BIOMERICA INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)

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 (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.



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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 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
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 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). 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 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 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, or May 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 of December 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, with U.S and multinational companies that could help us commercialize, or
accelerate revenue growth of, the InFoods products in the 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.


Subsequent to year-end, we announced that Walmart had begun selling our Aware® breast self-examination product through its online retail platform,
walmart.com. We are also in final discussions with Walmart to offer this product in their WE based retail stores.

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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.



As sales continue to occur in our COVID-19 products, the majority of our research and development efforts are focused on the development and commercialization of non-COVID related products such as our H. Pylori product and our InFoods® product. IBS.



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 in the United States by the FDA.



RESULTS OF OPERATIONS

Net sales and cost of sales



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 $18,871,000 for the 2022 financial year compared to
$7,199,000 for fiscal year 2021, an increase of $11,672,000, or 162%. This increase in annual sales is mainly attributable to sales of COVID-19 tests.



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


Here 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.



CASH AND CAPITAL RESOURCES

Here are the main sources of liquidity:


                                                                 May 31,
                                                           2022          2021
    Cash and cash equivalents                           $ 5,917,000   $ 

4,199,000

Working capital including cash and cash equivalents $7,416,000 $7,931,000




As of May 31, 2022 and 2021, the Company had cash and cash equivalents of
approximately $5,917,000 and $4,199,000, respectively.  As of May 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


In fiscal 2022, cash flows used in investing activities were approximately
$170,000compared to $296,000 for fiscal 2021. During fiscal 2022, the Company purchased approximately $57,000 of goods and equipment and had
$113,000 in patent expenses. During fiscal 2021, the Company purchased approximately $136,000 fixed assets and $160,000 in patent expenses.

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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 the SEC on July 21, 2020 (the "2020 Shelf Registration Statement")
and declared effective by the SEC on September 30, 2020, and under the
prospectus supplement filed with the SEC on January 22, 2021 ("2021 Prospectus
Supplement") (See Shareholders' Equity and Subsequent Events in the notes to the
consolidated financial statements for further details about SEC 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.  On January
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 of August 29, 2022, the date on
which this Annual Report on Form 10-K for the fiscal year ended May 31, 2022, is
filed with the SEC, 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 on August 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 to May 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 July 14, 2022the company announced that it had entered into a general merchandise supplier agreement with Walmart, for the company’s Aware® breast self-examination product to be sold in Walmart’s retail system.


OFF BALANCE SHEET ITEMS


There were no off-balance sheet arrangements at May 31, 2022.


CRITICAL ACCOUNTING POLICIES



The preparation of 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.



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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 the U.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 list of adopted and soon-to-be-adopted accounting standards.


RECLASSIFICATIONS


Certain comparative figures in the 2021 income statement have been reclassified to conform to the current year’s presentation.

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