What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-04-14 compared with 2021-01-14 · 59 added, 64 removed, 81 unchanged (60% of the section changed)

11 unchanged sentences

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;

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

terrorist attacks and the impact of such events;

1 unchanged sentence

diminished or no access to raw materials that directly enter into our manufacturing process;

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

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

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

17 unchanged sentences

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.

Our diagnostic test kits are used to analyze blood, urine, saliva, nasal fluids 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.

3 unchanged sentences

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.

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.

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

a lab-scale, high throughput ELISA COVID-19 antibody test kit that would be sold to labs and hospitals to perform COVID-19 antibody testing.

The Company also anticipates selling this test kit outside of the U.S.

under a CE Mark (European Conformity).

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.

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 antigen (viral) and antibody (serology) diagnostic products.

The Companys first COVID-19 diagnostic product, which was launched in March 2020, was a disposable rapid finger-prick blood antibody test that was designed to detect within ten minutes if the patient has certain IgG/IgM antibodies that were created as part of their bodys immune response to a COVID-19 infection, even if the infection was asymptomatic.

Given the lack of COVID-19 viral antigen tests early in the pandemic, COVID-19 antibody tests were an alternative option to identify patients that had been infected with the virus.

As viral antigen tests became more available, the sales of our disposable rapid finger-prick blood antibody tests slowed in the fourth quarter of 2020 as distributors stated that government health agencies remain focused on viral antigen testing that is now more readily available.

Concurrently, the Company also focused on COVID-19 antigen tests to detect if the COVID-19 antigen is present in a persons nasal fluids, indicating that the patient may still be actively infected and infectious to others.

In January 2021, the Company received a CE Mark which enables us to sell our nasal swab antigen test throughout the EU.

Sales of our antigen tests in the EU accounted for substantially all of our COVID-19 related product revenues during the three months ended February 28, 2021.

As the spread of COVID-19 continues, we are working to develop other markets beyond the EU to expand sales of our nasal swab and antigen tests.

In June 2020, we submitted an initial emergency use authorization (EUA) application to the FDA for a lab-scale, high throughput ELISA COVID-19 antibody test kit that could be sold to U.S.

labs and hospitals.

The Company also anticipates selling this ELISA antibody test kit outside of the U.S.

under a CE Mark.

This ELISA lab test kit can be run using blood drawn by a medical professional or by a patient using our proprietary at-home blood collection kit, that the patient sends directly to an ELISA lab for processing.

In November 2020, we amended our EUA application for this ELISA test to include the use of the at-home blood collection kit.

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 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 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, 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.

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

COVID-19 vaccines that are designed to create antibodies in individuals that will enable them to avoid serious illness when exposed to the COVID-19 virus are now becoming available in the market.

Our ELISA antibody test detects the spike protein antibody that is the same antibody produced in individuals following vaccination using the RNA based vaccine made by Pfizer, Moderna and 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.

5 unchanged sentences

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.

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

Further, the United States Patent and Trademark Office (USPTO) has issued the Company two patents with broad claims that protect the InFoods® IBS product.

Patents have also been issued in the countries of Japan, Korea and recently Singapore with many other patents still pending globally.

Five patents have also been issued internationally with many other patents still pending globally.

Additional patents have also been filed for other diseases that utilize the InFoods® DGT technology platform which include:

1 unchanged sentence

RESULTS OF OPERATIONS

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%.

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.

Consolidated net sales for Biomerica were $3,628,638 for the three months ended February 28, 2021 as compared to $1,176,889 for the three months ended February 29, 2020.

This represents an increase of $2,451,749 or 208%.

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 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.

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.

Consolidated net sales for Biomerica were $6,144,970 for the nine months ended February 28, 2021 as compared to $3,967,712 for the nine months ended February 29, 2020.

This represents an increase of $2,177,258, or 55%.

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.

The increase for the three and nine months ended February 28, 2021 as compared to the three and nine months ended February 29, 2020 was primarily due to the sale of approximately $2,300,000 in COVID-19 nasal swab antigen tests.

Consolidated cost of sales for Biomerica were $3,667,143 for the three months ended February 28, 2021 as compared to $964,910 for the three months ended February 29, 2020.

This represents an increase of $2,702,233 or 280%.

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.

Consolidated cost of sales for Biomerica were $5,639,103 for the nine months ended February 28, 2021 as compared to $2,919,557 for the nine months ended February 29, 2020.

This represents an increase of $2,719,546, or 93%.

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.

The percentage of cost of sales relative to sales for the three months ended February 28, 2021 increased from 82% in the prior year to 101%.

The percentage of cost of sales relative to sales for the nine months ended February 28, 2021 increased from 74% in the prior year to 92%.

The Companys cost of sales for the three and nine months ended February 28, 2021, included a reserve for slower moving COVID-19 disposable rapid finger-prick blood antibody tests and materials of approximately $1,405,000, not related to the Companys ELISA Antibody or Antigen tests.

Without the inventory reserve the Companys gross margin would have been 38% for the three months ended February 28, 2021 and 31% for the nine months ended February 28, 2021.

The Company continues its focus on producing and selling its COVID-19 nasal swab antigen test and preparing to launch its ELISA antibody test.

Consolidated selling, general and administrative expenses for Biomerica were $1,278,393 for the three months ended February 28, 2021 as compared to $653,585 for the three months ended February 29, 2020.

This represents an increase of $624,808 or 96%.

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.

Consolidated selling, general and administrative expenses for Biomerica were $3,697,804 for the nine months ended February 28, 2021 as compared to $1,714,543 for the nine months ended February 29, 2020.

This represents an increase of $1,983,261, or 116%.

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.

The increase in the three and nine month periods ended February 28, 2021 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 $563,216 for the three months ended February 28, 2021 as compared to $473,279 for the three months ended February 29, 2020.

This represents an increase of $89,937, or 19%.

Consolidated research and development expenses for Biomerica were $1,824,312 for the nine months ended February 28, 2021 as compared to $1,248,599 for the nine months ended February 29, 2020.

This represents an increase of $575,713, or 46%.

The increase in the three and nine month periods ended February 28, 2021 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 $37,943 for the three months ended February 28, 2021 as compared to $53,964 for the three months ended February 29, 2020.

This represents a decrease of $16,021, or 30%.

Interest and dividend income were $54,017 for the nine months ended February 28, 2021 as compared to $62,515 for the nine months ended February 29, 2020.

This represents a decrease of $8,498, or 14%.

LIQUIDITY AND CAPITAL RESOURCES

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.

As of February 28, 2021 and May 31, 2020, the Company had cash and cash equivalents in the amount of $5,272,565 and $8,641,027 and working capital of $9,432,853 and $13,289,670, respectively.

During the nine months ended February 28, 2021, the Companys operations used cash of $4,244,064 compared to cash used in operations of $802,911 in the nine months ended February 29, 2020.

Cash used by operations increased year-to-date in fiscal 2021 compared to year-to-date fiscal 2020 primarily due to operating losses of $4,973,889, growth in accounts receivable of $690,691, growth in inventory of $1,446,766 driven by an increase in COVID-19 inventory of approximately $1,557,000 partially offset by a reduction in prepaids of $734,966, which was primarily driven by a repayment of an advance the Company had with one of our suppliers, a decrease in accounts payable and accrued expenses of $230,575 and non-cash adjustments related to increases in inventory and accounts receivable reserve of $1,437,547 and $578,438, respectively.

Approximately, $1,405,000 of the inventory reserve increase was related to a market downturn in our COVID-19 disposable rapid finger-prick blood antibody test and materials, as the market shifted to COVID-19 PCR viral and antigen tests.

Of the accounts receivable increase, $559,369 related to our sale to a South American distributor in fiscal 2020.

Cash used in investing activities year to date in fiscal 2021 was $106,760 for purchases of property and equipment and $116,881 for increased intangibles.

Cash provided by financing activities in fiscal year 2021 to date was $1,107,930 which was a result of stock option exercises of $96,455 and proceeds from the sale of common stock of $1,011,475.

Cash provided by financing activities in fiscal year 2020 to date was $2,563,672 which was a result of stock option exercises of $79,828, proceeds from the sale of common stock of $366,258, proceeds from the sale of convertible preferred stock of $1,917,586 and proceeds from equity financing from an officer of $200,000.

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).

Patent applications for these new products have been filed and seven patents have been issued (two in the USA and five internationally).

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

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.

Due to the significant revenue opportunities these products represent, the Company has been spending substantial 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.

The new registration statement registers common shares to be issued in a maximum aggregate amount of $90,000,000.

The new registration statement registers common shares that may be issued from time to time up to a maximum aggregate amount of $90,000,000.

Included in this registration statement was the registration of all of the common shares issued, or to be issued, to Palm Global Small Cap Master Fund LP upon conversion of their convertible Preferred stock into common shares.

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

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.

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

The Company intends to use the net proceeds from any offerings that may be issued under this Shelf registration 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.

For the nine months ended February 28, 2021, net proceeds of $1,011,475 were raised from this registration.

OFF BALANCE SHEET ARRANGEMENTS

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

There were no off-balance sheet arrangements as of February 28, 2021.

CRITICAL ACCOUNTING POLICIES

5 unchanged sentences

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 in the 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.

8 unchanged sentences

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