BIOMERICA INC 10-Q

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, 2025 (our 2025 Annual Report). FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q (“Form 10-Q” or “Quarterly Report”) contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Quarterly Report, other than statements of historical facts, including, without limitation, statements regarding our strategy, future operations, future operating expenses, future financial position, future revenue, projected costs, prospects, plans, intentions, expectations, goals and objectives may be forward-looking statements. The forward-looking statements in this Quarterly Report do not constitute guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. In some cases, you can identify forward-looking statements by words such as “believe,” “expect,” “anticipate,” “contemplate,” “estimate,” “project,” “forecast,” “would,” “may,” “should,” “will,” “could,” “can,” “potential,” “possible,” “proposed,” “plan,” “develop,” “opportunity,” “intend,” “initiative,” “target,” “maintain,” “continue,” “strive,” “progress,” “aim,” or the negative of these terms or other comparable expressions. Factors, among others, that could cause actual results and events to differ materially from those expressed or implied in any forward-looking statement include: ● the ability to raise additional capital and continue as a going concern; ● the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; ● the scope of protection we are able to establish and maintain for our intellectual property rights covering our products and technology; ● the ability to compete in our industry, including against competitors that have significantly greater financial, technical and marketing resources than we do; ● the ability to obtain and maintain government or regulatory certification in the countries and regions we sell products in; ● the ability to maintain relations with our key distributors; ● the impact of global economic and political developments on our business, including rising inflation and interest rates, capital market disruptions, bank failures, government shutdowns, economic sanctions and economic slowdowns or recessions that may result from such developments which could harm our research and development efforts as well as the value of our common stock and our ability to access capital markets; ● the implementation of our business model and strategic plans for our business, products, and technology; ● the risks related to third parties asserting intellectual property infringement claims against us; ● the impact of numerous laws and regulations that apply to us and compliance with these laws and regulations, as they currently exist or as modified in the future; ● the risks related to product recalls, claims of liability, harm to patients or users of our products; and ● the ability to retain the continued service of our key personnel and to identify, hire and retain additional qualified professionals. Additional factors that might cause actual results and our current expectations and projections to differ materially include, among other things, those discussed in this Quarterly Report as well as those under the section titled “Risk Factors,” and discussed elsewhere in our Annual Report and the other risks detailed from time-to-time in our reports and registration statements filed with the Securities and Exchange Commission (“SEC”). We intend that such forward-looking statements be subject to the safe harbors for such statements. These forward-looking statements are based on the current beliefs and expectations of our management and speak only as of the date of this Quarterly Report or, in the case of documents referred to or incorporated by reference, the date of those documents. You should not place undue reliance on these forward-looking statements, which are subject to significant known and unknown risks, uncertainties and other factors, which are in some cases, beyond our control and which could materially affect results. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. Except as required by law, we do not undertake any obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise . If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements. 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 cost. Our range of medical diagnostic products is sold worldwide, primarily in two markets: clinical laboratories and point-of-care settings (physicians’ offices). 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 ADVANCEMENTS AND PRODUCT DEVELOPMENT 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 often 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. RESEARCH AND DEVELOPMENT 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 advise on 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 aid in the management of gastrointestinal conditions such as irritable bowel syndrome (“IBS”) and other inflammatory diseases. DGT products target chronic inflammatory illnesses that are widespread and prevalent in large markets. We have launched our 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 help reduce 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 IBS symptoms. 13 We have introduced our inFoods® IBS product to select gastroenterology (“GI”) physician groups in multiple states and regions, including in collaboration with one of the largest GI physician groups in the United States. This initial phase was focused on gathering real-world feedback, optimizing physician engagement, and validating operational processes. GI physician feedback 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 our inFoods® IBS products 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 and working with distribution, partnership, and licensing opportunities with U.S. companies to support a scalable, broad market launch. One such distribution opportunity is the partnership previously announced with Henry Schein who is utilizing their sales force to introduce and sell the inFoods® IBS product to physicians in the U.S. Market. We expect these potential collaborations to significantly enhance the commercialization trajectory of inFoods® IBS products, both domestically and internationally. We are currently in the process of pursuing U.S. government payment or reimbursement for the inFoods® IBS product through the Medicare system. In connection with this process, the Centers for Medicare & Medicaid Services has established a reimbursement price applicable to this product. While the establishment of a reimbursement price does not guarantee coverage, utilization, or payment, management believes it represents an important step toward broader market access. Once Medicare reimbursement is achieved, we intend to also pursue reimbursement with private payer insurance companies. To the extent patients are able to access the inFoods® IBS product at reduced out of pocket cost, we expect adoption and utilization to increase. As we continue to 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 BioEurope GmbH, our European subsidiary, and Biomerica de Mexico, our Mexican subsidiary, to mitigate some of the risk these policies may have on our revenues and operations. In addition, in December 2023 we received FDA clearance for 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 recognized as the highest known risk factor for gastric cancer, which remains one of the leading causes of cancer-related deaths globally. The hp+detect™ test is marketed directly to laboratories and is intended to provide physicians and medical centers with a reliable tool for diagnosing H. pylori infections and monitoring treatment effectiveness. We are actively marketing hp+detect™ to large end-customer laboratories and positioning the product for commercial adoption We continue to balance revenue generated from our established diagnostic products and contract manufacturing services with investments in newer diagnostic-guided therapy products, including inFoods® IBS and hp+detect™. Management believes this diversified portfolio approach supports near-term cash generation while advancing longer-term growth initiatives. During the six months ended November 30, 2025, we continued our phased commercialization strategy for our inFoods® IBS product, prioritizing targeted gastroenterology practices to validate clinical workflows, refine physician education, and gather real-world feedback. This measured approach has informed sales and marketing investments and is intended to support a scalable broader launch. Due to the slower-than-expected launch of our key new products, inFoods ® IBS and hp+detect ™ , we initiated significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. Additionally, during the six months ended November 30, 2025, the Company strengthened its liquidity position through a combination of operating cost controls, net proceeds of approximately $1,395,000 from the ATM offering. We are also actively exploring other strategic opportunities to enhance and create shareholder value. 14 RESULTS OF OPERATIONS Three months ended November 30, 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 November 30, Increase (Decrease) 2025 2024 $ % Clinical lab $ 676,000 $ 777,000 $ (101,000 ) -13 % Over-the-counter 361,000 596,000 (235,000 ) -39 % Contract manufacturing 172,000 260,000 (88,000 ) -34 % Physician’s office 1,000 3,000 (2,000 ) -67 % Total $ 1,210,000 $ 1,636,000 $ (426,000 ) -26 % Consolidated net sales were approximately $1,210,000 for the three months ended November 30, 2025, as compared to $1,636,000 for the three months ended November 30, 2024, representing a decrease of approximately $426,000, or 26%. The decrease was primarily attributable to lower sales of Aware® products in the Middle East market, as well as reduced contract manufacturing billings and clinic laboratory sales, which were impacted by the timing and periodic nature of customer orders. Consolidated cost of sales was approximately $1,159,000, or 96% of net sales, for the three months ended November 30, 2025, as compared to $1,199,000, or 73% of net sales, for the three months ended November 30, 2024, representing a decrease of approximately $40,000, or 3%. The decrease was primarily attributable to lower sales volumes during the current quarter compared to the prior year same period, as well as lower inventory write-offs and production adjustments. Operating Expenses The following is a summary of operating expenses: Three Months Ended November 30, 2025 2024 Increase (Decrease) Operating Expense As a % of Total Revenues Operating Expense As a % of Total Revenues $ % Selling, General and Administrative Expenses $ 1,231,000 102 % $ 1,173,000 72 % $ 58,000 5 % Research and Development $ 193,000 16 % $ 257,000 16 % $ (64,000 ) -25 % Selling, General and Administrative Expenses For the three months ended November 30, 2025, consolidated selling, general, and administrative expenses amounted to approximately $1,231,000, compared to $1,173,000 for the corresponding period in 2024, an increase of $58,000 or 5%. The increase was primarily attributable to a $71,000 increase in salaries and wages primarily associated with a new hire in the sales and marketing team, a $67,000 increase in credit loss expense related to aged receivables, and a $34,000 increase in outside sales-related services related to inFoods®. These increases were partially offset by a $42,000 decrease in stock-based compensation within the administrative team, primarily due to changes in the Company’s stock price, and a $72,000 decrease in sales commissions resulting from lower sales volumes in the Middle East market. Research and Development For the three months ended November 30, 2025, consolidated research and development (“R&D”) expenses totaled approximately $193,000, representing a decrease of 25% from $257,000 in the same period of 2024. The decrease was primarily attributable to a $46,000 reduction in R&D wages, reflecting fewer labor hours allocated to R&D, as well as a $17,000 decrease resulting from reduced participation in charitable sponsorships during the current period. Dividend, Interest, and Other Income For the three months ended November 30, 2025, dividend, interest, and other income totaled approximately $58,000, compared to $40,000 for the corresponding period in 2024, representing an increase of $18,000, or 45%. This increase was primarily attributable to dividend distributions received from an investment holding entity during the current period. 15 Six months ended November 30, 2025 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) 2025 2024 $ % Clinical lab $ 1,700,000 $ 2,057,000 $ (357,000 ) -17 % Over-the-counter 522,000 782,000 (260,000 ) -33 % Contract manufacturing 363,000 599,000 (236,000 ) -39 % Physician’s office 5,000 6,000 (1,000 ) -17 % Total $ 2,590,000 $ 3,444,000 $ (854,000 ) -25 % For the six months ended November 30, 2025, consolidated net sales reached approximately $2,590,000, compared to $3,444,000 for the same period in 2024, representing a decrease of approximately $854,000, or 25%. The decrease was primarily attributable to lower clinic laboratory sales, which experienced volatility due to the periodic and infrequent nature of customer orders, as well as reduced contract manufacturing billings and lower OTC sales driven by decreased sales in the Middle East market. For the six months ended November 30, 2025, consolidated cost of sales was approximately $2,113,000, or 82% of net sales, compared to $2,720,000, or 79% of net sales, for the same period in 2024, representing a decrease of $607,000, or 22%. The decrease was primarily attributable to lower sales volumes across the clinical laboratory, OTC, and contract manufacturing businesses, which resulted in lower labor costs and reduced cost allocations. In addition, lower levels of aged inventory during the current period led to a decrease in inventory write-offs. Operating Expenses The following is a summary of operating expenses: Six Months Ended November 30, 2025 2024 Increase (Decrease) Operating Expense As a % of Total Revenues Operating Expense As a % of Total Revenues $ % Selling, General and Administrative Expenses $ 2,561,000 99 % $ 2,533,000 74 % $ 28,000 1 % Research and Development $ 405,000 16 % $ 554,000 16 % $ (149,000 ) -27 % Selling, General and Administrative Expenses For the six months ended November 30, 2025, consolidated selling, general, and administrative expenses totaled approximately $2,561,000, compared to $2,533,000 for the same period in 2024, representing an increase of approximately $28,000, or 1%. The increase was primarily attributable to a $114,000 increase in outside administrative services associated with tax credit advisory services provided for ERC, a $66,000 increase in stock-based compensation within the sales and marketing organization related to a new hire during the current period, compared to workforce reductions in the prior year period, and a $55,000 increase in credit loss expense under CECL related to aged receivables, for which payment plans have been established. These increases were partially offset by an $88,000 decrease in sales commissions resulting from reduced sales volumes in the Middle East market, a $73,000 decrease in salaries and wages within the sales and marketing team, and a $51,000 decrease in stock-based compensation expense within the administrative team. Research and Development For the six months ended November 30, 2025, consolidated R&D expenses totaled approximately $405,000, representing a decrease of $149,000, or 27% from $554,000 in the same period of 2024. The decrease was primarily attributable to a $106,000 reduction in R&D salaries and wages, reflecting fewer labor hours allocated to R&D as the business progressed into later, commercialization focused development phases, as well as a $36,000 decrease in R&D expenses related to inFoods® during the current period. Dividend, Interest, and Other Income For the six months ended November 30, 2025, dividend. interest, and other income totaled approximately $1,180,000, compared to $97,000 for the corresponding period in 2024, representing an increase of $1,083,000, or 1116%. The increase was primarily attributable to a $1,100,000 cash refund received from the Internal Revenue Service (IRS) on July 21, 2025, related to previously filed claims for the ERC, a refundable payroll tax credit established under the CARES Act. The ERC was available to eligible employers for wages paid during calendar year 2021 in response to the global COVID-19 pandemic. This credit represents a one-time benefit that is not expected to recur in future periods. Excluding the ERC refund, interest and dividend income decreased by approximately $29,000, primarily due to lower market interest rates during the current quarter compared to the prior year. 16 LIQUIDITY AND CAPITAL RESOURCES AND GOING CONCERN The following are the principal sources of liquidity: November 30, 2025 May 31, 2025 Cash and cash equivalents $ 2,543,000 $ 2,399,000 Working capital including cash and cash equivalents $ 3,592,000 $ 3,135,000 As of November 30, 2025 and May 31, 2025, we had cash and cash equivalents of approximately $2,543,000 and $2,399,000, respectively. As of November 30, 2025 and May 31, 2025, we had working capital of approximately $3,592,000 and $3,135,000, respectively. Our 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 and ability 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 we can raise through issuance of its equity. 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 near-term financing, and achieving profitable operations. Management has analyzed our cash flow requirements through November 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. As part of our financing plan, on September 28, 2023, we filed the Shelf Registration Statement allowing us to issue up to $20,000,000 in shares of our common stock. On May 10, 2024, the Company filed a prospectus supplement to the Shelf Registration Statement on Form S-3. This prospectus supplement was intended to facilitate the sale of up to $5,500,000 in common stock through the 2024 ATM Offering. As part of this transaction, we incurred $81,000 in deferred offering costs during the year ended May 31, 2024. During the six months ended November 30, 2025, we sold 391,125 shares of its common stock at prices ranging from $3.34 to $4.02 pursuant to the 2024 ATM Offering, which resulted in gross proceeds of approximately $1,432,000 and net proceeds to us of $1,395,000 after deducting commissions for each sale and legal, accounting, and other fees related to offering in the amount of $37,000. We intend to use the net proceeds from the 2024 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. While we are committed to addressing our capital needs and sustain operations beyond the next year, 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. 17 Operating Activities During the six months ended November 30, 2025, cash used in operating activities was approximately $1,259,000. The primary factors that contributed to this were a loss of approximately $1,318,000, an increase in accounts receivable of $285,000, decrease in lease liabilities of $175,000, decrease in accrued compensation of $110,000. These outflows were partially offset by a decrease in prepaid expenses and other of $78,000, an increase in accounts payable and accrued expenses of $70,000, and non-cash expenses of approximately $488,000. During the six months ended November 30, 2024, cash used in operating activities was approximately $2,135,000. The primary factors that contributed to this were a loss of approximately $2,266,000, an increase in accounts receivable of $387,000, and a decrease in accounts payable and accrued expenses of $290,000. These outflows were partially offset by a decrease in inventories of $585,000 and non-cash expenses of approximately $439,000. Investing Activities During the six months ended November 30, 2025, cash used in investing activities was $0. During the six months ended November 30, 2024, cash used in investing activities was $33,000 for expenditures related to patents. Financing Activities During the six months ended November 30, 2025, cash provided by financing activities amounted to $1,402,000, primarily resulting from gross proceeds of approximately $1,432,000 from the sale of common stock. During the six months ended November 30, 2024, cash provided by financing activities amounted to $380,000, primarily resulting from gross proceeds of $392,000 from the sale of common stock. OFF BALANCE SHEET ARRANGEMENTS There were no off-balance sheet arrangements as of November 30, 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 may affect the reported amounts of revenues and expenses during the reporting period. We evaluate and base our estimates and assumptions on historical experience and various other factors and circumstances that we believe to be reasonable. Different assumptions or conditions may cause actual results to differ materially from these estimates. We continue to monitor significant estimates made during the preparation of our financial statements. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, inventory reserves, lease liabilities and right-of-use assets. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. There have been no significant changes to our critical accounting policies from those disclosed in our 2025 Annual Report. 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.