans, securing additional financing, and achieving profitable operations.
The Company’s consolidated financial statements as of February 28, 2025 were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.
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 from any uninsured balances held at these financial institutions.
The Company provides credit in the normal course of business to customers throughout the U.S. and in foreign markets. The Company performs ongoing credit evaluations of its customers and requires accelerated prepayment in some circumstances.
Consolidated net sales were approximately $
For the three months ended February 28, 2025,
the Company had three key customers who are located in the United States, Middle East, and Asia which accounted for
As of February 28, 2025, and May 31, 2024, total
gross receivables were approximately $
For the three months ended February 28, 2025,
the Company had two key vendors who accounted for
As of February 28, 2025 and May 31, 2024, the
Company had two 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 as part of its standard business practices. International customers are typically required to prepay until a credit history with the Company is established, at which point credit levels are determined based on various criteria. Initial credit limits for distributors are approved by designated officers or managers, while any increases require authorization from 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
| 8 |
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 February 28, 2025 and May 31, 2024, the
Company has established a reserve of approximately $
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, 2025 and May 31, 2024, 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 comprised of approximately the following:
| February 28, 2025 | May 31, 2024 | |||||||
| 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 February
28, 2025, and May 31, 2024, 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
| 9 |
INTANGIBLE ASSETS, NET
Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on ASC 350 Intangibles – Goodwill and Other. 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 nine months ended February 28, 2025, management did
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 February 28, 2025 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 nine months ended February 28, 2025 and February 29, 2024.
The Company follows the guidance of ASC 718, Share-based Compensation, 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 Company grants stock options and restricted stock units (“RSUs”) under its equity incentive plans. The Company measures all share-based payment awards at their grant-date fair value. The fair value of each option 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.
| 10 |
| Option Shares | Weighted Average Exercise Price | |||||||
| Options Outstanding at May 31, 2024 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Cancelled or expired | ( | ) | ||||||
| Options Outstanding at February 28, 2025 | $ | |||||||
During the three months ended February 28, 2025, the Company expensed approximately $ in share-based compensation related to stock options, compared to $ for the same period in 2024. For the nine months ended February 28, share-based compensation expenses for stock option grants were approximately $ in 2025 and $ in 2024.
| RSUs | Weighted Average Grant Date Fair Value | |||||||
| RSUs Outstanding at May 31, 2024 | $ | |||||||
| Granted | ||||||||
| RSUs Outstanding at February 28, 2025 | $ | |||||||
During the three and nine months ended February 28, 2025, the Company expensed $ related to RSUs. share-based compensation expense related to RSUs was recognized during the three and nine months ended February 29, 2024.
REVENUE RECOGNITION
The Company has various contracts with customers, and these contracts specify the recognition of revenue based on the nature of the transaction.
| 11 |
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 title passes. This applies to clinical lab products sold to domestic and international distributors, including hospitals, clinical laboratories, medical research institutions, medical schools, and pharmaceutical companies. OTC products are sold directly to e-commerce customers, and distributors, while physicians’ office products are sold to physicians and distributors. The Company does not allow returns except in cases of defective merchandise, and therefore, does not establish an allowance for returns. Additionally, the Company has contracts with customers that provide purchase discounts contingent on achieving specified sales volumes. These contracts are regularly evaluated, and the Company does not anticipate granting any discounts through the end of the contract period.
For diagnostic testing services sold directly to patients or physician offices that require processing by a third-party CLIA-certified lab, we recognize revenue once the lab has completed the test results.
For services related to contract manufacturing, revenue is recognized when the service has been performed. Services for some contract work are invoiced and recognized as the project progresses.
As of February 28, 2025, 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 | Nine Months Ended | |||||||||||||||
| February 28, 2025 | February 29, 2024 | February 28, 2025 | February 29, 2024 | |||||||||||||
| 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 $
| 12 |
INCOME TAXES
During the three and nine months ended February 28, 2025, the Company had a net operating loss (“NOL”) that generated deferred tax assets for NOL carryforwards. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, the Company has determined that it is more likely than not that these deferred tax assets will not be realized. Accordingly, the Company has established a full valuation allowance against its deferred tax assets as of February 28, 2025.
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 nine months ended February 28, 2025, 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. For the three months ended February 28, 2025, and February 29, 2024, advertising
costs were approximately $
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
RIGHT-OF-USE ASSETS AND LEASE LIABILITY
In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update 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 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. A total of and anti-dilutive stock options were excluded from the loss per share calculation for the nine months ended February 28, 2025, and February 29, 2024, respectively. Additionally, restricted stock units (“RSUs”) were excluded for the nine months ended February 28, 2025, while RSUs were excluded for the nine months ended February 29, 2024.
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 November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures.” The ASU includes enhanced disclosure requirements, primarily related to significant segment expenses that are regularly provided to and used by the chief operating decision maker (“CODM”). The amendments are to be applied retrospectively to all prior periods presented in the financial statements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The ASU includes enhanced disclosure requirements, primarily related to the rate reconciliation and income taxes paid information. The amendments are to be applied prospectively in the financial statements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures.
In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)”. The ASU includes enhanced disclosure requirements, which mandates enhanced transparency in financial statements by requiring detailed disclosures of specific expenses like inventory purchases, employee compensation, depreciation, and intangible asset amortization. ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this standard and intends to include the required disclosures in its Annual Report on Form 10-K for the fiscal year ended May 31, 2025.
| 13 |
NOTE 3: SHAREHOLDERS’ EQUITY
On September 28, 2023, the Company filed a “shelf”
registration statement on Form S-3 with the SEC, which was declared effective on September 29, 2023, allowing the Company to issue up
to $
On February 29, 2024, the Company did not have
an open ATM offering in place. No shares of common stock or other equity securities of the Company were sold under the shelf registration
statement during the nine months ended February 29, 2024. During the nine months ended February 28, 2025, 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 $
NOTE 4: GEOGRAPHIC INFORMATION
The Company operates as
| Three Months Ended | Nine Months Ended | |||||||||||||||
| February 28, 2025 | February 29, 2024 | February 28, 2025 | February 29, 2024 | |||||||||||||
| Revenues from sales to unaffiliated customers: | ||||||||||||||||
| North America | $ | $ | $ | $ | ||||||||||||
| Asia | ||||||||||||||||
| Europe | ||||||||||||||||
| Middle East | ||||||||||||||||
| South America | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
As of February 28, 2025, and May 31, 2024, approximately
$
As of February 28, 2025, and May 31, 2024, approximately
$
NOTE 5: LEASES
The Company leases facilities in Irvine, California and Mexicali, Mexico
As of February 28, 2025, 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.
| 14 |
The following table presents information on our operating leases for the three months and nine months ended February 28, 2025 and February 29, 2024:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| February 28, 2025 | February 29, 2024 | February 28, 2025 | February 29, 2024 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Variable lease cost | ||||||||||||||||
| Short-term lease cost | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
The approximate maturity of lease liabilities as of February 28, 2025 are as follows:
| Year Ending May 31: | ||||
| Operating Leases | ||||
| 2026 (excluding the nine months ended February 28, 2025) | $ | |||
| 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 nine months ended February 28, 2025 and February 29, 2024:
| Nine Months Ended | ||||||||
| February 28, 2025 | February 29, 2024 | |||||||
| 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. 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 material legal proceedings pending as of February 28, 2025.
NOTE 7: SUBSEQUENT EVENTS
None.
| 15 |
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, 2024 (our 2024 Annual Report).
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, contained in this Quarterly Report are forward-looking statements. Such statements include declarations regarding our intent, belief, or current expectations, and those of our management.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should, ””could,” “contemplates,” “expects,” “intends,” “plans,” “targets,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks, uncertainties and other factors, some of which are beyond our control. Actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, those risks and uncertainties identified under “Risk Factors,” in our 2024 Annual Report on Form 10-K and the other risks detailed from time-to-time in our reports and registration statements filed with the Securities and Exchange Commission, or SEC. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
OVERVIEW
We are a global biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products. 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. They can also be used to measure or detect the presence and levels of specific bacteria, hormones, antibodies, antigens and other substances, which may exist in the human body in extremely small concentrations. Our products are designed to enhance the health and well-being of people, while reducing total healthcare costs.
Our extensive range of medical diagnostic products is sold worldwide, primarily in two markets: clinical laboratories and point-of-care settings. Most of our products are Conformite Europeenne (“CE”) marked and/or registered with regulatory agencies in various countries for diagnostic use, with several also cleared by the FDA for sale in the United States.
Technological advances in medical diagnostics have enabled diagnostic tests to be performed not only in clinical laboratories but also at home and at the point-of-care in physicians’ offices. One of our key objectives has been to develop and market rapid diagnostic tests that are accurate, utilize easily obtained patient specimens, and are simple to perform without the need for complex instrumentation. Our home use (over-the-counter) and professional use (physicians’ office, clinics, etc.) rapid diagnostic test products help manage existing medical conditions and may save lives through early detection and diagnosis of specific diseases. Traditionally, such tests required the expertise of medical technologists and sophisticated equipment, with results often not available for days. We believe our rapid point-of-care tests, when properly used, can be as accurate as laboratory tests. Our products require limited to no instrumentation, deliver reliable results in minutes, and can be performed with confidence at home or in a physician’s office.
We invest resources in the research and development of new products designed to diagnose and, in some cases, treat several major medical diseases. These products are either internally developed or licensed from others. Our experienced and highly trained technical personnel, including Ph.D. holders and other scientists, are dedicated to developing new products and managing technology transfer activities. Our technical staff, many of whom have extensive experience from previous employment at large diagnostic manufacturing companies, bring a wealth of industry knowledge. Additionally, we rely on our Scientific Advisory Board, comprised of leading medical doctors and clinicians, to guide our clinical studies and product development efforts.
A key outcome from our research and development efforts is our patented diagnostic-guided therapy (“DGT”) product, developed on the inFoods® technology platform. This innovative technology is designed to treat gastrointestinal conditions such as irritable bowel syndrome (“IBS”) and other inflammatory diseases. The DGT product targets chronic inflammatory illnesses that are widespread and prevalent in large markets. We have launched the inFoods® IBS product, which leverages this patented technology.
The inFoods® IBS product utilizes a simple blood test to identify patient-specific foods that, when eliminated from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping, and constipation. Unlike broad and difficult-to-manage dietary restrictions, the inFoods® IBS product pinpoints a patient’s heightened immunoreactivity to specific foods known to frequently trigger IBS symptoms. By removing the foods identified as problematic, patients can achieve relief from their IBS symptoms.
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We began commercializing our inFoods® product with select gastroenterology (“GI”) physician groups in various states and regions, including collaboration with one of the largest GI groups in the U.S. This initial phase was focused on gathering real-world feedback, optimizing physician engagement, and validating operational processes. Feedback from GI specialists has been generally positive, and we are continuing to expand our network by onboarding additional physician practices.
Our dedicated sales team is focused on building strong relationships within the GI segment while selectively exploring opportunities to introduce inFoods® to other medical specialties, including integrated health practices and primary-care providers. These efforts are intended to lay the groundwork for broader adoption by showcasing the distinct clinical value of inFoods® across multiple healthcare channels.
Concurrently, we are evaluating distribution, partnership, and licensing opportunities with U.S.companies to support a scalable, broad market launch. These potential collaborations could significantly enhance the commercialization trajectory of inFoods® products, both domestically and internationally.
As we continue pursue commercial opportunities in both U.S. and international markets, we remain attentive to evolving global economic conditions, including uncertainties related to international trade policies, tariffs, and supply chain dynamics. Although these factors have not had a material impact on our operations to date, future changes in trade regulations, tariff structures, or logistical constraints could influence the cost, availability, or timing of materials and components used in our manufacturing processes. We continue to monitor these developments closely and are actively implementing contingency plans, including alternative sourcing strategies and supplier diversification, to support supply chain continuity, maintain operational efficiency, and help mitigate potential future impacts. We are also focusing on alternative manufacturing and shipping strategies of our products through our European subsidiary (BioEurope), and our Mexican subsidiary (BioMexico), to mitigate some of the risk these policies may have on our revenues and operations.
Beyond the inFoods® product line, the Company has achieved a significant milestone with the development of hp+detect™, a diagnostic test designed to detect Helicobacter pylori (“H. pylori”) bacteria in the gastrointestinal tract. H. pylori is a prevalent infection, affecting approximately 35% of the U.S. population and 45% of the population in Europe’s largest countries. This bacterium is the strongest known risk factor for gastric cancer, which remains one of the leading causes of cancer-related deaths worldwide.
The hp+detect™ test offers physicians and medical centers a reliable tool for diagnosing H. pylori infections and monitoring treatment efficacy. The test is marketed directly to laboratories, where patient samples are processed to provide timely and accurate diagnoses. To support the widespread adoption and distribution of hp+detect™, the Company is working with large reference laboratories, aiming to improve patient outcomes through early detection and effective treatment of H. pylori infections.
Due to the slower-than-expected launch of the Company’s key products, inFoods® IBS and hp+detect™, the Company has executed significant cost-cutting measures to extend its cash runway and work towards increasing revenues to cover overhead costs. These measures include a workforce reduction of nearly 15% during this fiscal year, which incurred costs such as severance, impacting typical cost trends and margins. Additionally, we raised $2,015,000 in net proceeds from the ATM offering filed in May 2024, providing additional liquidity to support our operations. The Company is actively exploring strategic opportunities to enhance and create shareholder value.
RESULTS OF OPERATIONS
Three months ended February 28, 2025
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) | |||||||||||||||
| February 28, 2025 | February 29, 2024 | $ | % | |||||||||||||
| Clinical lab | $ | 627,000 | $ | 404,000 | $ | 223,000 | 55 | % | ||||||||
| Over-the-counter | 170,000 | 329,000 | (159,000 | ) | -48 | % | ||||||||||
| Contract manufacturing | 320,000 | 281,000 | 39,000 | 14 | % | |||||||||||
| Physician’s office | 2,000 | 3,000 | (1,000 | ) | -33 | % | ||||||||||
| Total | $ | 1,119,000 | $ | 1,017,000 | $ | 102,000 | 10 | % | ||||||||
Consolidated net sales were approximately $1,119,000 for the three months ended February 28, 2025, as compared to $1,017,000 for the three months ended February 29, 2024, an increase of approximately $102,000 or 10%. This increase for the three months ended February 28, 2025, was primarily attributed to increased sales of our food intolerance products, reflecting a growing interest and engagement in this category. Sales in this segment are subject to periodic and infrequent orders, contributing to potential volatility in quarterly sales.
Consolidated cost of sales were approximately $1,100,000, or 98% of net sales, for the three months ended February 28, 2025, as compared to $1,166,000, or 115% of net sales, for the three months ended February 29, 2024, a decrease of approximately $66,000, or 6%. The decrease for the three months ended February 28, 2025 was primarily driven by the reduction in force (“RIF”) executed in July 2024, which helped to decrease labor costs for the quarter.
| 17 |
Operating Expenses
The following is a summary of operating expenses:
| Three Months Ended | ||||||||||||||||||||||||
| February 28, 2025 | February 29, 2024 | Increase (Decrease) | ||||||||||||||||||||||
| Operating Expense | As a % of Total Revenues | Operating Expense | As a % of Total Revenues | $ | % | |||||||||||||||||||
| Selling, General and Administrative Expenses | $ | 1,012,000 | 90 | % | $ | 1,508,000 | 148 | % | $ | (496,000 | ) | -33 | % | |||||||||||
| Research and Development | $ | 217,000 | 19 | % | $ | 343,000 | 34 | % | $ | (126,000 | ) | -37 | % | |||||||||||
Selling, General and Administrative Expenses
For the three months ended February 28, 2025, consolidated selling, general, and administrative expenses amounted to approximately $1,012,000, representing a significant reduction of $496,000 or 33%, compared to $1,508,000 for the corresponding period in 2024. This reduction was primarily due to a $225,000 decrease in stock compensation for the administration and a Reduction in Force (RIF) implemented in July 2024, which resulted in a $183,000 decrease in payroll expenses. Additionally, legal expenses were reduced by $46,000. These efforts demonstrate our focus on operating discipline and cost optimization as we align our cost structure with near-term business priorities, while preserving the resources needed to support long-term growth.
Research and Development
For the three months ended February 28, 2025, consolidated research and development (“R&D”) expenses totaled approximately $217,000, representing a decrease of 37% from $343,000 in the same period of 2024. This $126,000 reduction was primarily driven by a $64,000 decline in R&D wages due to a RIF executed in July 2024, and a reduction of $39,000 in expenses related to clinical trial studies.
Interest and Dividend Income
For the three months ended February 28, 2025, interest and dividend income totaled approximately $43,000, compared to $86,000 for the corresponding period in 2024, representing a decrease of $43,000, or 50%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by February 28, 2025.
Nine months ended February 28, 2025
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) | |||||||||||||||
| February 28, 2025 | February 29, 2024 | $ | % | |||||||||||||
| Clinical lab | $ | 2,683,000 | $ | 2,683,000 | $ | - | 0 | % | ||||||||
| Over-the-counter | 952,000 | 1,078,000 | (126,000 | ) | -12 | % | ||||||||||
| Contract manufacturing | 920,000 | 530,000 | 390,000 | 74 | % | |||||||||||
| Physician’s office | 7,000 | 8,000 | (1,000 | ) | -13 | % | ||||||||||
| Total | $ | 4,562,000 | $ | 4,299,000 | $ | 263,000 | 6 | % | ||||||||
For the nine months ended February 28, 2025, consolidated net sales reached approximately $4,562,000, marking a 6% increase or $263,000 from $4,299,000 in the same period of 2024. This growth was largely driven by enhanced contract manufacturing billings and increased demand for our inFoods® IBS product. Although there was a decline in over-the-counter (OTC) sales due to reduced retail market activity, and some volatility in clinical laboratory sales, the company successfully maintained a positive sales trajectory through strategic diversification and bolstered demand in key sectors.
For the nine months ended February 28, 2025, consolidated cost of sales was approximately $3,820,000, representing 84% of net sales, compared to $3,708,000, or 86% of net sales, for the same period in 2024. This 3% increase, amounting to $112,000, was primarily driven by expanded contract manufacturing sales. Notably, the implementation of a RIF in July 2024 effectively reduced direct labor costs, thereby contributing to improved gross margins.
| 18 |
Operating Expenses
The following is a summary of operating expenses:
| Nine Months Ended | ||||||||||||||||||||||||
| February 28, 2025 | February 29, 2024 | Increase (Decrease) | ||||||||||||||||||||||
| Operating Expense | As a % of Total Revenues | Operating Expense | As a % of Total Revenues | $ | % | |||||||||||||||||||
| Selling, General and Administrative Expenses | $ | 3,544,000 | 78 | % | $ | 4,204,000 | 98 | % | $ | (660,000 | ) | -16 | % | |||||||||||
| Research and Development | $ | 771,000 | 17 | % | $ | 1,226,000 | 29 | % | $ | (455,000 | ) | -37 | % | |||||||||||
For the nine months ended February 28, 2025, consolidated selling, general, and administrative expenses totaled approximately $3,544,000, compared to $4,204,000 for the same period in 2024. This represents a decrease of $660,000, or 16%. This notable reduction in expenses reflects our strategic financial management and can be attributed to multiple factors: the absence of a sales reserve for OTC products from the previous year, reducing costs by $175,000; a $262,000 decrease in stock compensation; and a $172,000 in payroll savings following a RIF implemented in July 2024. Furthermore, we reduced advertising expenses by $50,000. These overall cost reductions demonstrate our commitment to strategically allocating capital and maintaining financial discipline as we continue to pursue growth opportunities.
Research and Development
For the nine months ended February 28, 2025, consolidated R&D expenses were approximately $771,000, a decrease of 37% from $1,226,000 during the same period in 2024. This $455,000 reduction was largely due to a $303,000 decrease in R&D wages following a RIF implemented in July 2024. As part of our strategic cost-cutting initiatives, several clinical trials were scaled back, leading to lower expenditures. Furthermore, with the commercialization of inFoods® IBS, we strategically reduced R&D funding in this area, which accounted for an additional $75,000 decrease in related expenses.
Interest and Dividend Income
For the nine months ended February 28, 2025, interest and dividend income totaled approximately $140,000, compared to $317,000 for the corresponding period in 2024, representing a decrease of $177,000, or 56%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by February 28, 2025
LIQUIDITY AND CAPITAL RESOURCES
The following are the principal sources of liquidity:
| February 28, 2025 | May 31, 2024 | |||||||
| Cash and cash equivalents | $ | 3,058,000 | $ | 4,170,000 | ||||
| Working capital including cash and cash equivalents | $ | 4,555,000 | $ | 5,527,000 | ||||
As of February 28, 2025 and May 31, 2024, the Company had cash and cash equivalents of approximately $3,058,000 and $4,170,000, respectively. As of February 28, 2025 and May 31, 2024, the Company had working capital of approximately $4,555,000 and $5,527,000, respectively.
The Company’s ability to continue as a going concern over the next twelve months is influenced by several factors, including:
| ● | Our need and ability to generate additional revenue from international opportunities and our new product launches; | |
| ● | Our need to access the capital and debt markets to meet current obligations and fund operations; | |
| ● | Our capacity to manage operating expenses and maintain gross margins as we grow; | |
| ● | Our ability to retain key employees and maintain critical operations with a substantially reduced workforce; and | |
| ● | Certain SEC regulations that limit the amount of capital the Company can raise through issuance of its equity. |
Management has analyzed the Company’s cash flow requirements through May 2026 and beyond. Based on this analysis, we believe our current cash and cash equivalents are insufficient to meet our operating cash requirements and strategic growth objectives for the next twelve months.
| 19 |
To address our capital needs and sustain operations beyond the next year, we are actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, seek additional financing through debt or issuance of equity, and seek other strategic alternatives. While we are committed to these plans, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements.
As part of our efforts to reduce costs, we are executing significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. These measures included a workforce reduction of nearly 15% in July 2024 and a substantial reduction in other operating expenses.
As part of our financing plan, on September 28, 2023, we filed a new “shelf” registration statement on Form S-3 with the SEC, to replace the expiring S-3 that was filed in July 2020, which was declared effective on September 29, 2023, allowing us to issue up to $20,000,000 in common shares. Under this registration statement, shares of our common stock may be sold from time to time for up to three years from the filing date. On May 10, 2024, we filed a prospectus supplement with the SEC to facilitate the sale of up to $5,500,000 in common stock through at-the-market (“ATM”) offerings, as defined in Rule 415 under the Securities Act. As part of this transaction, we incurred $81,000 in deferred offering costs. The amount of capital that we can raise under the ATM offering is highly dependent upon the trading volume and the trading price of our stock. The average trading volume of our stock over the last three full calendar months is 7,798,345 shares per day and the high and low trading price of our stock during the same period of time was $0.27 and $1.03, respectively. If our stock continues to trade at low volumes and price, the amount of capital that we can raise under the ATM offering will be constrained.
We intend to use the net proceeds from the ATM offering for general corporate purposes, including, but not limited to, sales and marketing activities, clinical studies and product development, acquisitions of assets, businesses, companies, or securities, capital expenditures, and working capital needs.
During the nine months ended February 28, 2025, the Company sold 3,525,359 shares of its common stock at prices ranging from $0.36 to $1.04 pursuant to the May 2024 ATM Offering, which resulted in gross proceeds of approximately $2,143,000 and net proceeds to the Company of $2,015,000 after deducting commissions for each sale and legal, accounting, and other fees related to offering in the amount of $128,000.
While we are committed to these plans, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements.
These factors raise substantial doubt about our ability to continue as a going concern. Our future viability depends on the successful execution of our strategic plans, securing additional financing, and achieving profitable operations.
Operating Activities
During the nine months ended February 28, 2025, cash used in operating activities totaled approximately $3,180,000. The primary contributors to this outflow were a net loss of approximately $3,429,000, an increase in accounts receivable of $327,000, a decrease in accounts payable and accrued expenses totaling $506,000, and a reduction in lease liabilities of $242,000. These cash outflows were partially offset by a decrease in inventories of $766,000 and non-cash expenses of $610,000. The non-cash expenses included depreciation and amortization, provision for allowance on accounts receivable, inventory reserves, share-based compensation, and amortization of right-of-use assets.
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During the nine months ended February 29, 2024, cash used in operating activities was approximately $4,317,000. The primary factors that contributed to this was a loss of approximately $4,557,000, non-cash expenses of $723,000, 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 $483,000.
Importantly, we have made significant progress in reducing our underlying cost structure. When excluding the positive impact of proceeds from the ATM offering, our current quarterly cash burn has improved to approximately $800,000 compared to approximately $1,800,000 in the same period of last year. This reduction reflects our disciplined execution of cost saving initiatives, stronger sales from a more diverse portfolio, and tighter management of working capital.
Investing Activities
During the nine months ended February 28, 2025, cash used in investing activities was $0 for purchases of property and equipment, and $37,000 in expenditures related to patents.
During the nine months ended February 29, 2024, cash used in investing activities was approximately $27,000 for purchases of property and equipment, and $64,000 in expenditures related to patents.
Financing Activities
During the nine months ended February 28, 2025, net cash provided by financing activities amounted to approximately $2,116,000. This influx was primarily driven by net proceeds from the sale of common stock totaling $2,015,000 and proceeds from the exercise of stock options amounting to $16,000. These contributions were partially offset by deferred offering costs of $85,000.
During the nine months ended February 29, 2024, cash provided by financing activities was $0, with no net proceeds from the sale of common stock or from stock option exercises.
OFF BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements as of February 28, 2025.
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, credit losses, inventory overhead application, inventory reserves, right-of-use assets and lease liabilities and share-based compensation. 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, 2024.
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 its objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures have been designed to provide reasonable assurance of achieving its objectives.
Based on their evaluation as of February 28, 2025, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective at the “reasonable assurance” level to ensure that the information required to be disclosed by us in this Quarterly Report on Form 10-Q (our “Quarterly Report”) was (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations; and (2) accumulated and communicated to the our management, including our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting during the quarter ended February 28, 2025 that have 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
From time to time, we are involved in legal proceedings, claims, and litigation arising in the ordinary course of business, which may impact our financial results.
As of February 28, 2025, there were no pending legal proceedings. However, the outcome of any future legal matters, claims, or litigation could potentially have a material adverse effect on our quarterly or annual operating results or cash flows when resolved in subsequent periods. Nonetheless, based on current information, management believes these matters will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
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 2024 Annual Report on Form 10-K, as well as in our other public filings with the SEC. If any of the identified risks are realized, our business, results of operations, financial condition, liquidity, and prospects could be materially and adversely affected. In that case, the trading price of our common stock may decline, and you could lose all or part of your investment. In addition, other risks of which we are currently unaware, or which we do not currently view as material, could have a material adverse effect on our business, results of operations, financial condition, and prospects.
During the nine months ended February 28, 2025, there were no material changes to the risks and uncertainties described in Part I, Item 1A, “Risk Factors,” of our 2024 Annual Report on Form 10-K.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS.
The following exhibits are filed or furnished as part of this quarterly report on Form 10-Q:
101 Interactive data files pursuant to Rule 405 Regulation S-T, as follows:
101.INS-XBRL Instance Document
101.SCH-XBRL Taxonomy Extension Schema Document
101.CAL-XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF–XBRL Taxonomy Extension Definition Linkbase Document
101.LAB-XBRL Taxonomy Extension Label Linkbase Document
101.PRE-XBRL Taxonomy Extension Presentation Linkbase Document
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101)
* Filed herein.
** Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has fully caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BIOMERICA, INC. | ||
| Date: April 14, 2025 | ||
| By: | /S/ Zackary S. Irani | |
| Zackary S. Irani | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: April 14, 2025 | ||
| By: | /S/ Gary Lu | |
| Gary Lu | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||
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