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.
OVERVIEW
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 (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, or 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. If these DGT products prove
effective in their clinical trials, and are ultimately cleared for sale by the
U.S. Food and Drug Administration, we believe the revenues potential to the
Company is significant.
We are currently finalizing an endpoint determination clinical trial on our
InFoods® IBS product. This trial is and has been conducted at Mayo Clinics in
Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard
Medical School Teaching Hospital, University of Texas Health Science Center at
Houston, Houston Methodist, the University of Michigan and other institutions.
This trial monitors IBS patients over an 8-week period to determine the efficacy
of our InFoods® IBS product to improve the patients' IBS symptoms. We expect our
final enrolled patients to complete the trial, and for top-line trial results to
be reported at or around the end of December 2021. During the next six months,
we also expect to be entertaining partnership/licensing discussions with
pharmaceutical and technology companies that could help us commercialize the
product, including obtaining final FDA clearance.
Our 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.
Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we
began redirecting and focusing much of our resources to develop, test, validate,
seek regulatory approval for COVID-19 tests. 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 a patient is currently infected with
the virus. During the fiscal year, we sold these products outside of the U.S.
under a CE Mark (European Conformity). Because individual orders for these tests
have been large in size, this has created volatility and material fluctuations
in our monthly and quarterly revenues. Although sales in these products have
slowed, we continue to receive and fill orders for our COVID-19 test products.
During our fiscal first quarter of 2022, we recorded approximately $226,000 in
sales of our COVID-19 antigen test.
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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 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.
by the FDA.
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.
We also recently added several new employees in its sales and marketing
department in order to increase sales of existing non-COVID products during
fiscal 2022. Through these efforts, our EZ Detect colon disease home screening
test is seeing a significant increased interest from retailers such as Walmart,
distributors, and ministries of health in many countries.
RESULTS OF OPERATIONS
As disclosed in Note 8 to the unaudited condensed consolidated financial
statements in Item 1, 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. These errors resulted in an understatement
of stock compensation expense during the three months ended August 31, 2020, and
periods prior to May 31, 2020, resulting in a cumulative adjustment to equity
accounts. As a result, our previously issued financial statements for the three
months ended August 31, 2020 have been restated.
Net Sales and Cost of Sales
Consolidated net sales were $1,261,787 for the three months ended August 31,
2021, as compared to $1,143,806 for the three months ended August 31, 2020. This
represents an increase of $117,981 or 10%. The increase for the three months
ended August 31, 2021, as compared to the three months ended August 31, 2020,
was primarily due to the sale of our food intolerance products to a distributor
in Asia.
Consolidated cost of sales was $1,350,757, or 107% of net sales, for the three
months ended August 31, 2021, as compared to $1,025,717, or 90% of net sales,
for the three months ended August 31, 2020. This represents an increase of
$325,040 or 32%. Our cost of sales for the three months ended August 31, 2021,
were impacted by an adjustment to market or net realizable value for COVID-19
antigen tests of approximately $179,000.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses were $1,011,535 for
the three months ended August 31, 2021, as compared to $1,305,944 for the three
months ended August 31, 2020. This represents a decrease of $294,409 or 23%. The
decrease in the three months ended August 31, 2021, was primarily due to a
reduction of legal expenses.
Research and Development
Consolidated research and development expenses were $439,864 for the three
months ended August 31, 2021, as compared to $711,505 for the three months ended
August 31, 2020. This represents a decrease of $271,641, or 38%. The decrease in
the three months ended August 31, 2021, was primarily a result of decreases in
costs related to the research, development, and validation of COVID-19 tests.
Interest Expense
Interest and dividend income were $6,805 for the three months ended August 31,
2021, as compared to $8,091 for the three months ended August 31, 2020. This
represents a decrease of $1,286, or 16%.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2021 and May 31, 2021, we had cash and cash equivalents in the
amount of approximately $4,997,000 and $4,199,000, respectively, and working
capital of approximately $7,464,000 and $7,931,000, respectively. As a result of
cash and cash equivalents on hand at August 31, 2021, and our ability to raise
additional funds through our ATM Agreement, management believes we have
sufficient funds to operate through the next twelve months or more.
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Operating Activities
Cash provided by operating activities of $75,836 during the three months ended
August 31, 2021, reflects a net loss of $1,542,581 and non-cash adjustments of
$502,094 primarily associated with depreciation, amortization, stock-based
compensation, and inventory reserves. In addition, we realized an increase in
net working capital of $1,116,322 primarily driven by a decrease in accounts
receivable and inventory. For the three months ended August 31, 2020, cash used
by operating activities of $1,597,146 reflects a net loss of $1,892,394 and
non-cash adjustments of $542,994 primarily associated with depreciation,
amortization, stock-based compensation, and inventory reserves. This was
partially offset by a decline in net working capital of $247,746 driven by
increases in inventory, which was partially offset by a decrease in prepaid
expenses.
Investing Activities
Cash used in investing activities for the three months ended August 31, 2021,
was $5,141 for purchases of property and equipment and $72,375 for increased
intangibles. Cash used in investing activities for the three months ended August
31, 2020, was $39,588 for purchases of property and equipment and $53,158 for
increased intangibles.
Financing Activities
Cash provided by financing activities for the three months ended August 31,
2021, was $804,605 which was a result of stock option exercises of $3,895 and
net proceeds from the sale of common stock of $800,710. Cash provided by
financing activities for the three months ended August 31, 2020, was $14,900
which was a result of stock option exercises of $14,900.
OFF BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements as of August 31, 2021.
CRITICAL ACCOUNTING POLICIES
The preparation of condensed consolidated financial statements in conformity
with accounting principles generally accepted in the 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.
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,
accounts receivable reserves, inventory valuation, lease liabilities,
right-of-use assets, and stock based compensation. 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. See Note 2 to the
Financial Statements for information on Significant Accounting Policies.
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BIOMERICA, INC. 