What changed in this filing

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Item 1. Financial Statements

2023-01-13 compared with 2022-10-13 · 122 added, 94 removed, 322 unchanged (40% of the section changed)

3 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

August 31, 2022

November 30, 2022

Current Assets:

1 unchanged sentence

Accounts receivable, less allowance for doubtful accounts

of $ 383,106 and $ 153,231 as of August 31, 2022 and May 31, 2022, respectively

of $ 522,234 and $ 153,231 as of November 30, 2022 and May 31, 2022, respectively

Inventories, net of inventory reserves

of $ 981,814 and $ 845,549 as of August 31, 2022 and May 31, 2022, respectively

of $ 773,916 and $ 845,549 as of November 30, 2022 and May 31, 2022, respectively

Prepaid expenses and other

1 unchanged sentence

Property and equipment, net of accumulated depreciation and amortization

of $ 1,325,561 and $ 1,305,360 as of August 31, 2022 and May 31, 2022, respectively

of $ 1,317,141 and $ 1,305,360 as of November 30, 2022 and May 31, 2022, respectively

Right of use assets, net of accumulated amortization

of $ 791,859 and $ 724,802 as of August 31, 2022 and May 31, 2022, respectively

of $ 859,269 and $ 724,802 as of November 30, 2022 and May 31, 2022, respectively

Intangible assets, net of accumulated amortization

of $ 21,271 and $ 18,994 as of August 31, 2022 and May 31, 2022, respectively

of $ 24,327 and $ 18,994 as of November 30, 2022 and May 31, 2022, respectively

Liabilities and Shareholders' Equity

11 unchanged sentences

25,000,000 shares authorized, 13,479,413 and 12,867,924 issued and outstanding at

August 31, 2022 and May 31, 2022, respectively

November 30, 2022 and May 31, 2022, respectively

Additional paid-in-capital

11 unchanged sentences

Three Months Ended

August 31, 2022

August 31, 2021

Six Months Ended

November 30, 2022

November 30, 2021

November 30, 2022

November 30, 2021

Cost of sales

1 unchanged sentence

( 3,875,141 )

( 2,822,430 )

( 5,225,898 )

Operating expenses:

5 unchanged sentences

( 1,129,761 )

( 3,736,035 )

( 2,670,130 )

Other income:

Dividend and interest income

Interest expense

Total other income

Loss before income taxes

1 unchanged sentence

( 1,122,845 )

( 3,694,753 )

( 2,656,409 )

Provision for income taxes

1 unchanged sentence

( 1,125,274 )

( 3,697,964 )

( 2,667,855 )

Basic net loss per common share

4 unchanged sentences

( 1,125,274 )

( 3,697,964 )

( 2,667,855 )

Other comprehensive loss, net of tax:

3 unchanged sentences

( 1,130,024 )

( 3,719,441 )

( 2,678,218 )

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED)

For the Three Months Ended August 31, 2021

Paid-in Capital

Accumulated Other

Comprehensive

Paid-in Capital

Balances, May 31, 2021, restated

Balances, May 31, 2022

( 35,077,379 )

7 unchanged sentences

( 37,149,255 )

For the Three Months Ended August 31, 2022

Exercise of stock options

Net proceeds from ATM

Foreign currency translation

Stock option expense

( 1,626,088 )

Balances, November 30, 2022

( 38,775,343 )

Paid-in Capital

Accumulated Other

Comprehensive

Paid-in Capital

Balances, May 31, 2021

8 unchanged sentences

( 32,088,916 )

Exercise of stock options

Net proceeds from ATM

Foreign currency translation

Stock option expense

( 1,125,274 )

Balances, November 30, 2021

( 33,214,190 )

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended

August 31, 2022

August 31, 2021

Six Months Ended

November 30, 2022

November 30, 2021

Cash flows from operating activities:

10 unchanged sentences

Prepaid expenses and other

Reduction in lease liability

Accounts payable and accrued expenses

1 unchanged sentence

Advance from customers

Reduction in lease liability

Net cash (used in) provided by operating activities

9 unchanged sentences

Net cash provided by financing activities

Effect of exchange rate changes in cash

Net increase in cash and cash equivalents

Effect of exchange rate changes on cash

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

3 unchanged sentences

Non-cash investing and financing activities:

Increase in right-of-use asset due to CPI rent adjustment

Increase in lease liability due to CPI rent adjustment

Write off of intangible assets, cost

9 unchanged sentences

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, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our InFoods ® Technology platform that treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases.

Our primary focus is the research, development, commercialization, and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our InFoods ® Technology platform that are designed to treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases.

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

The first product we are launching using this patented InFoods Technology is our InFoods® IBS product which uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation.

The first product we are launching using the patented InFoods Technology is our InFoods® IBS product which uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation.

Instead of broad and difficult-to-manage dietary restrictions, the InFoods® IBS product works by identifying a patient’s above normal immunoreactivity to specific foods.

A food identified as positive and causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms.

We are currently in discussions with key gastroenterology (GI) physician groups who are interested in offering this product to their patients.

As such, we are expecting to begin generating revenues from the launch of our InFoods ® IBS product during our fiscal third quarter.

A food identified as causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms.

We are currently working with key gastroenterology (GI) physician groups who are interested in offering this product to their patients.

As such, we are expecting to begin generating revenues from the launch of our InFoods ® IBS product during our fiscal third quarter ending February 28, 2023.

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

3 unchanged sentences

While we initially offered a COVID-19 antibody diagnostic test to determine if a person has previously been infected by the COVID-19 virus, all of our COVID-19 revenues in fiscal 2022 and 2023 have come from international sales of our COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if the patient is currently infected with the virus.

Due to falling demand, less than 12% of our revenues during the three months ended August 31, 2022 were from sales of our COVID-19 related products.

Our non-COVID-19 products that accounted for over 88% of our revenues during the three months ended August 31, 2022, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests.

Due to falling demand, approximately 13 % of our revenues during the six months ended November 30, 2022 were from sales of our COVID-19 related products, as compared to 57 % of our revenue during the six months ended November 30, 2021.

Our non-COVID-19 products that accounted for approximately 87 % and 43 % of our revenues during the six months ended November 30, 2022 and 2021, respectively, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests.

These diagnostic test products utilize immunoassay technology.

5 unchanged sentences

In the opinion of management, all adjustments considered necessary for a fair presentation have been included.

Operating results for the three months ended August 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2023.

Operating results for the six months ended November 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2023.

For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2022 included in the Company's Annual Report on Form 10-K filed with the SEC on August 29, 2022.

7 unchanged sentences

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reported period.

Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical practices with a customer;

Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical experience with a customer;

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

4 unchanged sentences

MARKETS AND METHODS OF DISTRIBUTION

Due to the Coronavirus global pandemic, and the economic disruptions that have followed, 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, cost inflation, 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 have materially negatively impacted 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 $ 37.1 million as of August 31, 2022.

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

As of August 31, 2022, the Company had cash and cash equivalents of approximately $ 6,075,000 and working capital of approximately $ 7,410,000 .

Due to global and economic disruptions caused by the Coronavirus global pandemic, and the ongoing war in Ukraine, 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, cost inflation, loss of contracts and/or customers, closure 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 and war related disruptions have materially negatively impacted 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 $ 38.8 million as of November 30, 2022.

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

As of November 30, 2022, the Company had cash and cash equivalents of approximately $ 5,067,000 and working capital of approximately $ 6,335,000 .

On July 21, 2020, the Company filed with the SEC a “shelf” registration statement on Form S-3.

5 unchanged sentences

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

During the quarter ended August 31, 2022, the Company sold 523,977 shares of its common stock at prices ranging from $ 3.15 to $ 3.55 under its ATM Offering which resulted in gross proceeds of approximately $ 1,811,000 and net proceeds to the Company approximately of $ 1,764,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

As a result of cash and cash equivalents on hand at August 31, 2022, and the ability to raise additional funds, including through the ATM Offering noted above, management believes the Company has sufficient funds to operate through at least November 2023.

During the six months ended November 30, 2022, the Company sold 565,664 shares of its common stock at prices ranging from $ 3.15 to $ 4.26 under its ATM Offering which resulted in gross proceeds of approximately $ 1,988,000 and net proceeds to the Company approximately of $ 1,936,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

As a result of cash and cash equivalents on hand at November 30, 2022, and the ability to raise additional funds, including through the ATM Offering noted above, management believes the Company has sufficient funds to operate through at least February 2024.

CONCENTRATION OF CREDIT RISK

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

As of August 31, 2022, the Company had approximately $ 5,834,000 of uninsured cash.

As of November 30, 2022, the Company had approximately $ 4,825,000 of uninsured cash.

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

Consolidated net sales were approximately $ 1,637,000 for the three months ended August 31, 2022, as compared to $ 1,262,000 for the three months ended August 31, 2021.

For the three months ended August 31, 2022 and 2021, the Company had two key customers who are located in foreign countries which accounted for 64 % and 60 % of net consolidated sales, respectively.

Total gross receivables on August 31, 2022 and May 31, 2022 were approximately $ 1,315,000 and $ 927,000 , respectively.

On August 31, 2022 and May 31, 2022, the Company had two and one key customers who are located in foreign countries which accounted for a total of 67 % and 50 %, respectively, of gross accounts receivable.

For the three months ended August 31, 2022 and 2021, the Company had one k ey vendor which accounted for 9 % and 17 % of the purchases of raw materials, respectively.

As of August 31, 2022 and May 31, 2022, the Company had one and two key vendors which accounted for 11 % and 69 %, respectively , of accounts payable.

Consolidated net sales were approximately $ 1,482,000 and $ 4,647,000 for the three months ended November 30, 2022 and 2021, respectively, and approximately $ 3,119,000 and $ 5,909,000 for the six months ended November 30, 2022 and 2021, respectively.

For the three months ended November 30, 2022 and 2021, the Company had two and one key customers who are located in Asia and the United States which accounted for 48 % and 59 % of net consolidated sales, respectively.

For the six months ended November 30, 2022 and 2021, the Company had one and two key customers who are located in Asia which accounted for 44 % and 66 % of net consolidated sales, respectively.

Total gross receivables on November 30, 2022 and May 31, 2022 were approximately $ 1,372,000 and $ 927,000 , respectively.

On November 30, 2022 and May 31, 2022, the Company had two and one key customers who are located in foreign countries which accounted for a total of 75 % and 50 %, respectively, of gross accounts receivable.

For the three months ended November 30, 2022 and 2021, the Company had one key vendor which accounted for 12 % and 83 % of the purchases of raw materials, respectively.

For the six months ended November 30, 2022 and 2021, the Company had one key vendor which accounted for 8 % and 77 % of the purchases of raw materials, respectively.

As of November 30, 2022 and May 31, 2022, the Company had one and two key vendors which accounted for 27 % and 69 %, respectively , of accounts payable.

CASH AND CASH EQUIVALENTS

9 unchanged sentences

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

As of August 31, 2022 and May 31, 2022, the Company has established a reserve of approximately $ 383,000 and $ 153,000 , respectively, for doubtful accounts.

As of November 30, 2022 and May 31, 2022, the Company has established a reserve of approximately $ 522,000 and $ 153,000 , respectively, for doubtful accounts.

PREPAID EXPENSES AND OTHER

1 unchanged sentence

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, 2022 and May 31, 2022, the prepaid expenses and other were approximately $ 239,000 and $ 320,000 , respectively , composed of prepayments to insurance and various other suppliers.

As of November 30, 2022 and May 31, 2022, the prepaid expenses and other were approximately $ 121,000 and $ 320,000 , respectively , composed of prepayments to insurance and various other suppliers.

INVENTORIES, NET

4 unchanged sentences

Abnormal amounts of idle facility expenses, freight, handling costs and wasted material are recognized as current period charges and the allocation of fixed production overhead is based on the normal capacity of the production facilities.

As of November 30, 2022, and May 31, 2022, inventory reserves were approximately $ 774,000 and $ 846,000 , respectively.

Net inventories are approximately the following:

August 31, 2022

November 30, 2022

Raw materials

4 unchanged sentences

Net inventory

Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically reserve for obsolete inventory.

As of August 31, 2022, and May 31, 2022, inventory reserves were approximately $ 982,000 and $ 846,000 , respectively.

Reserves for inventory obsolescence and/or inventory that management believes is in excess of an amount that can be sold in the near future, are recorded as necessary to reduce obsolete and excess inventory to estimated net realizable value or to specifically reserve for obsolete inventory.

PROPERTY AND EQUIPMENT, NET

5 unchanged sentences

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 were approximately $ 20,000 and $ 28,000 for the three months ended August 31, 2022 and 2021, respectively.

Depreciation and amortization expense on property and equipment were approximately $ 16,000 and $ 26,000 for the three months ended November 30, 2022 and 2021, respectively, and approximately $ 36,000 and $ 54,000 for the six months ended November 30, 2022 and 2021, 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”).

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.

In that regard, intangible assets that have indefinite useful lives are not amortized but are tested annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired.

Intangible assets are being amortized using the straight-line method over the useful life, not to exceed 18 years for marketing and distribution rights, 10 years for purchased technology use rights, and 20 years for patents.

Amortization expense was approximately $ 9,000 and $ 7,000 for the three months ended August 31, 2022 and 2021, respectively.

Amortization expense was approximately $ 3,000 and $ 7,000 for the three months ended November 30, 2022 and 2021, respectively, and approximately $ 12,000 and $ 14,000 for the six months ended November 30, 2022 and 2021, respectively.

Amortizing intangible assets are tested for impairment if management determines that events or changes in circumstances indicate that the asset might be impaired.

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.

As of August 31, 2022 and 2021, an impairment adjustment was made of $ 6,000 and $ 0 , respectively.

As of November 30, 2022 and 2021, an impairment adjustment was made of $ 6,000 and $ 0 , respectively.

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

Investments represent the Company’s investment in a Polish distributor, which is primarily engaged in distributing medical products and devices.

The Company owns approximately 6 % of the investee and invested approximately $ 165,000 into the Polish distributor.

Investments represent the Company’s investment in a Polish distributor, which is primarily engaged in distributing medical products and devices, including the distribution of the products sold by the Company.

The Company invested approximately $ 165,000 into the Polish distributor and owns approximately 6 % of the investee.

Equity holdings in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence ("Cost Method Holdings") are accounted for at the Company's initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer.

1 unchanged sentence

The Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable.

Management reviewed the underlying net assets of the Company's equity method holding as of August 31, 2022 and determined that the Company's proportionate economic interest in the entity indicates that the equity holding was not impaired.

There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holding during the period ended August 31, 2022.

Management reviewed the underlying net assets of the Company's equity method holding as of November 30, 2022 and determined that the Company's proportionate economic interest in the entity indicates that the equity holding was not impaired.

There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holding during the period ended November 30, 2022.

SHARE-BASED COMPENSATION

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

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

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.

The Company has not paid dividends historically and does not expect to pay them in the foreseeable future.

5 unchanged sentences

The grant date fair value of the award is recognized under the straight-line attribution method.

The Company expensed approximately $ 304,000 and $ 320,000 of stock-based compensation during the three months ended August 31, 2022 and 2021, respectively.

The following summary presents the options granted, exercised, expired, canceled and outstanding for the three months ended August 31, 2022:

The Company expensed approximately $ 622,000 and $ 634,000 of stock-based compensation during the six months ended November 30, 2022 and 2021, respectively.

The following summary presents the options granted, exercised, expired, canceled and outstanding for the six months ended November 30, 2022:

Option Shares

3 unchanged sentences

Cancelled or expired

Outstanding August 31, 2022

During the three months ended August 31, 2022, options to purchase 15,000 shares of common stock were exercised at prices ranging from $ 0.82 to $ 1.20 .

Outstanding November 30, 2022

During the six months ended November 30, 2022, options to purchase 46,500 shares of common stock were exercised at prices ranging from $ 0.82 to $ 2.68 .

Total net proceeds to the Company were approximately $ 79,000 .

During the three months ended August 31, 2022, the Company granted 146,000 options to purchase common stock at an average purchase price of $ 3.37 , with the majority of those options issued to the Company’s new Chief Commercial Officer, who is managing the commercialization and roll-out of the InFoods IBS test.

During the six months ended November 30, 2022, the Company granted 146,000 options to purchase common stock at an average purchase price of $ 3.37 , with the majority of those options issued to the Company’s new Chief Commercial Officer, who is managing the commercialization and roll-out of the InFoods IBS test.

REVENUE RECOGNITION

4 unchanged sentences

This allowance reduces revenue recognition by approximately one percent and is included in sales discounts.

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 during the three months ended August 31, 2022 and 2021, and does not believe that any additional discounts will be given through the end of the contract periods.

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

The Company evaluated the status of these contracts during the six months ended November 30, 2022 and 2021, and does not believe that any additional discounts will be given through the end of the contract periods.

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

3 unchanged sentences

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

As of August 31, 2022, the Company had approximately $ 151,000 of advances from certain foreign customers.

The majority of these advances are prepayments on orders that are expected to ship during our second quarter ended November 30, 2022.

As of November 30, 2022, the Company had approximately $ 49,000 of advances from certain foreign customers.

The majority of these advances are prepayments on orders that are expected to ship during our third quarter ending February 28, 2023.

Disaggregation of revenue:

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

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Over-the-counter

1 unchanged sentence

Contract manufacturing

See Note 4 for additional information regarding revenue concentrations.

See Note 4 for additional information regarding geographic revenue concentrations.

SHIPPING AND HANDLING FEES

2 unchanged sentences

Research and development costs are expensed as incurred.

The Company expensed approximately $ 361,000 and $ 382,000 of research and development costs during the three months ended August 31, 2022 and 2021, respectively.

The Company has provided a full valuation allowance on deferred income tax assets of approximately $ 7,402,000 and $ 6,967,000 as of August 31, 2022 and May 31, 2022, respectively.

ADVERTISING COSTS

The Company reports the cost of advertising as expense in the period in which those costs are incurred.

Advertising costs were approximately $ 18,000 and $ 8,000 for the three months ended August 31, 2022 and 2021, respectively.

The Company expensed approximately $ 462,000 and $ 548,000 of research and development costs during the three months ended November 30, 2022 and 2021, respectively, and approximately $ 823,000 and $ 929,000 of research and development costs during the six months ended November 30, 2022 and 2021, respectively.

The Company has provided a full valuation allowance on deferred income tax assets of approximately $ 7,748,000 and $ 6,967,000 as of November 30, 2022 and May 31, 2022, respectively.

FOREIGN CURRENCY TRANSLATION

4 unchanged sentences

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

There are no foreign currency transactions that are included in the consolidated statements of operations for the three months ended August 31, 2022 and 2021.

There are no foreign currency transactions that are included in the condensed consolidated statements of operations for the three and six months ended November 30, 2022 and 2021.

RIGHT-OF-USE ASSETS AND LEASE LIABILITY

11 unchanged sentences

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 at August 31, 2022 and 2021 was 2,388,616 and 2,081,116 , respectively.

The total amount of anti-dilutive stock options not included in the loss per share calculation on November 30, 2022 and 2021 was 2,338,616 and 2,059,116 , respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

8 unchanged sentences

RECLASSIFICATIONS

Certain comparative figures in the August 31, 2021 condensed consolidated statement of operations have been reclassified to conform to the current period presentation.

Certain comparative figures in the November 30, 2021 condensed consolidated statement of operations have been reclassified to conform to the current period presentation.

SHAREHOLDERS’ EQUITY

Stock option expense during the three months ended August 31, 2022 and 2021 was approximately $ 304,000 and $ 320,000 , respectively.

During the three months ended August 31, 2022, the Company sold 523,977 shares of its common stock at prices ranging from $ 3.15 to $ 3.55 under its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $ 1,811,000 and net proceeds to the Company of approximately $ 1,764,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

Stock option expense during the six months ended November 30, 2022 and 2021 was approximately $ 622,000 and $ 634,000 , respectively.

During the six months ended November 30, 2022, the Company sold 565,664 shares of its common stock at prices ranging from $ 3.15 to $ 4.26 under its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $ 1,988,000 and net proceeds to the Company of approximately $ 1,936,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.

GEOGRAPHIC INFORMATION

1 unchanged sentence

Geographic information regarding net sales is approximately as follows:

Three Months Ended August 31,

Three Months Ended November 30,

Six Months Ended November 30,

Revenues from sales to unaffiliated customers:

1 unchanged sentence

South America

As of August 31, 2022, and May 31, 2022, a pproximately $ 725,000 and $ 621,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.

As of August 31, 2022, and May 31, 2022, approximately $ 20,000 and $ 17,000 of Biomerica’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

As of November 30, 2022, and May 31, 2022, a pproximately $ 685,000 and $ 621,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.

As of November 30, 2022, and May 31, 2022, approximately $ 19,000 and $ 17,000 of Biomerica’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

The Company leases its facilities.

On August 31, 2022, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, which it has been leasing since 2009.

On November 30, 2022, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, which it has been leasing since 2009.

The lease for its headquarters expired on August 31, 2016.

10 unchanged sentences

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.

Total gross rent expense in the United States for the three months ended August 31, 2022 and 2021 was approximately $ 78,000 and $ 78,000 , respectively.

Rent expense for the Mexico facility for the three months ended August 31, 2022 and 2021 was approximately $ 11,000 and $ 10,000 , respectively.

Total gross rent expense in the United States for the six months ended November 30, 2022 and 2021 was approximately $ 154,000 and $ 155,000 , respectively .

Rent expense for the Mexico facility for the six months ended November 30, 2022 and 2021 was approximately $ 21,000 and $ 21,000 , 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.

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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 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, 2022:

Supplemental cash flow information related to leases for the six months ended November 30, 2022:

Operating cash flows from operating leases

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Weighted average discount rate

The approximate maturity of lease liabilities as of August 31, 2022 are as follows:

The approximate maturity of lease liabilities as of November 30, 2022 are as follows:

Less than 1 year

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The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business.

There were no legal proceedings pending as of August 31, 2022.

SUBSEQUENT EVENTS

On September 29, 2022, the Company announced that its Aware® Breast Self Exam device and EZ Detect Colon Disease test are being sold on Amazon and fulfilled by Amazon.

There were no legal proceedings pending as of November 30, 2022.

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