Biomerica(BMRA) - 2020 Q3 - Quarterly Report

PART I Financial Information Item 1. Financial Statements Biomerica reported a widened net loss for the nine months ended February 29, 2020, while total assets increased significantly due to financing activities Condensed Consolidated Statements of Operations and Comprehensive Loss Net sales slightly decreased, leading to a widened net loss for the nine months ended February 29, 2020, primarily due to lower gross profit and higher operating expenses Consolidated Statements of Operations Highlights (Unaudited) | Metric | Nine Months Ended Feb 29, 2020 ($) | Nine Months Ended Feb 28, 2019 ($) | Three Months Ended Feb 29, 2020 ($) | Three Months Ended Feb 28, 2019 ($) | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,967,712 | $4,034,822 | $1,176,889 | $1,261,161 | | Gross Profit | $1,048,155 | $1,111,207 | $211,979 | $365,924 | | Loss from Operations | $(1,914,987) | $(1,647,971) | $(914,885) | $(707,248) | | Net Loss | $(1,852,482) | $(1,607,730) | $(860,926) | $(678,746) | | Basic & Diluted Net Loss per Share | $(0.19) | $(0.18) | $(0.09) | $(0.07) | Condensed Consolidated Balance Sheets Total assets significantly increased to $8.22 million as of February 29, 2020, driven by higher cash and right-of-use assets, alongside a rise in liabilities Consolidated Balance Sheet Highlights | Metric | Feb 29, 2020 (Unaudited, $) | May 31, 2019 (Audited, $) | | :--- | :--- | :--- | | Cash and cash equivalents | $2,391,732 | $686,785 | | Total Current Assets | $5,739,163 | $4,494,929 | | Total Assets | $8,215,110 | $5,245,364 | | Total Current Liabilities | $1,909,832 | $1,264,394 | | Total Liabilities | $3,534,190 | $1,264,394 | | Total Shareholders' Equity | $4,680,920 | $3,980,970 | Consolidated Statements of Shareholders' Equity Shareholders' equity increased to $4.68 million for the nine months ended February 29, 2020, primarily due to capital raises, partially offset by a net loss - The company issued 571,429 shares of Series A 5% Convertible Preferred Stock, resulting in proceeds of $1,917,586[8] - Net proceeds from the At Market (ATM) common stock sales amounted to $366,258[8] - The net loss for the nine-month period was $1,852,482, which reduced retained earnings (accumulated deficit)[8] Condensed Consolidated Statements of Cash Flows Net cash used in operations improved, while substantial financing activities led to a significant increase in cash and cash equivalents for the nine months ended February 29, 2020 Consolidated Statements of Cash Flows Highlights (Unaudited) | Metric | Nine Months Ended Feb 29, 2020 ($) | Nine Months Ended Feb 28, 2019 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(802,911) | $(1,257,708) | | Net cash used in investing activities | $(51,657) | $(119,173) | | Net cash provided by financing activities | $2,563,672 | $1,097,298 | | Net increase (decrease) in cash | $1,704,947 | $(286,968) | | Cash and cash equivalents at end of period | $2,391,732 | $917,935 | Notes to Condensed Consolidated Financial Statements Key notes include the adoption of ASC 842, significant customer concentration, recent capital raises, and post-quarter developments regarding COVID-19 tests and financing - The company has significant customer concentration, with one customer accounting for 43.4% of consolidated sales for the nine months ended February 29, 2020[14] - On February 26, 2020, the company issued 571,429 shares of Series A 5% Convertible Preferred Stock for approximately $2 million in a private placement[29] - Subsequent to the quarter, the company began shipping samples of its COVID-19 IgG/IgM Rapid Test, raised an additional $5.39 million through its ATM agreement, and licensed technology from Mount Sinai for a SARS-CoV-2 test[35] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 1.7% decrease in net sales due to the coronavirus, increased cost of sales, and significantly improved liquidity from recent financing activities intended for R&D and general corporate purposes Results of Operations Net sales decreased by 1.7% due to lower China sales, while cost of sales increased to 73.6% of sales, and SG&A expenses rose by 15.2% for the nine-month period - Net sales decreased by 1.7% for the nine-month period, primarily due to lower sales to China as a result of the coronavirus[40] - Cost of sales as a percentage of sales increased to 73.6% from 72.5% year-over-year for the nine-month period, attributed to increased material costs, higher wages, and fixed costs against lower sales[40] - Selling, general and administrative expenses increased by 15.2% for the nine-month period, mainly due to higher non-cash option expense, wages, and consulting fees[40] Liquidity and Capital Resources Cash and cash equivalents increased to $2.39 million as of February 29, 2020, driven by $2.56 million in financing activities, significantly improving liquidity for operations and R&D Liquidity Position | Metric | Feb 29, 2020 ($) | May 31, 2019 ($) | | :--- | :--- | :--- | | Cash and cash equivalents | $2,391,732 | $686,785 | | Working Capital | $3,829,331 | $3,230,535 | - During the nine months ended Feb 29, 2020, the company raised $366,258 in net proceeds from its At Market Issuance (ATM) Sales Agreement[42] - In February 2020, the company raised approximately $2 million through the sale of Series A 5% Convertible Preferred Stock[42] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Biomerica is exempt from providing quantitative and qualitative disclosures about market risk under Rule 12b-2 - As a smaller reporting company, Biomerica is not required to provide quantitative and qualitative disclosures about market risk[46] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective at a 'reasonable assurance' level, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the 'reasonable assurance' level[47] - There were no changes in internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[47] PART II Other Information Item 1. Legal Proceedings The company reported no legal proceedings during the period - There are no legal proceedings to report[47] Item 1A. Risk Factors New material risks include adverse impacts from the COVID-19 pandemic and potential failures in market acceptance or regulatory approval for new COVID-19 tests - A new risk factor has been added regarding the potential adverse effects of widespread public health epidemics, specifically the COVID-19 pandemic. This includes risks of supply chain disruption, loss of customers, and operational interruptions[48][49] - The company identifies risks associated with its new COVID-19 tests, stating they may not gain market acceptance, could prove ineffective, or may not receive regulatory approvals, any of which would materially harm financial results[50][51] Item 2. Unregistered Sales of Equity Securities & Use of Proceeds The company reported no unregistered sales of equity securities during the period - There were no unregistered sales of equity securities to report[52] Item 5. Other Information The Annual Meeting of Stockholders was held on December 11, 2019, with results previously reported in a Form 8-K - The Annual Meeting of Stockholders was held on December 11, 2019[53] Item 6. Exhibits The report includes various exhibits, such as Sarbanes-Oxley certifications from the CEO and CFO, and Interactive Data Files (XBRL) - Exhibits filed include Sarbanes-Oxley certifications (31.1, 31.2, 32.1, 32.2) and Interactive Data Files (101)[53] Signatures - The report was signed on April 14, 2020, by Zackary S. Irani, Chief Executive Officer, and Janet Moore, Chief Financial Officer[57]