BIOMERICA, INC. You should read the following discussion and analysis in conjunction with our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Report. This discussion and analysis contains forward-looking statements that are based on our management's current beliefs and assumptions, which statements are subject to substantial risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those discussed in "Risk Factors" included in Part I, Item 1A of this Report. OVERVIEWBiomerica, 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. 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. The Company's products are designed to enhance the health and well-being of people, while reducing total healthcare costs. 24 -------------------------------------------------------------------------------- Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of 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 InFoods® IBS product uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate Irritable Bowel Syndrome ("IBS") symptoms such as pain, bloating, diarrhea 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. During fiscal 2022, we completed an endpoint determination clinical trial on our InFoods® IBS product. This trial was conducted atMayo Clinics inFlorida andArizona ,Beth Israel Deaconess Medical Center Inc. , aHarvard Medical School Teaching Hospital ,University of Texas Health Science Center at Houston ,Houston Methodist, theUniversity of Michigan , and other institutions. This trial monitored IBS patients over an 8-week period to determine the efficacy of our InFoods® IBS product to improve the patients' IBS symptoms or endpoints. The top-line trial results were reported inFebruary 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). 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 primary symptom endpoint, or endpoints to be used in a final pivotal trial that will be conducted to attain the validation data needed to apply forU.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 writing the protocols for this trial and expect to present these protocols to the FDA during fiscal 2023, with the intention of beginning the trial by the end of fiscal 2023, orMay 31, 2023 . 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 for 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 and offering the product as a laboratory developed test (LDT). Our expectation is that we will begin to generate revenues from this product by the end ofDecember 31, 2022 . 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 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 launching the product as an LDT. We will also continue to evaluate partnership/licensing opportunities, as they arise, withU.S and multinational companies that could help us commercialize, or accelerate revenue growth of, the InFoods products inthe United States and overseas. 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). 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. During fiscal 2022, we finalized development of our H. Pylori diagnostic test that indicates if a patient is infected with the H. Pylori bacteria. H. Pylori infection is extremely common, and if left untreated, can lead to ulcers and possibly stomach cancers. 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 are currently awaiting FDA clearance of the product. Once cleared, we will begin marketing the product in the U.S. market.
Following fiscal year-end, we announced that Walmart has begun selling our
Aware® Breast Self Exam product through their on-line retailing platform,
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We have added new employees in our sales and marketing department in order to
increase sales of existing products during fiscal 2022. Through these efforts,
our EZ Detect colon disease home screening test and our Aware® Breast Self Exam
product are seeing an increased interest from retailers such as Walmart,
distributors, and screening programs in other countries
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 offer 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 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.
While sales continue to occur in our COVID-19 products, the majority of our research and development efforts are focused on development and commercialization of non-COVID related products such as our H. Pylori product, and our InFoods® IBS product.
The other existing products that contributed to our fiscal 2022 revenues are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. Most of our 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 inthe United States by the FDA. RESULTS OF OPERATIONS
The following is a breakdown of revenues according to markets to which the
products are sold:
Twelve Months Ended
May 31, Increase (Decrease)
2022 2021 $ %
Physician's office $ 14,259,000 $ 2,801,000 $ 11,458,000 409%
Clinical lab 3,064,000 3,077,000 (13,000) 0%
Over-the-counter 1,089,000 766,000 323,000 42%
Contract manufacturing 459,000 555,000 (96,000) -17%
Total $ 18,871,000 $ 7,199,000 $ 11,672,000 162%
Our net sales were approximately
Our cost of sales were approximately$15,894,000 for fiscal 2022 compared to$6,833,000 for fiscal 2021, an increase of$9,061,000 , or 133%. This increase was driven by the cost of additional COVID-19 sales. The percentage of cost of sales in fiscal 2022 was 84%, versus 95% in fiscal 2021. In fiscal 2021, we recorded a non-recurring inventory allowance, this increased our cost of sales to 95%. We don't expect to record a significant inventory allowance in future years. Operating Expenses
The following is a summary of operating expenses:
Twelve Months Ended
May 31,
2022 2021 Increase (Decrease)
As a % of As a % of
Total Total
Operating Expense Revenues Operating Expense Revenues $ %
Selling, General and Administrative Expenses $ 5,699,000 30% $ 5,672,000 79% $ 27,000 0%
Research and Development $ 1,812,000 10% $ 2,194,000 30% $ (382,000) -17%
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Selling, General and Administrative Expenses
Our selling, general and administrative expenses were approximately$5,699,000 for fiscal 2022 compared to$5,672,000 for fiscal 2021, an increase of$27,000 , or 0%. The increase was due to an approximate increase of$400,000 in wages,$300,000 in consulting fees, and$200,000 in amortization. Which was primarily offset by a decrease of$800,000 in bad debt expense related to a specific customer charge in the fiscal 2021. Research and Development Our research and development expenses were approximately$1,812,000 for fiscal 2022 compared to$2,194,000 for fiscal 2021, a decrease of$382,000 , or 17%, primarily as a result of decreases in costs related to the research, development and validation of COVID-19, IBS and H. Pylori. See "Research and Development" for a more extensive description of the research being conducted.
Interest and Dividend Income
Interest expense decreased in fiscal 2022 to$0 , as compared to$367 in fiscal 2021. Interest and dividend income for those same years decreased to approximately$27,000 from$67,000 , respectively. The$40,000 decrease was due to lower dividend payment from our investment.
LIQUIDITY AND CAPITAL RESOURCES
The following are the principal sources of liquidity:
May 31,
2022 2021
Cash and cash equivalents $ 5,917,000 $ 4,199,000
Working capital including cash and cash equivalents
As ofMay 31, 2022 and 2021, the Company had cash and cash equivalents of approximately$5,917,000 and$4,199,000 , respectively. As ofMay 31, 2022 and 2021, the Company had working capital of approximately$7,416,000 and$7,931,000 , 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, including ongoing future operations, we may seek to raise additional financing through debt and equity financings. Operating Activities During fiscal 2022, cash used in operating activities were approximately$486,000 , as compared to$5,252,000 for fiscal 2021. The primary factors that contributed to this was a loss of approximately$4,531,000 , a decrease in inventory reserves of$772,000 , and a decrease in the allowance on accounts receivable of$684,000 . These were partially offset by a decrease in accounts receivable of$1,365,000 , a decrease in inventories of$1,562,000 , an increase in accounts payable and accrued expenses of$389,000 , and non-cash expenses of approximately$1,855,000 . During fiscal 2021, the Company had a net loss of approximately$7,446,000 , an increase in accounts receivable of$456,000 , an increase in inventories of$1,906,000 , and an increase in prepaid expenses of$1,139,000 . These were offset by an increase in accrued compensation of approximately$110,000 , a non-cash stock option expense of$1,355,000 and depreciation and amortization of$138,000 . Investing Activities
During fiscal 2022, cash used in investing activities were approximately
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--------------------------------------------------------------------------------Financing Activities Cash provided by financing activities for fiscal 2022 were approximately$2,395,000 as compared to$1,114,000 for fiscal 2021. In fiscal 2022 and 2021, the Company had proceeds from the exercise of stock options of approximately$77,000 and$102,000 , respectively. During fiscal 2022 and 2021, the Company received approximately$2,317,000 and$1,011,000 , respectively, in net proceeds from the sale of common stock. The common stock sold and issued in fiscal 2021 and 2022 was issued under the S-3 "shelf" Registration Statement base prospectus filed with theSEC onJuly 21, 2020 (the "2020 Shelf Registration Statement") and declared effective by theSEC onSeptember 30, 2020 , and under the prospectus supplement filed with theSEC onJanuary 22, 2021 ("2021 Prospectus Supplement") (See Shareholders' Equity and Subsequent Events in the notes to the consolidated financial statements for further details aboutSEC registrations). The 2020 Shelf Registration Statement registers common shares that may be issued by the Company in a maximum aggregate amount of up to$90,000,000 . OnJanuary 22, 2021 , we filed the 2021 Prospectus Supplement for the sale of up to$15,000,000 of shares of our common stock in an at-the-market offering under the 2020 Shelf Registration Statement, of which$9,609,945 remains available for sale under the 2021 Prospectus Supplement. As ofAugust 29, 2022 , the date on which this Annual Report on Form 10-K for the fiscal year endedMay 31, 2022 , is filed with theSEC , our 2020 Registration Statement remains subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because our public float is less than$75 million . For so long as the Company's public float is less than$75 million , the aggregate market value of securities sold by the Company under the 2020 Shelf Registration Statement pursuant to Instruction I.B.6 to Form S-3 during any 12 consecutive months may not exceed one-third of the Company's public float. We have sold$3,374,328 of our common stock pursuant to General Instruction I.B.6 of Form S-3 in the 12 calendar months preceding the date of filing this Annual Report on Form 10-K. For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was$39,995,179 , based on 12,193,652 shares of our outstanding common stock held by non-affiliates and a price of$3.28 per share, which was the price at which our common stock was last sold on The Nasdaq Capital Market onAugust 22, 2022 (a date within 60 days of the date hereof), calculated in accordance with General Instruction I.B.6 of Form S-3. After giving effect to the$13,331,726 offering limit imposed by General Instruction I.B.6 of Form S-3, and after deducting the shares we sold within the preceding 12 months, as of the date of filing this Annual Report, we may offer and sell from time to time up to$9,609,945 under the 2021 Prospectus Supplement. The Company intends to use the net proceeds from these offerings 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. SUBSEQUENT EVENTS Subsequent toMay 31, 2022 , the Company sold 523,977 shares of its common stock under its S-3 "shelf" Registration statement. The average sale price was$3.46 per share. Net proceeds to the Company were approximately$1,765,000 .
On
OFF BALANCE SHEET ITEMS
There were no off-balance sheet arrangements as of
CRITICAL ACCOUNTING POLICIES The preparation of consolidated financial statements in conformity with accounting principles generally accepted inthe United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions. 28 -------------------------------------------------------------------------------- We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, inventory reserve, lease liabilities and right-of-use assets. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. We suggest that our significant accounting policies be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations. Please refer to Note 2 for information on Significant Accounting Policies. REVENUE RECOGNITION The Company has various contracts with customers. All 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 regularly evaluates the status of these contracts and does not believe that any 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 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 products sold to them. We also manufacture certain components on a contract basis for domestic and international manufacturers. 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 Company has not paid dividends historically and does not expect to pay them in the foreseeable future. Expected volatilities are based on weighted averages of the historical volatility of the Company's common stock estimated over the expected term of the options. The expected forfeiture rate is based on historical forfeitures experienced. The expected term of options granted is derived using the "simplified method" which computes expected term as the average of the sum of the vesting term plus the contract term as historically the Company had limited exercise activity surrounding its options. The risk-free rate is based on theU.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under the straight-line attribution method.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to our consolidated financial statements for a listing of adopted and soon to be adopted accounting pronouncements.
RECLASSIFICATIONS
Certain comparative figures in the 2021 Statement of Operations have been reclassified to conform to the current year's presentation.
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