Biomerica(BMRA) - 2025 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The unaudited condensed consolidated financial statements detail the company's financial position and performance for the quarter ended August 31, 2024 Condensed Consolidated Balance Sheets Key Balance Sheet Data (August 31, 2024 vs. May 31, 2024) | Metric | August 31, 2024 | May 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,820,000 | $4,170,000 | | Total current assets | $6,445,000 | $7,731,000 | | Total Assets | $7,870,000 | $9,254,000 | | Total current liabilities | $2,151,000 | $2,204,000 | | Total Liabilities | $2,524,000 | $2,663,000 | | Total Shareholders' Equity | $5,346,000 | $6,591,000 | | Accumulated deficit | $(49,511,000) | $(48,195,000)| Condensed Consolidated Statements of Operations and Comprehensive Loss Key Operating Results (Three Months Ended August 31) | Metric | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Net sales | 1,807,000 | 1,713,000 | 94,000 | 5% | | Cost of sales | (1,518,000) | (1,301,000) | (217,000) | 16.7% | | Gross profit | 289,000 | 412,000 | (123,000) | -29.9% | | Selling, general and administrative | 1,360,000 | 1,172,000 | 188,000 | 16% | | Research and development | 297,000 | 472,000 | (175,000) | -37.1% | | Loss from operations | (1,368,000) | (1,232,000) | (136,000) | 11% | | Net loss | (1,316,000) | (1,132,000) | (184,000) | 16.2% | | Basic net loss per common share | (0.08) | (0.07) | (0.01) | 14.3% | Condensed Consolidated Statements of Shareholders' Equity Shareholders' Equity Changes (Three Months Ended August 31) | Metric | May 31, 2024 ($) | August 31, 2024 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Total Stockholders' Equity | 6,591,000 | 5,346,000 | (1,245,000)| | Accumulated Deficit | (48,195,000) | (49,511,000) | (1,316,000)| | Share-based compensation | - | 77,000 | 77,000 | - The decrease in total stockholders' equity is primarily due to the net loss incurred during the period[8] Condensed Consolidated Statements of Cash Flows Key Cash Flow Data (Three Months Ended August 31) | Metric | 2024 ($) | 2023 ($) | Change ($) | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | (1,344,000) | (1,674,000) | 330,000 | | Net cash used in investing activities | - | (63,000) | 63,000 | | Net decrease in cash and cash equivalents | (1,350,000) | (1,731,000) | 381,000 | | Cash and cash equivalents at end of year | 2,820,000 | 7,988,000 | (5,168,000)| - Cash used in operating activities decreased by $330,000, primarily due to a decrease in inventories and prepaid expenses, partially offset by an increase in accounts receivable[10][91] Notes to Condensed Consolidated Financial Statements NOTE 1: BASIS OF PRESENTATION - Biomerica, Inc is a global biomedical technology company focused on developing, manufacturing, and marketing advanced diagnostic and therapeutic products, particularly for gastrointestinal diseases like IBS with its inFoods® IBS product[11][12] - Products are sold worldwide in clinical laboratories and point-of-care markets (physicians' offices, over-the-counter)[13] NOTE 2: SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION - The condensed consolidated financial statements include Biomerica, Inc and its wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH, with all significant intercompany accounts eliminated[15] ACCOUNTING ESTIMATES - Critical accounting policies requiring subjective judgments include revenue recognition, bad debts, inventory overhead application, inventory reserves, lease liabilities, right-of-use assets, and share-based compensation[16] MARKETS AND METHODS OF DISTRIBUTION - The majority of the Company's revenues come from products manufactured in the U.S and Mexico, serving a diverse customer base including domestic and international distributors, hospitals, clinical laboratories, and e-commerce[17] - Marketing efforts include distributors, advertising, trade shows, direct mail, and an internal sales team, targeting clinical laboratories and point-of-care testing[18] LIQUIDITY AND GOING CONCERN - The Company has incurred net losses and negative cash flows from operations, resulting in an accumulated deficit of approximately $49.5 million as of August 31, 2024[19] Liquidity Position (August 31, 2024) | Metric | Amount ($) | | :--- | :--- | | Cash and cash equivalents | 2,820,000 | | Working capital | 4,294,000 | - Management believes current cash and cash equivalents are insufficient to meet operating cash requirements and strategic growth objectives for the next twelve months, raising substantial doubt about the Company's ability to continue as a going concern[25][26] - Strategies to address capital needs include increasing sales, reducing expenses (e.g., 15% workforce reduction in July 2024), selling non-core assets, and seeking additional financing through debt or equity, including a $20,000,000 shelf registration and a $5,500,000 ATM offering[25][88][89] CONCENTRATION OF CREDIT RISK - For the three months ended August 31, 2024, two key customers (North America and Asia) collectively accounted for 55% of net sales[27] - As of August 31, 2024, two key customers (Asia and Europe) accounted for 67% of gross accounts receivable[28] - Two key vendors accounted for 34% of raw material purchases for the three months ended August 31, 2024[28] CASH AND CASH EQUIVALENTS - Cash and cash equivalents consist of demand deposits and money market accounts with original maturities of less than three months[29] ACCOUNTS RECEIVABLE, NET - The Company adopted ASU 2016-13 (CECL model) on June 1, 2023, for estimating expected credit losses[31] Accounts Receivable Reserve | Date | Reserve for Credit Losses ($) | | :--- | :--- | | August 31, 2024 | 31,000 | | May 31, 2024 | 19,000 | PREPAID EXPENSES AND OTHER Prepaid Expenses and Other | Date | Amount ($) | | :--- | :--- | | August 31, 2024 | 132,000 | | May 31, 2024 | 238,000 | INVENTORIES, NET Net Inventories | Category | August 31, 2024 ($) | May 31, 2024 ($) | | :--- | :--- | :--- | | Raw materials | 1,442,000 | 1,519,000 | | Work in progress | 756,000 | 1,145,000 | | Finished products | 216,000 | 179,000 | | Total gross inventory | 2,414,000 | 2,843,000 | | Inventory reserves | (472,000) | (467,000) | | Net inventory | 1,942,000 | 2,376,000 | PROPERTY AND EQUIPMENT, NET Depreciation and Amortization Expense (Property and Equipment) | Period | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Three months ended August 31 | 17,000 | 16,000 | INTANGIBLE ASSETS, NET - Intangible assets, including trademarks, product rights, technology rights, and patents, are amortized using the straight-line method over useful lives not exceeding 18 years[37] Amortization Expense (Intangible Assets) | Period | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Three months ended August 31 | 4,000 | 5,000 | - No impairment adjustments were made to intangible assets during the three months ended August 31, 2024 and 2023[38] INVESTMENTS - The Company has an investment of approximately $165,000 in a privately held Polish distributor, representing about 6% ownership, accounted for at initial cost[39] - Management determined that the equity holding was not impaired as of August 31, 2024[40] SHARE-BASED COMPENSATION Share-Based Compensation Expense (Three Months Ended August 31) | Period | Amount ($) | | :--- | :--- | | 2024 | 77,000 | | 2023 | 170,000 | Stock Options Outstanding (August 31, 2024) | Metric | Shares | Weighted Average Exercise Price ($) | | :--- | :--- | :--- | | Options Outstanding | 3,306,116 | 2.53 | REVENUE RECOGNITION - Revenue from product sales is recognized at the time of shipment (FOB shipping point), with no returns allowed except for defective merchandise[43] - The Company offers margin guarantees to certain retail drug store customers, introducing variable consideration estimated monthly[44] Disaggregation of Revenue by Market (Three Months Ended August 31) | Market | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Clinical lab | 1,278,000 | 1,289,000 | (11,000) | -1% | | Over-the-counter | 187,000 | 303,000 | (116,000) | -38% | | Contract manufacturing | 339,000 | 117,000 | 222,000 | 190% | | Physician's office | 3,000 | 4,000 | (1,000) | -25% | | Total | 1,807,000 | 1,713,000 | 94,000 | 5% | SHIPPING AND HANDLING FEES - Shipping and handling fees billed to customers are included in net sales[48] RESEARCH AND DEVELOPMENT Research and Development Costs (Three Months Ended August 31) | Period | Amount ($) | | :--- | :--- | | 2024 | 297,000 | | 2023 | 472,000 | - R&D costs decreased by 37% year-over-year, expensed as incurred[49] INCOME TAXES - Income tax expense for the three months ended August 31, 2024, was approximately $4,000, consisting of state minimum and foreign miscellaneous taxes[50] - A full valuation allowance has been established against deferred tax assets due to uncertainties in generating future taxable income[50] ADVERTISING COSTS Advertising Costs (Three Months Ended August 31) | Period | Amount ($) | | :--- | :--- | | 2024 | 14,000 | | 2023 | 30,000 | - Advertising costs decreased by 53.3% year-over-year[52] FOREIGN CURRENCY TRANSLATION - Assets and liabilities of foreign subsidiaries are translated using period-end exchange rates, while revenues and costs use average exchange rates, with translation adjustments presented as a component of accumulated other comprehensive loss[53] RIGHT-OF-USE ASSETS AND LEASE LIABILITY - The Company recognizes most leases on the balance sheet as right-of-use assets and lease liabilities, classifying them as operating leases for office space and copy machines[54] Lease Information (Three Months Ended August 31) | Metric | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Operating lease cost | 88,000 | 88,000 | | Total lease cost | 92,000 | 96,000 | - Weighted-average remaining lease term was 2.02 years and the weighted-average discount rate was 6.50% as of August 31, 2024[66] NET LOSS PER SHARE - Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding. Diluted loss per share reflects potential dilution from stock options and other convertible securities[55] - Anti-dilutive stock options not included in the loss per share calculation were 3,306,116 at August 31, 2024, and 2,363,116 at August 31, 2023[55] RECENT ACCOUNTING PRONOUNCEMENTS - The Company is evaluating ASU 2023-07 (Improvements to Reportable Segment Disclosures) effective for fiscal years beginning after December 15, 2023, and ASU 2023-09 (Improvements to Income Tax Disclosures) effective for fiscal years beginning after December 15, 2024[56][57] NOTE 3: SHAREHOLDERS' EQUITY - The Company has a shelf registration statement (effective September 29, 2023) allowing the issuance of up to $20,000,000 in common shares and an ATM offering (filed May 10, 2024) for up to $5,500,000 in common stock[58] - No shares of common stock or other equity securities were sold under the shelf registration statement during the three months ended August 31, 2024[58] NOTE 4: GEOGRAPHIC INFORMATION - The Company operates as one segment[59] Revenues from Sales to Unaffiliated Customers (Three Months Ended August 31) | Region | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Asia | 817,000 | 1,026,000 | | Europe | 470,000 | 327,000 | | North America | 427,000 | 355,000 | | Middle East | 90,000 | - | | South America | 3,000 | 5,000 | | Total | 1,807,000 | 1,713,000 | - Approximately $575,000 of gross inventory and $13,000 of property and equipment (net) were located in Mexicali, Mexico, as of August 31, 2024[59] NOTE 5: LEASES - The Company leases facilities in Irvine, California (expires August 2026), Mexicali, Mexico (10-year lease with a 10-year renewal option), and a small office in Lindau, Germany (month-to-month)[62] Total Lease Cost (Three Months Ended August 31) | Period | Amount ($) | | :--- | :--- | | 2024 | 92,000 | | 2023 | 96,000 | Approximate Maturity of Lease Liabilities (as of August 31, 2024) | Year Ending May 31 | Operating Leases ($) | | :--- | :--- | | 2025 (excluding Q1) | 368,000 | | 2026 | 378,000 | | 2027 | 7,000 | | Total minimum future lease payments | 753,000 | | Less: imputed interest | 46,000 | | Total operating lease liabilities | 707,000 | NOTE 6: COMMITMENTS AND CONTINGENCIES - There were no legal proceedings pending as of August 31, 2024, and management believes future matters will not have a material adverse effect on the Company's financial position[67] NOTE 7: SUBSEQUENT EVENTS - No subsequent events were noted[67] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management provides its perspective on financial performance, operational highlights, liquidity, and going concern issues for the quarter ended August 31, 2024 OVERVIEW - Biomerica is a global biomedical technology company focused on developing and marketing advanced diagnostic and therapeutic products, including rapid diagnostic tests for point-of-care and home use[70][72] - Key products include the patented inFoods® IBS diagnostic-guided therapy for irritable bowel syndrome and hp+detect™ for Helicobacter pylori detection[74][77] - Due to slower-than-expected product launches, the Company initiated significant cost-cutting measures, including a nearly 15% workforce reduction in July 2024, to extend its cash runway[79] RESULTS OF OPERATIONS Net Sales and Cost of Sales Net Sales by Market (Three Months Ended August 31) | Market | 2024 ($) | 2023 ($) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Clinical lab | 1,278,000 | 1,289,000 | (11,000) | -1% | | Over-the-counter | 187,000 | 303,000 | (116,000) | -38% | | Contract manufacturing | 339,000 | 117,000 | 222,000 | 190% | | Physician's office | 3,000 | 4,000 | (1,000) | -25% | | Net Sales | 1,807,000 | 1,713,000 | 94,000 | 5% | - Net sales increased by 5% year-over-year, primarily driven by a 190% increase in contract manufacturing sales, while over-the-counter (OTC) sales declined by 38%[80] - Consolidated cost of sales increased by 17% to $1,518,000 (84% of net sales), with gross margin negatively impacted by 12% due to one-time severance expenses from the July workforce reduction[81] Operating Expenses Operating Expenses (Three Months Ended August 31) | Operating Expense | 2024 ($) | 2024 (% of Total Revenues) | 2023 ($) | 2023 (% of Total Revenues) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | SG&A | 1,360,000 | 75% | 1,172,000 | 68% | 188,000 | 16% | | R&D | 297,000 | 16% | 472,000 | 28% | (175,000) | -37% | Selling, General and Administrative Expenses - Selling, general, and administrative expenses increased by $188,000 (16%) due to one-time severance expenses from the July RIF and $146,000 in costs for a new sales force[82] Research and Development - Research and development expenses decreased by $175,000 (37%) due to an $86,000 decline in R&D wages from the July RIF, reduction in clinical trials, and a $80,000 decrease in allocations to inFoods® IBS R&D following its commercialization[83] Interest and Dividend Income - Interest and dividend income decreased by $67,000 (54%) to $56,000, primarily due to lower market interest rates affecting reduced cash balances[84] LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN Liquidity Position (August 31, 2024 vs. May 31, 2024) | Metric | August 31, 2024 ($) | May 31, 2024 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | 2,820,000 | 4,170,000 | | Working capital | 4,294,000 | 5,527,000 | - Management believes current cash and cash equivalents are insufficient to meet operating cash requirements and strategic growth objectives for the next twelve months, raising substantial doubt about the Company's ability to continue as a going concern[87][90] - Strategies to address capital needs include increasing sales, reducing expenses (e.g., 15% workforce reduction in July 2024), selling non-core assets, and seeking additional financing through a $20,000,000 shelf registration and a $5,500,000 at-the-market (ATM) offering[88][89] - The amount of capital that can be raised under the ATM offering is highly dependent on low stock trading volume (average 83,068 shares/day) and price ($0.28-$0.59)[89] OFF BALANCE SHEET ARRANGEMENTS - There were no off-balance sheet arrangements as of August 31, 2024[93] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - The Company's critical accounting policies and estimates remain consistent with those disclosed in the 2024 Annual Report[95] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Biomerica is not required to provide these disclosures - As a smaller reporting company, the registrant is not required to provide information under this item[96] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective at a 'reasonable assurance' level as of August 31, 2024 - The Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at the 'reasonable assurance' level as of August 31, 2024[98] - There have been no material changes in internal control over financial reporting during the quarter ended August 31, 2024[98] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending legal proceedings as of August 31, 2024 - There were no legal proceedings pending as of August 31, 2024[100] Item 1A. Risks Factors No material changes to risk factors were identified during the quarter - No material changes to the risks and uncertainties described in Part I, Item 1A, Risk Factors, of the 2024 Annual Report during the three months ended August 31, 2024[102] Item 5. Other Information No other information was reported under this item - No other information was reported under this item[102] Item 6. Exhibits This section lists the exhibits filed as part of the quarterly report - The exhibits include interactive data files (XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase) and certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[103][104] Signatures The report is officially signed by the Chief Executive Officer and Chief Financial Officer - The report was signed by Zackary S. Irani (Chief Executive Officer) and Gary Lu (Chief Financial Officer) on October 15, 2024[106]