What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-01-14 compared with 2020-10-15 · 63 added, 47 removed, 82 unchanged (57% of the section changed)

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FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES WHICH MAY CAUSE BIOMERICA'S RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY FROM FORECASTED RESULTS.

Like other businesses, THE COMPANY IS susceptible to macroeconomic downturns in the United States or abroad, as were experienced recently, that may affect the general economic climate and OUR performance or OUR customers.

Like other businesses, THE COMPANY IS susceptible to macroeconomic downturns in the United States or abroad, as were experienced recently AND AS CURRENTLY CONTINUE, that may affect the general economic climate and OUR performance or OUR customers.

Aside from general macroeconomic downturns, the additional material factors, RISKS AND UNCERTAINTIES that could affect future financial results include, but are not limited to:

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THE ABILITY TO COLLECT RECEIVABLES FROM CUSTOMERS;

THE CONTINUED ABILITY OF THE COMPANY TO ATTAIN AND MAINTAIN THE LICENSES AND APPROVALS REQUIRED;

Regional or global pandemics and the economic and social disruptions these cause;

THE CONTINUED ABILITY OF THE COMPANY TO ATTAIN AND MAINTAIN THE LICENSES AND APPROVALS REQUIRED, INCLUDING EUA CLEARANCE FROM THE FDA FOR THE COMPANYS COVID-10 PRODUCTS;

Regional or global pandemics, GOVERNMENT RESPONSES TO SUCH PANDEMICS, and the economic and social disruptions these cause ESPECIALLY IN THE HEALTHCARE INDUSTRY IN WHICH WE OPERATE;

SHUTDOWNS OR DISRUPTIONS IN OUR MANUFACTURING DUE TO WIDESPRED ILLNESS, OR OTHER ISSUES;

terrorist attacks and the impact of such events;

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shipping labor disruption or other major degradation of the ability to ship out products to end users;

inability to successfully control our margins which are affected by many factors including competition and product mix;

inability to successfully control our margins which are affected by many factors including RAW MATERIALS, competition and product mix;

protracted shutdown of the U.S.

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Biomerica, Inc.

and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH), (the Company) is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians' offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases .

and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH), (the Company, we, our) is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians' offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases .

Our diagnostic test kits are used to analyze blood, urine or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations.

The Company's products are designed to enhance the health and well-being of people, while reducing total healthcare costs.

Our primary focus is the research and development of revolutionary, patented diagnostic-guided therapy (DGT) products to treat gastrointestinal diseases, such as irritable bowel syndrome (IBS), and other inflammatory diseases.

Our primary focus is the research and development of disruptive, 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 and common, and as such address very large markets.

If these DGT products prove effective in their clinical trials, and are ultimately cleared for sale by the U.S.

FDA, management believes the revenue potential to the Company is very significant.

FDA, management believes the revenue potential to the Company is significant.

Due to the global 2019 SARS-CoV-2 novel coronavirus (COVID-19) pandemic, in March 2020 we began redirecting and focusing a majority of our resources to develop, test, validate, seek regulatory approval for, and sell diagnostic products that indicate if a person has been infected by COVID-19.

These diagnostic tests use a patients blood sample to detect if the patient has certain antibodies to COVID-19 that were created as part of their bodys immune response to a COVID-19 infection, even if the infection was asymptomatic.

During the fourth quarter of fiscal 2020 we began marketing and selling outside of the U.S.

The Company is marketing and selling outside of the U.S.

a disposable rapid finger-prick blood test, which detects COVID-19 IgG/IgM antibodies within 10 minutes.

This test is designed to be performed by trained professionals anywhere (e.g.

airports, schools, work, pharmacies and doctors offices).

Following fiscal 2020 year-end, we submitted to the FDA an application under an Emergency Use Authorization (EUA) to sell in the U.S.

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under a CE Mark (European Conformity).

Initial sales for this product are expected during the Companys second quarter of fiscal 2021 assuming we receive EUA clearance.

This ELISA lab test can be run using blood drawn by a medical professional, or can be run using a finger prick blood sample that can be collected by a patient in their own home, using our proprietary at-home blood collection kit, that the patient sends to a lab for processing on our ELISA test.

Our EUA application/submission for the ELISA COVID-19 antibody test includes the at-home blood collection kit.

Initial sales for the ELISA test kit and the at-home blood collection kits are expected following EUA clearance from the FDA for the products to be sold in the US.

The FDA has now assigned an examiner to review this submission and the Company is actively working with the FDA to attain EUA clearance.

The Company manufactures this COVID-19 ELISA test on its automated equipment at the Companys California facility that is also used to produce serology antibody tests for other diseases.

Since we did not receive FDA clearance for this product during our first quarter of 2021, we did not record any sales in the U.S.

Since we did not receive FDA clearance for this product during our second quarter of fiscal year 2021, we did not record any sales in the U.S.

for our COVID-19 ELISA products.

Further, sales of our disposable rapid finger prick blood test, which is only authorized for sale outside of the U.S., were slower in the first quarter as we are told by customers that most government health agencies are focused on viral testing (determining who is currently infected) while the infection rates in the territories we serve showed lower overall cases.

However, we believe that as vaccines become available in the market, demand for serology (antibody) tests, like those we produce, will greatly increase.

In addition, the infection rates in the territories we serve have increased, which we believe will result in a higher demand for both antibody and viral testing.

Further, sales of our disposable rapid finger prick blood test, which is only authorized for sale outside of the U.S., were slower in the second quarter as we are told by customers that most government health agencies are focused on viral testing (determining who is currently infected) while the infection rates in the territories we serve showed lower overall cases.

However, the Company believes even with vaccines beginning to become available in the market, demand for serology (antibody) tests, like those we produce, could increase.

In addition, the infection rates in the territories we serve have increased, which we believe will result in a higher demand for both antibody and viral testing, as long as pandemic continues.

Vaccines are designed to create antibodies in individuals that will enable them to avoid serious illness when exposed to the COVID-19 virus.

Therefore, following vaccination, patients will want to know if the vaccination worked and they have produced adequate levels of antibodies to the COVID-19 virus.

Further, at various points following vaccination (i.e.

3 months, 6 months, 9 months, etc.), we anticipate people will want to receive an antibody test to determine if the level of, antibodies produced from the vaccine are still adequate to fight off a serious infection.

Therefore, we believe demand for COVID-19 antibody testing will remain strong into the foreseeable future, even after demand for actual virus testing begins to fall.

Therefore, following vaccination, the Company believes many patients will want to know if the vaccination worked and they have produced antibodies to the COVID-19 virus.

Further, at various points following vaccination (e.g., 3 months, 6 months, etc.), we anticipate people will want to receive an antibody test to determine if the level of antibodies produced from the vaccine are still adequate to fight off a serious infection.

Therefore, we believe demand for COVID-19 antibody testing will begin to strengthen near term, and could remain strong into the foreseeable future, even after demand for actual virus testing begins to fall.

During the first and second fiscal quarters of 2021, we also focused resources on developing and validating a COVID-19 antigen test that uses nasal (via a nasal swab) or saliva human samples to detect if the COVID-19 antigen is present in a persons nasal and oral fluids, indicating that the person has been infected with the COVID-19 virus, and may still be actively infected and infectious to others.

Aside from the current focus on COVID-19 products in research, development and clinical trials, the products we continue to sell are primarily focused on gastrointestinal diseases, food intolerances, diabetes and certain esoteric tests.

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Finally, the Company continues to see progress in completing the testing required to attain FDA clearance for our patented InFoods® IBS DGT product that is designed to diagnose and treat sufferers of IBS.

Recently we added most of the Mayo Clinic sites to our clinical trials for this product.

Mayo Clinic joins Beth Israel Deaconess Medical Center Inc., a Harvard Medical School teaching hospital, University of Texas Health Science Center at Houston, Houston Methodist and the University of Michigan as other sites conducting the trials.

InFoods® IBS is a unique, patented product that can allow physicians to identify specific foods (e.g.

pork, milk, onions, sugar, chickpeas, etc.) for each IBS patient, that when removed from that patients diet, may alleviate or improve their IBS symptoms and suffering.

Mayo Clinic, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School teaching hospital, University of Texas Health Science Center at Houston, Houston Methodist and the University of Michigan are participating in our clinical trials for this product.

InFoods® IBS is a unique, patented product that can allow physicians to identify specific foods (e.g., pork, milk, onions, sugar, chickpeas, etc.) for each IBS patient, that when removed from that patients diet, may alleviate or improve their IBS symptoms and suffering.

Upon demonstrating efficacy and obtaining FDA approval, we believe the long-term opportunities for the InFoods IBS product could be comparable to any of the major drugs currently used to treat IBS.

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RESULTS OF OPERATIONS

Consolidated net sales for Biomerica were $1,143,806 for the three months ended August 31, 2020 as compared to $1,194,415 for the same period in the previous year.

Consolidated net sales for Biomerica were $1,372,526 for the three months ended November 30, 2020 as compared to $1,596,408 for the same period in the previous year.

This represents a decrease of $223,882, or 14%.

The decrease was primarily due to decreased demand of approximately $355,000 in Asia and the Middle East which was due to lower sales to certain distributors and timing of certain orders.

This was partially offset by an increase in sales of approximately $290,000 in Europe of contract manufacturing and COVID-19 tests.

Sales in the U.S.

were up by approximately $19,000 primarily due to increased sales to our drug store customers in the current quarter.

The Company believes revenues during the quarter for sales of non-COVID-19 products were negatively impacted by the world-wide pandemic.

Consolidated cost of sales for the three months ended August 31, 2020 as compared to August 31, 2019 increased from $827,111 to $960,930, or by $133,819.

The percentage of cost of sales relative to sales increased from 69.2% to 84.0%.

Consolidated net sales for Biomerica were $2,516,332 for the six months ended November 30, 2020 as compared to $2,790,823 for the same period in the previous year.

This represents a decrease of $274,491, or 10%.

The decrease for the three months ended November 30, 2020 as compared to the same period in the previous year was primarily due to softness in demand for our non-COVID products in certain markets due to the pandemic.

However, the Company believes demand to be returning for certain regions as orders for non-COVID products received from Asian customers during the first six weeks of fiscal third quarter 2021 were over $700,000.

Nevertheless, the Company still believes that total sales of non-COVID-19 products could continue to be negatively impacted by the world-wide pandemic.

Because the Company sells both COVID-19 and Non-COVID-19 products, the impact COVID-19 will have on future revenues is difficult to predict.

Consolidated cost of sales for Biomerica were $1,011,030 for the three months ended November 30, 2020 as compared to $1,127,536 for the same period in the previous year.

This represents a decrease of $116,506, or 10%.

Consolidated cost of sales for Biomerica were $1,971,960 for the six months ended November 30, 2020 as compared to $1,954,647 for the same period in the previous year.

This represents an increase of $17,313, or 1%.

The percentage of cost of sales relative to sales for the three months ended November 30, 2020 increased from 71% to 74%.

The percentage of cost of sales relative to sales for the six months ended November 30, 2020 increased from 70% to 78%.

The Companys standard margin on products sold was similar to previous periods.

However, during the three months ended August 31, 2020 the manufacturing facilities werent running at 100% capacity due to the negative impact COVID-19 had on sales of the Companys non-COVID-19 products.

However, during the three and six months ended November 30, 2020 the manufacturing facilities were not running at 100% capacity due to the negative impact COVID-19 had on sales of the Companys non-COVID-19 products.

This generated unfavorable manufacturing variances within our reported cost of sales.

Consolidated selling, general and administrative expense for the three months ended August 31, 2020 as compared to August 31, 2019 increased from $506,397 to $1,164,564, or by $658,167, or 130%.

The increase was primarily due to legal expenses related to responding to the SEC inquiry discussed in Part II, as well as an increase in the allowance for doubtful accounts, additional consulting fees, and partly to increased personnel costs as the Company is expanding and strengthening its management team in sales, marketing, and administration.

Consolidated research and development expense for the three months ended August 31, 2020 as compared to August 31, 2019 increased from $370,466 to $674,693, or by $304,227, or 82.1%, primarily as a result of increases in costs related to the research, development and validation of COVID-19 tests, and increased costs related to initiation costs at Mayo Clinic, University of Houston Texas, and Methodist Hospital for clinical trials for our InFoods® IBS product.

Interest and dividend income for the three months ended August 31, 2020 as compared to August 31, 2019 increased from $4,063 to $8,091 for the same period.

Because the Company sells both COVID-19 and Non-COVID-19 products, the impact COVID-19 will have on future cost of sales is difficult to determine.

Consolidated selling, general and administrative expenses for Biomerica were $1,254,847 for the three months ended November 30, 2020 as compared to $553,761 for the same period in the previous year.

This represents an increase of $701,086, or 127%.

Consolidated selling, general and administrative expense for Biomerica were $2,419,411 for the six months ended November 30, 2020 as compared to $1,060,958 for the same period in the previous year.

This represents an increase of $1,358,453, or 128%.

The increase in the three and six month periods was primarily due to legal expenses related to responding to the SEC inquiry discussed in Part II, as well as an increase in the allowance for doubtful accounts, additional consulting fees, and increased personnel costs as the Company is expanding and strengthening its management team in sales, marketing, and administration.

Consolidated research and development expenses for Biomerica were $586,403 for the three months ended November 30, 2020 as compared to $404,854 for the same period in the previous year.

This represents an increase of $181,549, or 45%.

Consolidated research and development expense for Biomerica were $1,261,096 for the six months ended November 30, 2020 as compared to $775,320 for the same period in the previous year.

This represents an increase of $485,776, or 63%.

The increase in the three and six month periods was primarily a result of increases in costs related to the research, development and validation of COVID-19 tests, and the initiation costs at Mayo Clinic, University of Houston Texas, and Methodist Hospital in Texas for clinical trials for our InFoods® IBS product.

Interest and dividend income were $7,983 for the three months ended November 30, 2020 as compared to $4,488 for the same period in the previous year.

This represents an increase of $3,495, or 78%.

Interest and dividend income were $16,074 for the six months ended November 30, 2020 as compared to $8,551 for the same period in the previous year.

This represents an increase of $7,523, or 88%.

LIQUIDITY AND CAPITAL RESOURCES

As of August 31, 2020 and May 31, 2020, the Company had cash and cash equivalents in the amount of $6,964,314 and $8,641,027 and working capital of $11,318,613 and $13,289,670, respectively.

During the three months ended August 31, 2020, the Companys operations used cash of $1,597,146 compared to cash used in operations of $8,154 in the same period of the prior fiscal year.

Cash used by operations increased year to date in fiscal 2021 compared to year to date fiscal 2020 primarily due to cash related operating losses of $1,349,400, growth in inventory of $1,250,568 driven partly by an increase in COVID-19 inventory of $1,189,427, partially offset by a reduction in prepaids of $1,038,149 which was primarily driven by a repayment of an advance the Company had with one of our suppliers.

Cash used in investing activities year to date in fiscal 2021 was $39,588 for purchases of fixed assets and $53,158 for increased intangibles compared to year to date in fiscal 2020 of $2,171, which was the result of property and equipment purchases and $12,100, for increases of intangibles.

Cash provided by financing activities in fiscal year 2021 to date was $14,900 which was a result of stock option exercises, as compared to $34,028 in stock option exercises and $112,608 from the net proceeds from the sale of common stock in fiscal 2020.

We have been working on new products for the gastroenterology market.

Patent applications for the new products have been filed and five patents have been issued (two in the USA and one each in Japan, Korea and Singapore).

As of November 30, 2020 and May 31, 2020, the Company had cash and cash equivalents in the amount of $5,683,787 and $8,641,027 and working capital of $10,072,883 and $13,289,670, respectively.

During the six months ended November 30, 2020, the Companys operations used cash of $2,880,218 compared to cash used in operations of $365,994 in the same period of the prior fiscal year.

Cash used by operations increased year to date in fiscal 2021 compared to year-to-date fiscal 2020 primarily due to operating losses of $3,134,579, growth in inventory of $1,359,320 driven by an increase in COVID-19 inventory of approximately $1,519,000 partially offset by a reduction in prepaids of $1,055,946 which was primarily driven by a repayment of an advance the Company had with one of our suppliers.

Cash used in investing activities year to date in fiscal 2021 was $61,566 for purchases of fixed assets and $61,536 for increased intangibles.

Cash provided by financing activities in fiscal year 2021 to date was $49,330 which was a result of stock option exercises.

We have been working on new products that address large markets for the gastroenterology sector.

Patent applications for these new products have been filed and six patents have been issued (two in the USA, two in Korea, and one each in Japan, and Singapore).

The Company has been working on obtaining additional patents and U.S.

regulatory approvals.

The Company has been spending significant funds on the research, development, patent and related costs and expects this will continue in order to obtain the desired patents and approvals.

regulatory approvals for these products.

Due to the significant revenue opportunities these products represent, the Company has been spending significant funds on research, development, patents and related costs, and expects this will continue in order to strengthen and expand our patent protection, and attain regulatory approvals of these products.

On July 21, 2020, the Company filed with the SEC a new Form S-3 Shelf registration statement to replace the registration statement that expired on July 20, 2020.

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This S-3 registration statement became effective September 30, 2020.

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

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

OFF BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements as of August 31, 2020.

There were no off-balance sheet arrangements as of November 30, 2020.

CRITICAL ACCOUNTING POLICIES

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis