What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-14 compared with 2023-01-13 · 68 added, 69 removed, 96 unchanged (59% of the section changed)

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Biomerica, Inc.

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

and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) 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 (“OTC”) 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, nasal 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.

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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.

Following the successful completion and positive statistical results from the Company’s InFoods IBS clinical trial mentioned below, Biomerica received interest from Gastroenterology (GI) physicians who would like to order the InFoods IBS test for their patients even prior to the product receiving FDA Clearance.

Given this, during the third quarter ended February 28, 2023, we worked to set up the InFoods® IBS test to be performed in a CLIA-certified, and CAP accredited high-complexity laboratory facility and offered as a laboratory developed test (LDT).

During the quarter, the CLIA lab completed all validation testing necessary for the InFoods IBS product to be offered as an LDT and, as of quarter end, is now accepting patient samples.

We also worked to optimize the process for GI physicians to order the InFoods IBS test, send patient blood samples to the CLIA lab and receive the test results for their patients.

We believe ease of order and workflow for physicians, with easy to understand and actionable results for patients, is critical to our success.

During the quarter, we also set up customer service and payment systems, along with a dedicated website for patient to receive answers to questions they may have about the test and attain information about how to eliminate a specific food from their diet.

This is especially important for foods that are ingredients in common processed foods like milk, eggs and wheat.

As of the end of the fiscal third quarter, the product is now available to physicians and their patients.

Due to the proprietary (patented) nature of this product and the size of the market, we believe our InFoods IBS product has the potential to become a significant revenue opportunity.

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The top-line trial results were reported in February 2022.

Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in all patient subtypes (including patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed).

Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods identified by our InFoods ® IBS product may meaningfully reduce the symptoms of IBS in all patient subtypes (including patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed).

The greatest clinical improvements, including but not limited to abdominal pain and bloating, were seen in patients diagnosed with IBS-Mixed and IBS-Constipation, in the top line data.

The purpose of the endpoint study was to determine the efficacy of the product.

A secondary purpose was to determine the primary symptom endpoint, or endpoints that could be used in a final pivotal trial that will be conducted to attain the validation data needed to apply for U.S.

The purpose of the endpoint study was to evaluate the product and to determine the primary symptom endpoint, or endpoints that could be used in a final pivotal trial that will be conducted to attain the validation data needed to apply for U.S.

Food and Drug Administration (“FDA”) clearance for the product.

We are now in the process of reviewing the complete dataset and selecting the target endpoint(s) to be used in the pivotal trial.

We are also preparing the protocols for this trial.

The trial is expected to include the large medical institution participants that conducted the endpoint trial, in addition to other new institutions and a clinical research organization.

Following the successful completion and positive results from the Company’s InFoods ® IBS clinical trial, we’ve seen significant interest from Gastroenterology (GI) physicians who would like to provide the InFoods ® IBS Product to their patients immediately.

Therefore, while we are proceeding with the work needed to seek FDA clearance for this product, we also are currently preparing to launch the InFoods ® IBS product through a CLIA-certified, high-complexity laboratory facility that will be offering the product as a laboratory developed test (LDT).

Our expectation is that we will begin to generate revenues from this product during our fiscal third quarter.

In preparation for the launch of this LDT, we are in negotiations with large physician groups that would like to offer the LDT to their IBS patients.

We are also beginning the work of selecting and validating at least one new disease (such as ulcerative colitis or migraines), where there is evidence that certain foods can trigger or contribute to the symptoms found in these indications.

We are now in the process of reviewing the complete dataset and selecting the target endpoint(s) to be used in a follow-on pivotal trial.

We are also determining the protocols for this trial.

The trial is expected to include the large medical institution participants that conducted the endpoint trial, in addition to other new institutions along with a clinical research organization.

We are also beginning the work of selecting at least one new disease (such as ulcerative colitis or migraines), where there is evidence that certain foods can trigger or contribute to the symptoms found in these indications.

We expect any new disease we target will follow a similar development pathway as InFoods IBS in simultaneously seeking FDA clearance of the product while also initially launching the product as an LDT.

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Our existing medical diagnostic products 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).

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

The 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.

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During our fourth quarter of fiscal 2022, we applied for FDA clearance of this product though a 510(k) premarket submission.

We have been in communications with the FDA answering certain follow-up questions and providing additional data as requested.

We have been in communication with the FDA answering certain follow-up questions and providing additional data as requested.

We are currently collecting and providing additional data as requested from the FDA.

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Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected.

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 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, approximately 13% of our revenues during the six months ended November 30, 2022 were from sales of our COVID-19 related products.

While limited sales continue to occur in our COVID-19 products, virtually all of our research and development efforts are focused on development and commercialization of non-COVID-19 related products such as our H.

Pylori product, and our InFoods® IBS product.

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

In fiscal 2022 and 2023 we generated revenues from the international sale 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 for such tests, the Company generated no revenues during the three months ended February 28, 2023 from the sale of COVID-19 related products.

Further, during the nine months ended February 28, 2023 0% of our sales were generated from our COVID-19 related products, as compared to 80% of our revenue during the nine months ended February 28, 2022.

Our research and development efforts are substantially focused on development and commercialization of our H.

Pylori product, our InFoods® IBS product, and certain other diagnostic products that we are developing for others under contract R&D agreement, where we expect to be the contract manufacturers for these third-party diagnostic companies.

Our products that accounted for approximately 87% of our revenues during the nine months ended February 28, 2023, are primarily focused on gastrointestinal diseases , food intolerances, and certain esoteric tests.

These diagnostic test products utilize immunoassay technology.

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RESULTS OF OPERATIONS

Three months ended November 30, 2022

Three months ended February 28, 2023

Net Sales and Cost of Sales

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

Three Months Ended November 30,

Three Months Ended February 28,

Increase (Decrease)

Over-the-counter

Physician's office

Contract manufacturing

Consolidated net sales were approximately $1,482,000 for the three months ended November 30, 2022, as compared to $4,647,000 for the three months ended November 30, 2021 , a decrease of approximately $3,165,000, or 68%.

This decrease for the three months ended November 30, 2022, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia.

Excluding COVID-19 product sales, consolidated net sales were approximately $1,423,000 for the three months ended November 30, 2022, as compared to $1,316,000 for the three months ended November 30, 2021 , an increase of approximately $107,000, or 8%.

Physician's office

Consolidated net sales were approximately $1,112,000 for the three months ended February 28, 2023, as compared to $7,660,000 for the three months ended February 28, 2022 , a decrease of approximately $6,548,000, or 85%.

This decrease for the three months ended February 28, 2023, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia.

Excluding COVID-19 product sales, consolidated net sales were approximately $1,108,000 for the three months ended February 28, 2023, as compared to $1,316,000 for the three months ended February 28, 2022 , a decrease of approximately $174,000, or 13%.

Periodic and infrequent orders may cause volatility in quarterly sales.

Consolidated cost of sales were approximately $1,130,000, or 76% of net sales, for th e three months ended November 30, 2022, as compared to $3,875,000, or 83% of net sales, for the three months ended November 30, 2021, a decrease of approximately $2,745,000, or 71%.

The decrease for the three months ended November 30, 2022, was driven primarily by a decrease in volume of our COVID-19 product.

Consolidated cost of sales was approximately $991,000, or 89% of net sales, for th e three months ended February 28, 2023, as compared to $5,987,000, or 78% of net sales, for the three months ended February 28, 2022, a decrease of approximately $4,996,000, or 83%.

The decrease for the three months ended February 28, 2023, was driven primarily by a decrease in volume of our COVID-19 product.

Operating Expenses

The following is a summary of operating expenses:

Three Months Ended November 30,

Three Months Ended February 28,

Increase (Decrease)

Operating Expense

Total Revenues

As a % of Total Revenues

Operating Expense

Total Revenues

As a % of Total Revenues

Selling, General and Administrative Expenses

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Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were approximately $1,556,000 for the three months ended November 30, 2022, as compared to $1,354,000 for the three months ended November 30, 2021, an increase of approximately $202,000, or 15%.

The increase in the three months ended November 30, 2022, was primarily due to approximate increases in bad debt expense of $130,000 related to a customer in Vietnam and legal expense of $40,000 related to patent activity.

Consolidated selling, general and administrative expenses were approximately $1,379,000 for the three months ended February 28, 2023, as compared to $1,394,000 for the three months ended February 28, 2022, a decrease of approximately $15,000, or 1%.

Research and Development

Consolidated research and development expenses were approximately $462,000 for the three months ended November 30, 2022, as compared to $548,000 for the three months ended November 30, 2021, a decrease of approximately $86,000, or 16%.

The decrease in the three months ended November 30, 2022, was primarily due to a reduction in COVID-19 research.

Consolidated research and development expenses were approximately $392,000 for the three months ended February 28, 2023, as compared to $387,000 for the three months ended February 28, 2022, an increase of approximately $5,000, or 1%.

Interest and Dividend Income

Interest and dividend income were approximately $41,000 for the three months ended November 30, 2022, as compared to $7,000 for the three months ended November 30, 2021, an increase of $34,000, or 497%.

The increase was primarily driven by interest income on our cash and cash equivalents that resulted from higher current period interest rates.

Six months ended November 30, 2022

Interest and dividend income were approximately $36,000 for the three months ended February 28, 2023, as compared to $6,000 for the three months ended February 28, 2022, an increase of $30,000, or 500%.

The increase was primarily driven by higher interest yields on our cash and cash equivalents.

Nine months ended February 28, 2023

Net Sales and Cost of Sales

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

Six Months Ended November 30,

Nine Months Ended February 28,

Increase (Decrease)

Over-the-counter

Physician's office

Contract manufacturing

Consolidated net sales were approximately $3,119,000 for the six months ended November 30, 2022, as compared to $5,909,000 for the six months ended November 30, 2021, a decrease of approximately $2,790,000, or 47%.

This decrease for the six months ended November 30, 2022, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia, which was partially offset by an increase in demand for our food intolerance product in Asia.

Excluding COVID-19 product sales, consolidated net sales were approximately $2,709,000 for the six months ended November 30, 2022, as compared to $2,350,000 for the six months ended November 30, 2021 , an increase of approximately $359,000, or 15%.

Physician's office

Consolidated net sales were approximately $4,231,000 for the nine months ended February 28, 2023, as compared to $13,569,000 for the nine months ended February 28, 2022, a decrease of approximately $9,338,000, or 69%.

This decrease for the nine months ended February 28, 2023, was driven primarily by lower demand for our physician’s office COVID-19 product in Asia.

Excluding COVID-19 product sales, consolidated net sales were approximately $3,982,000 for the nine months ended February 28, 2023, as compared to $3,435,000 for the nine months ended February 28, 2022 , an increase of approximately $547,000, or 16%.

Periodic and infrequent orders may cause volatility in quarterly sales.

Consolidated cost of sales were approximately $2,822,000, or 90% of net sales, for the six months ended November 30, 2022, as compared to $5,226,000, or 88% of net sales, for the six months ended November 30, 2021, a decrease of approximately $2,404,000, or 46%.

The decrease for the six months ended November 30, 2022, was driven primarily by a decrease in volume of our COVID-19 product.

Consolidated cost of sales was approximately $3,814,000, or 90% of net sales, for the nine months ended February 28, 2023, as compared to $11,213,000, or 82% of net sales, for the nine months ended February 28, 2022, a decrease of approximately $7,399,000, or 66%.

The decrease for the nine months ended February 28, 2023, was driven primarily by a decrease in volume of our COVID-19 product.

Operating Expenses

The following is a summary of operating expenses:

Six Months Ended November 30,

Nine Months Ended February 28,

Increase (Decrease)

Operating Expense

Total Revenues

As a % of Total Revenues

Operating Expense

Total Revenues

As a % of Total Revenues

Selling, General and Administrative Expenses

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Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses were approximately $3,210,000 for the six months ended November 30, 2022, as compared to $2,423,000 for the six months ended November 30, 2021, an increase of approximately $787,000, or 32%.

The increase in the six months ended November 30, 2022, was primarily due to approximate increases in bad debt expense of $428,000 related to Vietnam customer, legal expense of $105,000 related to patent activity, and consulting services of $136,000 related to our online presence at Amazon and Walmart.

Consolidated selling, general and administrative expenses were approximately $4,589,000 for the nine months ended February 28, 2023, as compared to $3,817,000 for the nine months ended February 28, 2022, an increase of approximately $772,000, or 20%.

The increase in the nine months ended February 28, 2023, was primarily due to approximate increases in bad debt expense of $428,000 related to a Vietnam customer, legal expenses of $105,000 related to patent activity, and consulting services of $136,000 related to our online presence at Amazon and Walmart.

Research and Development

Consolidated research and development expenses were approximately $823,000 for the six months ended November 30, 2022, as compared to $929,000 for the six months ended November 30, 2021, a decrease of approximately $106,000, or 11%.

The decrease in the six months ended November 30, 2022, was primarily due to a reduction in COVID-19 research.

Consolidated research and development expenses were approximately $1,215,000 for the nine months ended February 28, 2023, as compared to $1,317,000 for the nine months ended February 28, 2022, a decrease of approximately $102,000, or 8%.

The decrease in the months ended February 28, 2023, was primarily due to lower research expenditures.

Interest and Dividend Income

Interest and dividend income were approximately $41,000 for the six months ended November 30, 2022, as compared to $14,000 for the six months ended November 30, 2021, an increase of $27,000, or 201%.

Interest and dividend income were approximately $77,000 for the nine months ended February 28, 2023, as compared to $20,000 for the nine months ended February 28, 2022, an increase of $57,000, or 285%.

The increase was primarily driven by interest income on our cash and cash equivalents that resulted from higher current period interest rates.

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The following are the principal sources of liquidity:

November 30, 2022

February 28, 2023

Cash and cash equivalents

Working capital including cash and cash equivalents

As of November 30, 2022 and May 31, 2022, the Company had cash and cash equivalents of approximately $5,067,000 and $5,917,000, respectively.

As of November 30, 2022 and May 31, 2022, the Company had working capital of approximately $6,335,000 and $7,416,000, respectively.

We believe that the aggregate of our existing cash and cash equivalents is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next year.

To satisfy our capital requirements beyond the next year, including ongoing future operations, we may seek to raise additional financing through debt and equity financings, including use of our ATM offering.

As of February 28, 2023 and May 31, 2022, the Company had cash and cash equivalents of approximately $3,345,000 and $5,917,000, respectively.

As of February 28, 2023 and May 31, 2022, the Company had working capital of approximately $5,087,000 and $7,416,000, respectively.

We believe that the aggregate of our existing cash and cash equivalents held at the end of the fiscal third quarter, combined with the approximate $7.4 million in net proceeds from the public offering of common shares that was closed in early March 2023, is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next 18 to 24 months.

To satisfy our capital requirements beyond that point, including ongoing future operations, we may seek to raise additional financing through debt and equity financing.

Operating Activities

During the six months ended November 30, 2022, cash used in operating activities was approximately $2,787,000.

The primary factors that contributed to this was a loss of approximately $3,698,000, non-cash expenses of $1,102,000, primarily associated with stock-based compensation and account receivables provision .

This was partially offset by changes in asset and liability accounts that used a net amount of cash of approximately $191,000.

During the six months ended November 30, 2021, cash provided by operating activities was approximately $1,419,000.

During the nine months ended February 28, 2023, cash used in operating activities was approximately $4,511,000.

The primary factors that contributed to this were a net loss of approximately $5,348,000, partially offset by non-cash expenses of $1,100,000, primarily associated with stock-based compensation and account receivables provisions .

During the nine months ended February 28, 2022, cash provided by operating activities was approximately $3,777,000.

The primary factors that contributed to this was a loss of approximately $2,772,000, non-cash expenses of $705,000, primarily associated with depreciation, amortization, stock-based compensation, adjustments to allowance for doubtful accounts, and inventory reserves .

In addition, we benefited from an increase in customer advances of $2,150,000, a decrease in accounts receivable of $1,139,000, and changes in other asset and liability accounts of $597,000.

In addition, we realized an increase in net working capital of approximately $5,844,000 primarily driven by an increase in advances from customers and accounts payable.

Investing Activities

During the six months ended November 30, 2022, cash used in investing activities was approximately $58,000 for purchases of property and equipment.

During the six months ended November 30, 2021, cash used in investing activities was approximately $18,000 for purchases of property and equipment, and $109,000 expenditures related to patents.

During the nine months ended February 28, 2023, cash used in investing activities was approximately $64,000 for purchases of property and equipment.

During the nine months ended February 28, 2022, cash used in investing activities was approximately $33,000 for purchases of property and equipment, and $113,000 expenditures related to patents.

Financing Activities

During the six months ended November 30, 2022, cash provided by financing activities was approximately $2,016,000 which was a result of net proceeds from the sale of common stock of $1,937,000, and stock option exercises of $79,000.

During the six months ended November 30, 2021, cash provided by financing activities was approximately $1,719,000 which was a result of net proceeds from the sale of common stock of $1,684,000, and stock option exercises of $35,000.

During the nine months ended February 28, 2023, cash provided by financing activities was approximately $2,040,000 which was a result of net proceeds from the sale of common stock of $1,961,000, and stock option exercises of $79,000.

During the nine months ended February 28, 2022, cash provided by financing activities was approximately $2,356,000 which was a result of net proceeds from the sale of common stock of $2,317,000, and stock option exercises of $39,000.

OFF BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements as of November 30, 2022.

There were no off-balance sheet arrangements as of February 28, 2023.

CRITICAL ACCOUNTING POLICIES

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis