What changed in this filing

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Item 1. Financial Statements

2021-10-14 compared with 2021-04-14 · 250 added, 165 removed, 221 unchanged (65% of the section changed)

4 unchanged sentences

AND COMPREHENSIVE LOSS (UNAUDITED)

Nine Months Ended

Three Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

August 31, 2020

August 31, 2021

( As Restated)

Cost of sales

( 1,350,757 )

( 1,025,717 )

Gross (Loss) Profit

Operating Expenses:

3 unchanged sentences

Loss from operations

( 1,540,369 )

( 1,899,360 )

Other Income:

Dividend and interest income

Interest expense

Total other income

Loss before income taxes

Provision (benefit) for income taxes

( 1,533,564 )

( 1,891,269 )

Provision for income taxes

( 1,542,581 )

( 1,892,394 )

Basic net loss per common share

2 unchanged sentences

common equivalent shares:

( 1,542,581 )

( 1,892,394 )

Other comprehensive loss, net of tax:

1 unchanged sentence

Comprehensive loss

( 1,548,194 )

( 1,894,115 )

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

February 28, 2021

August 31, 2021

(As Restated)

Current Assets:

1 unchanged sentence

Accounts receivable, less allowance for doubtful accounts

of $649,419 and $70,981 as of February 28, 2021 and May 31, 2020,

of $ 742,524 and $ 837,415 as of August 31, 2021 and May 31, 2021, respectively

Inventories, net

2 unchanged sentences

Property and equipment, net of accumulated depreciation and amortization

of $1,945,908 and $1,867,643 as of February 28, 2021 and May 31, 2020,

of $ 2,000,167 and $ 1,972,357 as of August 31, 2021 and May 31, 2021, respectively

Right of use assets, net of accumulated amortization of $ 531,974 and $ 469,077

as of February 28, 2021 and May 31, 2020, respectively

as of August 31, 2021 and May 31, 2021, respectively

Intangible assets, net of accumulated amortization of $ 83,683 and $ 126,769 as

of February 28, 2021 and May 31, 2020, respectively

of August 31, 2021 and May 31, 2021, respectively

Liabilities and Shareholders' Equity

9 unchanged sentences

Preferred stock, Series A 5% convertible, $ 0.08 par value,

571,429 shares authorized, none issued and outstanding at February 28,

2021 and 321,429 issued and outstanding at May 31, 2020

571,429 shares authorized, none issued and outstanding as of August 31, 2021 and May 31, 2021

Preferred stock, undesignated, no par value,

4,428,571 shares authorized, none issued and outstanding at February 28,

2021 and May 31, 2020

4,428,571 shares authorized, none issued and outstanding as of August 31, 2021 and May 31, 2021

Common stock, $ 0.08 par value,

25,000,000 shares authorized, 12,302,157 and 11,740,089 issued and

outstanding at February 28, 2021 and May 31, 2020, respectively

25,000,000 shares authorized, 12,510,210 and 12,307,157 issued and outstanding at

August 31, 2021 and May 31, 2021, respectively

Additional paid-in-capital

1 unchanged sentence

Accumulated deficit

( 32,088,916 )

( 30,546,335 )

Total Shareholders' Equity

4 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited)

For the Nine Months Ended February 29, 2020

Series A 5% Convertible Preferred

Subscriptions

Accumulated Other Comprehensive

Balances, May 31, 2019

Exercise of stock

Net proceeds from ATM

For the Three Months Ended August 31, 2020 (As Restated)

Series A 5% Convertible

Accumulated Other

Preferred Stock

Foreign currency

Compensation expense in connection with options granted

February 29, 2020

For the Nine Months Ended February 28, 2021

Series A 5% Convertible Preferred Stock

Comprehensive

Paid-in Capital

Other Comprehensive

Balances, May 31, 2020.

( 23,100,081 )

Exercise of stock options

Foreign currency translation

Compensation expense in connection with options granted

( 1,892,394 )

Balances, August 31, 2020, restated

( 24,992,475 )

For the Three Months Ended August 31, 2021

Series A 5% Convertible

Accumulated Other

Preferred Stock

Comprehensive

Paid-in Capital

Balances, May 31, 2021, restated

( 30,546,335 )

Exercise of stock options

Net proceeds from ATM

Foreign currency translation

Conversion of preferred to common

Compensation expense in connection with options granted

Balances, February 28, 2021

( 1,542,581 )

Balances, August 31, 2021

( 32,088,916 )

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

February 28, 2021

February 29, 2020

August 31, 2021

August 31, 2020

(As Restated)

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

( 1,542,581 )

( 1,892,394 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depreciation and amortization

2 unchanged sentences

Stock option expense

Reduction in deferred rent liability

Amortization of right-of-use asset

1 unchanged sentence

Accounts receivable

Prepaid expenses

( 1,255,573 )

Prepaid expenses and other

Reduction in lease liability

1 unchanged sentence

Accrued compensation

Net cash used in operating activities

Net cash provided by (used in) operating activities

( 1,597,146 )

Cash flows from investing activities:

4 unchanged sentences

Proceeds from sale of common stock, net

Proceeds from sale of convertible preferred stock, net

Proceeds from exercise of stock options

Proceeds from equity financing-officer

Net cash provided by financing activities

Effect of exchange rate changes in cash

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

( 1,676,713 )

Cash and cash equivalents at beginning of period

2 unchanged sentences

Cash paid during the period for:

Non-cash investing and financing activities:

Establishment of Right-Of-Use Asset per ASC 842

Establishment of Lease Liability per ASC 842

The accompanying notes are an integral part of these statements.

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Biomerica Inc.

and Subsidiaries (collectively "the Company") are primarily engaged in the development, manufacturing and marketing of medical diagnostic products.

The Company develops, manufactures, and markets medical diagnostic products designed for the early detection and monitoring of chronic diseases and other medical conditions.

The Companys medical diagnostic products are sold worldwide in two markets:

1) clinical laboratories and 2) point of care (physicians' offices and over-the-counter drugstores).

The diagnostic test kits are used to analyze blood, urine, or fecal samples from patients in the diagnosis of various diseases and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens, or other substances, which may exist in a patients body, stools, or blood, saliva or nasal fluid.

and subsidiaries (collectively the “Company”, “Biomerica”, “we”, “us”, or “our”) develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (in home and physicians' offices) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases.

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, and other inflammatory diseases.

These products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets.

Our existing medical diagnostic products that are in the market are sold worldwide primarily in two markets:

1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter drugstores like Walmart and Walgreens).

Our diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations.

Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began 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.

During fiscal 2021, we sold 2 primary types of COVID-19 tests;

1) antibody diagnostic tests that use a patient’s blood sample to detect if the patient has certain antibodies to COVID-19 that were created as part of their body’s immune response to a COVID-19 infection, even if the infection was asymptomatic, and 2) antigen tests that use a patient’s nasal fluid sample to detect if the patient is currently infected with the virus.

Aside from the COVID-19 products we offer, the other products we sell are primarily focused on gastrointestinal diseases, food intolerances, cancer screening and awareness and certain esoteric tests.

These diagnostic test products utilize immunoassay technology.

Most of our commercial products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency.

In addition, some products are cleared for sale in the U.S.

The information set forth in these condensed consolidated financial statements is unaudited and reflects all adjustments which, in the opinion of management, are necessary to present a fair statement of the consolidated results of operations of Biomerica, Inc.

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The condensed consolidated balance sheet data as of May 31, 2021 was derived from audited financial statements.

The accompanying interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on August 31, 2020 for the fiscal year ended May 31, 2020.

The accompanying interim condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on August 27, 2021 for the fiscal year ended May 31, 2021, which have been restated as described in our Form 10-K/A as filed on October 14, 2021.

The results of operations for the interim periods are not necessarily indicative of results to be achieved for the full fiscal year.

CORRECTION OF AN ERROR

As disclosed in our Form 10-K/A for the year ended May 31, 2021, filed on October 14, 2021, during the process of preparing our financial statements for the quarter ended August 31, 2021, we determined that our calculation of non-cash stock-based compensation expense related to issued stock options in previously issued financial statements was incorrect.

Our calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation expense.

Additionally, our calculation expensed the option at vesting dates versus pro rata over the period the requisite service was provided.

As a result of these errors, certain previously reported amounts in the condensed consolidated statement of operations, condensed consolidated statement of stockholders’ equity and condensed consolidated statement of cash flows for the quarter ended August 31, 2020, were materially misstated;

accordingly, we have restated the prior period financial statements.

See Note 8 to the Financial Statements.

SIGNIFICANT ACCOUNTING POLICIES

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stock option forfeiture rates, which are calculated based on historical data;

inventory obsolescence, which are based on projected and historical usage of materials;

inventory obsolescence, which is based on projected and historical usage of materials;

and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, the likelihood of lease extensions to occur, asset valuation, among other things;

1 unchanged sentence

Actual results could materially differ from those estimates.

MARKETS AND METHODS OF DISTRIBUTION

Due to the Coronavirus global pandemic, the Company’s operations have been negatively impacted.

The Company has faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, loss of contracts and/or customers, closure of the Company’s manufacturing or distribution facilities or of the facilities of the Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities.

These ongoing pandemic related disruptions can materially negatively impact the Company’s operations and financial performance and may continue to have significant material negative impacts on the Company.

The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $ 32.1 million as of August 31, 2021.

Management expects to continue to incur significant costs as it advances its trials and development activities.

On January 22, 2021, the Company filed a prospectus supplement for purposes of raising up to $ 15,000,000 to the base prospectus filed with the SEC on July 21, 2020 and included in the registration statement on Form S-3 ( File No.

333-239980) that was declared effective by the SEC on September 30, 2020.

The shares included in the prospectus supplement may be sold pursuant to the terms of an At Market Issuance Sales Agreement between the Company and B.

Riley Securities, Inc., as sales agent, the ATM Agreement.

The Company intends to use the net proceeds from such 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.

Under an ATM Agreement, sales of shares are deemed to be “at the market offerings” as defined in Rule 415 promulgated under the Securities Act.

The sales agent under the ATM Agreement agrees to use commercially reasonable efforts to sell on the Company’s behalf all of the shares requested to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and the Company.

The Company has no obligation to sell any of the shares under the ATM Agreement, and may at any time suspend offers under, or terminate the ATM Agreement.

As a result of cash and cash equivalents on hand at August 31, 2021, management believes the Company has sufficient funds to operate through November 2022 and the ability to raise additional funds through the ATM Agreement noted above.

CONCENTRATION OF CREDIT RISK

The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies.

As of February 28, 2021, the Company had $4,855,448 of uninsured cash.

The Company does not believe it is exposed to significant credit risks at the financial institutions where cash is held.

For the nine months ended February 28, 2021 and February 29, 2020, the Company had two distributors and one distributor which accounted for 65.5% and 43.4% of net consolidated sales, respectively.

At February 28, 2021 and May 31, 2020, the Company had two distributors and three distributors which accounted for a total of 79.3% and 80.0%, respectively, of gross accounts receivable.

Of the 79.3% as of February 28, 2021, 49.8% was owed by a distributor in China.

For the nine months ended February 28, 2021 and February 29, 2020, one vendor accounted for 61.8% and two vendors accounted for 32.8% of the purchases of raw materials, respectively.

As of February 28, 2021 and May 31, 2020, the Company had two vendors which accounted for 26.7% and 26.9%, respectively, of accounts payable.

As of August 31, 2021, the Company had approximately $ 4,790,000 of uninsured cash.

The Company does not believe it is exposed to any significant credit risks.

For the three months ended August 31, 2021 and 2020, the Company had two key distributors which accounted for 60 % and 40 % of net consolidated sales, respectively.

At August 31, 2021 and May 31, 2021, the Company had two key distributors which accounted for a total of 77 % and 73 %, respectively, of gross accounts receivable.

For the three months ended August 31, 2021 and 2020, one key vendor accounted for 17 % and two key vendors accounted for 64 % of the purchases of raw materials, respectively.

As of August 31, 2021 and May 31, 2021, the Company had one key vendor which accounted for 25 % and 17 %, respectively, of accounts payable.

CASH AND CASH EQUIVALENTS

1 unchanged sentence

ACCOUNTS RECEIVABLE

The Company extends unsecured credit to its customers located throughout the United States and the world.

International accounts are normally required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria.

The Company extends unsecured credit to its customers on a regular basis.

International accounts are usually required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria.

Based on various criteria, initial credit levels for individual distributors are approved by designated officers and managers of the Company.

1 unchanged sentence

Management evaluates receivables on a quarterly basis and adjusts the allowance for doubtful accounts accordingly.

For receivables over ninety days old, the Company begins to reserve a portion of the balance unless collection is reasonably assured.

Occasionally certain customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables.

Management monitors the payments for these large balances closely and often requires payment of existing invoices before shipping new sales orders.

The Company has established a reserve of $649,419 for doubtful accounts as of February 28, 2021.

Balances over ninety days old are usually reserved for unless collection is reasonably assured.

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables 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.

The Company has established a reserve of approximately $ 743,000 for doubtful accounts as of August 31, 2021.

The majority of this reserve has been established to cover 100 % of outstanding accounts receivable from an international distributor.

The distributor continues to make small payments and the Company is continuing to work on collection of this account.

PREPAID EXPENSES AND OTHER

The Company occasionally prepays for items such as inventory, insurance and other items.

These items are reported as prepaids, until either the inventory is physically received or the insurance and other items are expensed.

As of February 28, 2021, approximately $446,000 of the prepaids was an advance payment to one of our suppliers.

As of May 31, 2020, approximately $1 million of the prepaids was an advance payment to one of our suppliers, which was subsequently refunded by the supplier when the Company determined it no longer needed the materials that had been ordered.

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 August 31, 2021 and May 31, 2021, the prepaid expenses and other were approximately $ 315,000 and $ 370,000 , respectively.

The prepaid expenses and other balance were composed of prepayments to insurance and various other suppliers.

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.

4 unchanged sentences

Inventories approximate the following at:

August 31, 2021

Raw materials

1 unchanged sentence

Finished products

Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated realizable value or to specifically reserve for obsolete inventory that the Company intends to dispose of.

As of February 28, 2021 and May 31, 2020, inventory reserves were approximately $1,504,000 and $67,000, respectively.

Of the inventory reserve, $1,405,243 was related to a market downturn in our COVID-19 antibody test and materials, as the market shifted to COVID-19 PCR viral tests and antigen tests.

During the first fiscal quarter ended August 31, 2021, the Company wrote-down the carrying value of certain inventory by approximately $ 179,000 to assign a new carrying value for this inventory of $ 211,000 .

As part of a large international order for this product that was to ship in the second quarter of 2022, the Company agreed to sell this product as a small portion of that order at a price below its carrying value, which required a write down.

Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory carrying value to estimated realizable value or to specifically reserve for obsolete inventory that the Company intends to dispose of.

As of August 31, 2021 and May 31, 2021, inventory reserves were approximately $ 1,797,000 and $ 1,617,000 , respectively.

Of the inventory reserve, approximately $ 1,683,000 was related to a market downturn in our COVID-19 antibody test and materials, as the market shifted to COVID-19 PCR viral tests and antigen tests.

PROPERTY AND EQUIPMENT, NET

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Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the lease.

Depreciation and amortization expense on property and equipment amounted to $25,691 and $23,822 for the three months ended February 28, 2021 and February 29, 2020, and $78,266 and $77,641 for the nine months ended February 28, 2021 and February 29, 2020, respectively.

Depreciation and amortization expense on property and equipment amounted to $ 27,809 and $ 26,732 for the three months ended August 31, 2021 and 2020, respectively.

INTANGIBLE ASSETS, NET

Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on Accounting Standards Codification (ASC), ASC 350 Intangibles Goodwill and Other (ASC 350).

Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on Accounting Standards Codification, ASC 350 Intangibles – Goodwill and Other.

In that regard, intangible assets that have indefinite useful lives are not amortized but are tested at least 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 18 years for marketing and distribution rights, 10 years for purchased technology use rights, and 20 years for patents.

Amortization expense amounted to $4,424 and $5,405 for the three months ended February 28, 2021 and February 29, 2020 and $16,284 and $17,131 for the nine months ended February 28, 2021 and February 29, 2020, respectively.

Amortization expense amounted to $ 6,913 and $ 5,838 for the three months ended August 31, 2021 and 2020, respectively.

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.

No impairment adjustment was required as of February 28, 2021 or February 29, 2020.

No impairment adjustment was required as of August 31, 2021 or 2020.

From time-to-time, the Company makes investments in privately-held companies.

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If the Company considers any such decline to be other than temporary (based on various factors, including historical financial results, and the overall health of the investee’s industry), a write-down to estimated fair value is recorded.

Investments represent the Companys investment in a Polish based distributor which is primarily engaged in distributing medical products and devices, and in certain cases, manufacturing the products sold.

The Company currently has not written down the investment and no events have occurred which could indicate the carrying value to be greater than the fair value.

Investments represent the Company’s investment in a Polish based distributor which is primarily engaged in distributing medical products and devices, including those manufactured by the Company, and in certain cases, manufacturing the certain of the products sold.

The Company currently has not written down the investment and has no information that would indicate the carrying value is greater than the fair value.

The Company owns approximately 6 % of the investee, and accordingly, applies the cost method to account for the investment.

1 unchanged sentence

SHARE-BASED COMPENSATION

The Company follows the guidance of the accounting provisions of ASC 718, Share-based Compensation (ASC 718), which requires the use of the fair-value based method to determine compensation expense for all arrangements under which employees and others receive shares of stock or equity instruments (options).

The Company follows the guidance of the accounting provisions of ASC 718, Share-based Compensation, which requires the use of the fair-value based method to determine compensation expense for all arrangements under which employees and others receive shares of stock or equity instruments (options).

The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate.

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Treasury yield curve in effect at the time of grant for the period of the expected term.

The following summary presents the options and warrants granted, exercised, expired, canceled and outstanding for the nine months ended February 28, 2021:

The following summary presents the options and warrants granted, exercised, expired, canceled and outstanding for the three months ended August 31, 2021:

Option Shares

2 unchanged sentences

Cancelled or expired

Outstanding February 28, 2021

During the nine months ended February 28, 2021, options to purchase 81,750 shares of common stock were exercised at prices ranging from $0.82 to $3.62.

Outstanding August 31, 2021

During the three months ended August 31, 2021, options to purchase 1,500 shares of common stock were exercised at price of $ 2.68 .

Total net proceeds to the Company were $ 3,895 .

During the nine months ended February 28, 2021, the Company granted 407,616 options to purchase common stock at an average purchase price of $6.82.

During the three months ended August 31, 2021, the Company granted 24,000 options to purchase common stock at an average purchase price of $ 4.25 .

Total net proceeds to the Company were $ 14,900 .

REVENUE RECOGNITION

The Company has various contracts with customers.

Most of the contracts specify that ownership transfers, and title to the products passes, to the customer at the time the product is shipped from our facility, customarily referred to as FOB shipping point.

For this reason, the Company recognizes revenue on the date of shipping.

The Company generally does not allow for returns except in the event of defective merchandise and therefore does not establish an allowance for returns.

All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control of goods has occurred and at which point title passes.

The Company does not allow for returns except in the event of defective merchandise and therefore does not establish an allowance for returns.

In addition, the Company has contracts with customers wherein they receive purchase discounts for achieving specified sales volumes.

The Company evaluated the status of these contracts as of February 28, 2021 and does not believe that any additional discounts will be given through the end of the contract periods.

Services for some contract work are invoiced and recognized for work that has been performed as the project progresses.

The Company evaluated the status of these contracts as of August 31, 2021 and 2020, and does not believe that any additional discounts will be given through the end of the contract periods.

Services for some contract works are invoiced and recognized for work that has been performed as the project progresses.

The Company sells clinical lab products to domestic and international distributors, including hospitals and clinical laboratories, medical research institutions, medical schools and pharmaceutical companies.

OTC products are sold directly to drug stores and e-commerce customers as well as to distributors.

Physicians office products are sold to physicians and distributors, all of whom are categorized below according to the type of product sold to them.

The Company also manufactures certain components on a contract basis for domestic and international manufacturers.

Physicians’ office products are sold to physicians and distributors, all of whom are categorized below according to the type of products sold to them.

We also manufacture certain components on a contract basis for domestic and international manufacturers.

Disaggregation of revenue:

The following is a breakdown of revenues according to end-markets to which the products are sold, typically through distributors:

Nine Months Ended

The following is a breakdown of revenues according to markets to which the products are sold:

Three Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

August 31, 2021

August 31, 2020

Physician's office

Over-the-counter

Contract Manufacturing

4 unchanged sentences

Research and development costs are expensed as incurred.

The Company expensed $563,216 and $473,279 of research and development costs during the three months ended February 28, 2021 and February 29, 2020 and $1,824,312 and $1,248,599 during the nine months ended February 28, 2021 and February 29, 2020, respectively.

The Company has provided a valuation allowance on deferred income tax assets of approximately $4,215,000 and $3,175,000 as of February 28, 2021 and May 31, 2020, respectively.

The Company expensed approximately $ 440,000 and $ 712,000 of research and development costs during the three months ended August 31, 2021 and 2020, respectively.

The Company has provided a valuation allowance on deferred income tax assets of approximately $ 6,226,000 and $ 5,904,000 as of August 31, 2021 and May 31, 2021, respectively.

FOREIGN CURRENCY TRANSLATION

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The resulting adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss.

There are no adjustments to foreign currency loss that are included in the consolidated statements of operations for the three months ended February 28, 2021 and February 29, 2020 and nine months ended February 28, 2021 and February 29, 2020.

There are no adjustments to foreign currency loss that are included in the consolidated statements of operations for the three months ended August 31, 2021 and 2020.

RIGHT-OF-USE ASSETS AND LEASE LIABILITY

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Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities using the treasury stock method.

The total amount of anti-dilutive stock options not included in the loss per share calculation for the three months ended February 28, 2021 and February 29, 2020 was 1,278,617 and 476,358, respectively.

The total amount of anti-dilutive stock options not included in the loss per share calculation for the nine months ended February 28, 2021 and February 29, 2020 was 1,360,192 and 483,658, respectively.

The total amount of anti-dilutive stock options not included in the loss per share calculation for the three months ended August 31, 2021 and 2020 was 2,081,116 and 1,925,750 , respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

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SHAREHOLDERS’ EQUITY

On July 20, 2020, the Companys outstanding SEC Form S-3 Shelf registration statement dated July 20, 2017 expired.

This prior registration statement registered an indeterminate number of shares equating to a maximum aggregate offering amount of $45,000,000 of shares.

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.

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 Series A 5% Convertible Preferred Stock into common shares.

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

In January 2021, Palm Global Small Cap Master Fund LP converted 321,429 preferred shares to common stock.

Following this conversion, Palm Global Small Cap Master Fund LP no longer owns any preferred stock, and Biomerica currently has no preferred shares outstanding.

During the three months ended February 28, 2021, the Company issued 158,889 shares through the Companys At-The-Market (ATM) facility, under its S-3 shelf registration.

The net proceeds from this issuance were $1,011,475.

Based on data from the NASDAQ website, the total public trading volume of the Companys stock during the quarter was over 25 million shares.

As such, the Companys sale of the 158,889 shares under the ATM represents approximately one-half of one percent (0.5%) of the trading volume during the quarter.

Stock option expense during the three months ended August 31, 2021 and 2020 were $ 319,622 and $ 246,787 (as restated, see Note 8 to the Financial Statements), respectively.

During the three months ended August 31, 2021, the Company sold 201,553 shares of its common stock at prices ranging from $ 4.02 to $ 4.47 under its January 22, 2021 prospectus supplement and the ATM Agreement (see Note 2 to Financial Statements) which resulted in gross proceeds of $ 838,332 and net proceeds to the Company of $ 800,710 after deducting commissions for each sale and legal, accounting and other fees related to the filing of the Form S-3.

GEOGRAPHIC INFORMATION

Financial information about foreign and domestic operations and export sales is approximately as follows:

Nine Months Ended

The Company operates as one segment.

Geographic information regarding net sales is approximately as follows:

Three Months Ended

February 28, 2021

February 29, 2020

February 28, 2021

February 29, 2020

August 31, 2021

August 31, 2020

Revenues from sales to unaffiliated customers:

United States

North America

South America

As of February 28, 2021 and May 31, 2020, approximately $525,000 and $613,000 of Biomericas gross inventory and approximately $27,000 and $31,000, of Biomericas property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

As of August 31, 2021 and May 31, 2021, approximately $ 665,000 and $ 803,000 of Biomerica’s gross inventory and approximately $ 24,000 and $ 25,000 , of Biomerica’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

On June 18, 2009, the Company entered into an agreement to lease a building in Irvine, California.

The lease commenced September 1, 2009 and ended August 31, 2016 .

In November 2015, the Company signed the First Amendment to extend the lease until August 31, 2021.

As of September 1, 2020, the rent was $23,637 per month.

The Company has an option to renew this lease for another 5 years and intends to pursue this renewal.

In November 2016, the Companys Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space.

The rent is currently $3,262 per month.

On November 30, 2015, the Company entered into the First Amendment to Lease wherein it exercised its option to extend its lease until August 31, 2021 .

The initial base rent for the lease extension was $ 21,000 per month, increasing to $ 23,637 through August 31, 2021.

On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years through August 2026.

The Company was also granted an additional five years lease extension option through August 2031.

The rent is currently $23,637 per month and will increase on September 1, 2021 to $ 25,970 per month and be increased 3 % each year thereafter.

The security deposit of $ 22,080 remains the same.

In November 2016, the Company’s subsidiary, Biomerica de Mexico, entered into a ten-year lease for approximately 8,104 square feet at a monthly rent of $ 2,926 .

The Company has one 10-year option to renew at the end of the initial lease period.

The yearly rate is subject to an annual adjustment for inflation according to the United States Bureau of Labor Statistics Consumer Price Index for All Urban Consumers.

The monthly rate is currently $ 3,262 .

Biomerica, Inc.

1 unchanged sentence

Biomerica de Mexico also leases a smaller unit on a month-to-month basis for use in one manufacturing process.

In addition, the Company leases a small office on a month-to-month basis in Lindau, Germany, as headquarters for BioEurope GmbH, its Germany subsidiary.

Components of lease expense include fixed lease expense of $257,654 for the nine months ended February 28, 2021.

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 option periods that the Company is reasonably certain of exercising.

The Companys office and equipment leases generally have contractually specified minimum rent and annual rent increases which are included in the measurement of the right-of-use asset and related lease liability.

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.

Rent expense in the U.S.

for the three months ended August 31, 2021 and 2020 was $ 78,166 and $ 75,764 , respectively.

Rent expense for the Mexico facility for the three months ended August 31, 2021 and 2020 was $ 10,421 and $ 10,870 , respectively.

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 liability.

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 liability but are instead recognized as variable lease expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss when they are incurred.

Supplemental cash flow information related to leases for

the nine months ended February 28, 2021:

Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liability but are instead recognized as variable lease expense in the Consolidated Statements of Operations and Comprehensive Loss when they are incurred.

Supplemental cash flow information related to leases for the three months ended August 31, 2021:

Operating cash flows from operating leases

3 unchanged sentences

Weighted average discount rate

The maturity of lease liabilities as of February 28, 2021 are as follows:

The maturity of lease liabilities as of August 31, 2021 are as follows:

Less than 1 year

5 to 10 years

Total undiscounted lease payments

Less imputed interest

Total operating lease liabilities

According to the terms of the lease in Irvine, the Company is also responsible for routine repairs of the building and for certain increases in property tax.

The Company also has various insignificant leases for office equipment.

COMMITMENTS AND CONTINGENCIES

Contracts and Licensing Agreements

On May 25, 2016, the Company entered into an Exclusive Marketing License Agreement (Telcon Agreement) with Celtis Pharm Co., Ltd., who subsequently changed their name to Telcon Pharmaceutical Co., LTD (Telcon), a medical company in the South Korea.

The Telcon Agreement grants to Telcon an exclusive license to market and sell Biomericas new InFoods® IBS products (IBS Products) in South Korea.

The term of the agreement is for a period of five years following Korean FDA clearance of the product and provides an additional two years for Telcon to attain such Korean FDA clearance.

The sequential two-year and five-year terms do not begin until after Biomerica first receives final clearance for sale of the IBS Products in the United States from the US FDA.

Telcon, at its sole cost and expense, must use its commercially reasonably good faith efforts to obtain Korean FDA for the IBS Product to be sold in South Korea.

The agreement may be cancelled if Biomerica has not obtained final US FDA clearance for sale of the IBS Products on or before December 31, 2019.

Biomerica is also obligated to maintain a full quality assurance system for the IBS Products following the harmonized standards according to Annex IV of Directive 98/79/EC.

The terms of the Telcon Agreement provide up to $1.25 million in exclusivity fees based on certain milestones including Biomericas starting clinical trials in the United States, receipt of US FDA clearance and Telcons first sales of IBS Products in Korea.

If Biomerica commences FDA Trials and Telcon pays the initial $250,000 milestone-based exclusivity fees, and the Agreement is subsequently terminated by either party for lack of performance, then Biomerica shall issue to Telcon 83,333 shares of Biomerica common stock in consideration for the $250,000 of paid exclusivity fee.

No exclusivity fees have yet been paid.

Additionally, the Telcon Agreement provides for a royalty of 15% paid to Biomerica on all sales in Korea of the IBS Product, and further sets the pricing of IBS Products sold to Telcon.

In order to retain the exclusivity within South Korea, Telcon must meet certain annual minimum royalty payments to Biomerica following Telcons receipt of Korean FDA approval or clearance for the IBS Product to be sold in Korea, which in no case will be later than May 31, 2019.

In September 2017, the Telcon Agreement was amended to extend the date by which Telcon must attain Korean FDA approval until April 30, 2020.

During the quarter ended August 31, 2020, a second amendment was signed extending the required FDA approval date to December 31, 2021.

On June 25, 2020, the Company entered into a Clinical Trial Agreement with the University of Texas Health Science Center for the purpose of conducting a clinical trial of the Biomerica InFoods product.

The term of the agreement shall extend until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be $139,850.

As disclosed in the Companys Form 10K filed with the SEC on August 31, 2020, the Company received a notice of investigation and subpoena to produce information and documents from the Division of Enforcement of the SEC on July 2, 2020.

The subpoena seeks information and documents related to events and circumstances leading up to the March 17, 2020 announcement that the Company had commenced shipping samples of the Companys COVID-19 IgG/IgM Rapid Test to countries outside of the United States, and had initiated the application process with the United States Food and Drug Administration under the COVID-19 Emergency Use Authorization for approval to market and sell the test in the United States.

The subpoena also seeks information and documents about the identity of any persons who were aware of the substance of the March 17, 2020 announcement prior to that date.

In addition, on December 15, 2020, the SEC sent a second subpoena related to this investigation to Mr.

Irani, the Companys CEO, requesting documents held by Mr.

Irani concerning his past purchases of Company stock, any past communications with certain persons and entities, and other personal and Company documents.

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 legal proceedings pending as of August 31, 2021.

On July 2, 2020, we received a notice of investigation and subpoena to produce information and documents from the Division of Enforcement of the SEC.

The subpoena requested information and documents related to events and circumstances leading up to our March 17, 2020 announcement that we had commenced shipping samples of our COVID-19 IgG/IgM Rapid Test to countries outside of the United States, and had initiated the application process with the United States Food and Drug Administration under the COVID-19 Emergency Use Authorization for approval to market and sell the test in the United States.

The subpoena also requested information and documents about the identity of any persons who were aware of the substance of the March 17, 2020 announcement prior to that date.

In addition, on December 15, 2020, the SEC sent a second subpoena related to this investigation to Zack Irani, the Company’s CEO, requesting documents held by Mr.

Irani concerning his past purchases of Company stock, his past communications with certain persons and entities, and other personal and Company documents.

The Company and Mr.

Irani have cooperated fully with the SECs investigation and have provided information as requested.

Irani have cooperated fully with the SEC’s investigation and provided information as requested.

At this time, the Company is unable to predict the duration, scope or outcome of these investigations.

Contracts and Licensing Agreements

On June 21, 2021, the Company signed an exclusive distribution and marketing agreement in Canada for its Helicobacter Pylori (H.

Pylori) test.

SUBSEQUENT EVENTS

In May 2019, the Company entered into an agreement with MaxHealth Medical International Limited and MaxHealth China (MaxHealth) giving MaxHealth exclusive distribution rights to Biomericas EZ Detect Product in China (the Agreement).

Among other things, the Agreement called for MaxHealth to make an initial prepayment for its first orders, and further required certain annual minimum product purchases.

While MaxHealth initially was in compliance with the terms of the Agreement, it subsequently fell into default and failed to make the required minimum purchases.

For this reason, on March 23, 2021, the Company sent MaxHealth notice of default and termination of the Agreement.

The Company is currently in contract negotiations with a second medical products distributor in China that desires to obtain the exclusive distribution rights for the EZ Detect product in China.

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Subsequent to the issuance of our financial statements for the quarter ended August 31, 2020, the Company determined that errors were included in the previously issued financial statements as described below.

As a result, we restated our financial statements for the quarter ended August 31, 2020.

The Company discovered the errors listed below.

The restatement corrects these errors.

Our non-cash stock based compensation expenses calculation applied forfeiture adjustments to both vested and unvested outstanding options, including those for which the employee had provided the requisite service, which resulted in an understatement of stock compensation expense.

Additionally, our calculation expensed the option at vesting dates versus pro rata over the period the requisite service was provided.

Stock-based compensation expense shown on the statement of operations is a non-cash expense, and impacts accumulated deficit and additional paid-in capital on the balance sheet.

However, this does not impact the Company’s cash, revenues or other aspects of ongoing operations.

The restatement for the quarter ended August 31, 2020 resulted in no changes in the provision for income taxes.

The effect of the restatement on the consolidated statement of operations for the three months ended August 31, 2020 is as follows:

As Previously Reported

Cost of sales

Operating Expenses:

Selling, general and administrative

Research and development

Total operating expense

Loss from operations

( 1,656,381 )

( 1,899,360 )

Loss before income taxes

( 1,648,290 )

( 1,891,269 )

( 1,649,415 )

( 1,892,394 )

Basic net loss per common share

Diluted net loss per common share

Comprehensive loss

( 1,651,136 )

( 1,894,115 )

The effect of the restatement on the consolidated balance sheet at May 31, 2021 is as follows:

As Previously Reported

Shareholders' Equity:

Additional paid-in-capital

Accumulated deficit

( 28,394,768 )

( 2,151,567 )

( 30,546,335 )

Other Equity accounts

Total Shareholders' Equity

The effect of the restatement on the consolidated statement of cash flows for the period ended August 31, 2020 is as follows:

As Previously Reported

Cash flows from operating activities:

( 1,649,415 )

( 1,892,394 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock option expense

Net cash used in operating activities

( 1,597,146 )

Cash and cash equivalents at end of period

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 1. Financial Statements