Biomerica(BMRA) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This part presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures ITEM 1. FINANCIAL STATEMENTS This section presents the company's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, and cash flows, with detailed notes on accounting policies - Biomerica, Inc. focuses on developing and marketing advanced diagnostic and therapeutic products, particularly diagnostic-guided therapy (DGT) products for gastrointestinal diseases like IBS[45][46][155] - The company recently received FDA clearance for hp+detect™, a new diagnostic test for H. pylori bacteria, and has initiated marketing efforts[48][138] - Global and economic disruptions, including supply chain issues and cost inflation, have adversely affected operations, resulting in net losses and negative cash flows[25][26][27] Condensed Consolidated Balance Sheets (unaudited) This section presents the company's unaudited condensed consolidated balance sheets, detailing assets, liabilities, and shareholders' equity as of February 29, 2024, and May 31, 2023 Condensed Consolidated Balance Sheets (unaudited) | Metric | Feb 29, 2024 | May 31, 2023 | | :----- | :----------- | :----------- | | Total Assets | $10,342,000 | $14,454,000 | | Total Liabilities | $2,534,000 | $2,730,000 | | Total Shareholders' Equity | $7,808,000 | $11,724,000 | | Cash and cash equivalents | $5,319,000 | $9,719,000 | | Accounts receivable, net | $1,130,000 | $722,000 | | Inventories, net | $2,129,000 | $2,056,000 | | Accumulated deficit | $(46,774,000) | $(42,217,000) | Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) This section presents the company's unaudited condensed consolidated statements of operations and comprehensive loss for the three and nine months ended February 29, 2024, and February 28, 2023 Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) | Metric | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :---------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $1,017,000 | $1,111,000 | $4,299,000 | $4,231,000 | | Gross (loss) profit | $(149,000) | $120,000 | $591,000 | $417,000 | | Total operating expenses | $1,851,000 | $1,771,000 | $5,430,000 | $5,804,000 | | Loss from operations | $(2,000,000) | $(1,651,000) | $(4,839,000) | $(5,387,000) | | Net loss | $(1,918,000) | $(1,650,000) | $(4,557,000) | $(5,348,000) | | Basic net loss per common share | $(0.11) | $(0.12) | $(0.27) | $(0.40) | Condensed Consolidated Statements of Shareholders' Equity (unaudited) This section presents the company's unaudited condensed consolidated statements of shareholders' equity, detailing changes in equity components for the periods presented Condensed Consolidated Statements of Shareholders' Equity (unaudited) | Metric | May 31, 2023 | Feb 29, 2024 | | :----------------------------- | :----------- | :----------- | | Total Stockholder's Equity | $11,724,000 | $7,808,000 | | Accumulated Deficit | $(42,217,000) | $(46,774,000) | | Share-based compensation (9 months) | N/A | $633,000 | | Net loss (9 months) | N/A | $(4,557,000) | Condensed Consolidated Statements of Cash Flows (unaudited) This section presents the company's unaudited condensed consolidated statements of cash flows, categorizing cash activities into operating, investing, and financing for the periods presented Condensed Consolidated Statements of Cash Flows (unaudited) | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,317,000) | $(4,511,000) | | Net cash used in investing activities | $(91,000) | $(64,000) | | Net cash provided by financing activities | $0 | $2,040,000 | | Net decrease in cash and cash equivalents | $(4,400,000) | $(2,572,000) | | Cash and cash equivalents at end of period | $5,319,000 | $3,345,000 | Notes to Condensed Consolidated Financial Statements (unaudited) This section provides detailed disclosures on financial statements, covering business operations, accounting policies, and specific line items, highlighting diagnostic products and global challenges - Biomerica, Inc. focuses on developing and marketing advanced diagnostic and therapeutic products, particularly diagnostic-guided therapy (DGT) products for gastrointestinal diseases like IBS[45][46][155] - The company recently received FDA clearance for hp+detect™, a new diagnostic test for H. pylori bacteria, and has initiated marketing efforts[48][138] - Global and economic disruptions, including supply chain issues and cost inflation, have adversely affected operations, resulting in net losses and negative cash flows[25][26][27] NOTE 1: BASIS OF PRESENTATION This note outlines the company's business, focusing on diagnostic and therapeutic products like inFoods® IBS and the H. pylori test, and the impact of past COVID-19 sales on revenue volatility - The company's core business involves developing and marketing diagnostic and therapeutic products, with a strategic emphasis on inFoods® IBS for gastrointestinal diseases and the recently FDA-cleared hp+detect™ for H. pylori[45][46][48] - Sales of COVID-19 diagnostic tests, which generated significant revenues in fiscal 2021 and 2022, ceased in the twelve months ended February 29, 2024, causing substantial revenue swings[50][109] NOTE 2: SIGNIFICANT ACCOUNTING POLICIES This note details significant accounting policies, including consolidation, key estimates, revenue recognition, and asset/liability categories, noting ASU 2016-13 adoption with no material impact - The condensed consolidated financial statements include Biomerica, Inc. and its German (BioEurope GmbH) and Mexican (Biomerica de Mexico) subsidiaries, with all significant intercompany transactions eliminated[54] - Key accounting estimates include allowance for doubtful accounts, stock option forfeiture rates, inventory obsolescence, and lease liability/right-of-use assets, which are based on historical data, current practices, and management judgment[55] - The company adopted ASU 2016-13 (CECL model) on June 1, 2023, requiring expected credit loss measurement for financial assets, but its adoption had no material impact[70][79] PRINCIPLES OF CONSOLIDATION This section outlines the principles governing the consolidation of financial statements for the company and its subsidiaries - The consolidated financial statements encompass Biomerica, Inc. and its subsidiaries, Biomerica de Mexico and BioEurope GmbH, with intercompany transactions eliminated[54] ACCOUNTING ESTIMATES This section describes the key accounting estimates that require significant management judgment and assumptions - Key accounting estimates include allowance for doubtful accounts, stock option forfeiture rates, inventory obsolescence, and lease liability/right-of-use assets, based on current, historical, and judgment-based information[55] MARKETS AND METHODS OF DISTRIBUTION This section details the company's customer base and channels for product distribution, including domestic and international markets - The company serves approximately 80 diagnostic customers, including 40 foreign distributors, 10 domestic distributors, and various domestic healthcare institutions and e-commerce channels[24] - The majority of revenues come from domestically manufactured products sold in the U.S. and Mexico, with international sales being a significant revenue stream[25] LIQUIDITY This section assesses the company's ability to meet its short-term financial obligations, including cash and working capital positions Liquidity Metrics | Metric | Feb 29, 2024 | May 31, 2023 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $5,319,000 | $9,719,000 | | Working capital | $6,855,000 | $10,852,000 | - Management believes the company has sufficient funds to operate through at least May 2025, supported by current cash and the ability to raise additional funds through common stock sales[12] CASH AND CASH EQUIVALENTS This section defines cash and cash equivalents and discusses related credit risk management - Cash and cash equivalents are comprised of demand deposits and money market accounts with original maturities under three months[77] - The company holds cash balances exceeding federal insurance limits but assesses no significant credit risks[34] ACCOUNTS RECEIVABLE This section details the company's accounts receivable, including credit policies, reserves for credit losses, and customer concentration - The company extends unsecured credit to customers, with international customers typically prepaying until a credit history is established[78] Accounts Receivable Details | Metric | Feb 29, 2024 | May 31, 2023 | | :-------------------- | :----------- | :----------- | | Total gross receivables | $1,153,000 | $751,000 | | Reserve for credit losses | $23,000 | $29,000 | - As of February 2024, three key customers (US and Asia) accounted for 44% of gross accounts receivable, compared to one key customer (Asia) accounting for 36% in May 2023[3] INVENTORIES, NET This section describes the valuation methods for inventory and the company's policy for inventory obsolescence reserves - Inventory is valued at the lower of cost (specific lot identification and FIFO) or net realizable value, with periodic reviews for obsolescence[83] Inventory Reserves | Metric | Feb 29, 2024 | May 31, 2023 | | :----------------- | :----------- | :----------- | | Inventory reserves | $491,000 | $672,000 | PROPERTY AND EQUIPMENT, NET This section outlines the capitalization and depreciation policies for property and equipment - Property and equipment are capitalized at cost and depreciated using the straight-line method over estimated useful lives of 5 to 10 years[59][85] Depreciation and Amortization Expense | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Depreciation and amortization expense | $46,000 | $51,000 | INTANGIBLE ASSETS, NET This section details the amortization policies for intangible assets and impairment assessment - Intangible assets, including marketing/distribution rights, technology use rights, and patents, are amortized using the straight-line method over useful lives up to 18 years[41][113] Amortization Expense (Intangible Assets) | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Amortization expense (intangible assets) | $13,000 | $15,000 | - Management identified no impairment indicators for amortizing intangible assets during the nine months ended February 29, 2024, contrasting with a $6,000 impairment adjustment in the prior year[87] INVESTMENTS This section describes the company's investments in other entities and the accounting method used - The company invested approximately $165,000 in a privately held Polish distributor, owning about 6% of the entity, accounted for using the cost method[114][88] SHARE-BASED COMPENSATION This section outlines the accounting for share-based compensation, including valuation methods and option activity - Share-based compensation is recognized using the fair-value based method (ASC 718), with option awards valued via the Black-Scholes model[115] Share-Based Compensation Expense | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | | Share-based compensation expense | $633,000 | $1,006,000 | Options Activity | Options Activity | Option Shares | Weighted Average Exercise Price | | :------------------------------- | :------------ | :------------------------------ | | Options Outstanding at May 31, 2023 | 2,342,616 | $3.52 | | Granted | 1,328,500 | $1.13 | | Cancelled or expired | (164,500) | $4.97 | | Options Outstanding at Feb 29, 2024 | 3,506,616 | $2.54 | REVENUE RECOGNITION This section details the company's policies for recognizing revenue from product sales and the types of customers served - Revenue from product sales is recognized at the time of shipment (FOB shipping point), when control of goods transfers[64] - The company sells clinical lab, over-the-counter, contract manufacturing, and physician's office products to domestic and international distributors, hospitals, clinical laboratories, and e-commerce customers[91] SHIPPING AND HANDLING FEES This section clarifies the accounting treatment for shipping and handling fees charged to customers - Shipping and handling fees charged to customers are recognized as part of net sales[29] RESEARCH AND DEVELOPMENT This section outlines the company's policy for expensing research and development costs and provides related expense figures - Research and development costs are expensed as incurred[93] Research and Development Expenses | Metric | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | R&D expenses | $343,000 | $392,000 | $1,226,000 | $1,215,000 | ADVERTISING COSTS This section details the accounting treatment for advertising costs and presents the associated expenses - Advertising costs are expensed in the period they are incurred[122] Advertising Costs | Metric | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :--------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Advertising costs | $25,000 | $51,000 | $80,000 | $87,000 | INCOME TAXES This section provides information on income tax expense and the valuation allowance against deferred tax assets Income Tax Expense | Metric | 3 Months Ended Feb 29, 2024 | 9 Months Ended Feb 29, 2024 | | :---------------- | :-------------------------- | :-------------------------- | | Income tax expense | $4,000 | $35,000 | - A full valuation allowance has been established against deferred tax assets due to uncertainties regarding the realization of future taxable income[94] FOREIGN CURRENCY TRANSLATION This section explains the methods used for translating foreign subsidiary financial statements and recording translation adjustments - Foreign subsidiary assets and liabilities are translated at period-end exchange rates, while revenues and costs use average rates, with translation adjustments recorded in accumulated other comprehensive loss[95] RIGHT-OF-USE ASSETS AND LEASE LIABILITY This section describes the recognition and measurement of right-of-use assets and lease liabilities for operating leases - Right-of-use assets and lease liabilities are recognized at lease commencement, based on the present value of fixed lease payments for operating leases like office space and copy machines[96] Lease Term and Discount Rate | Metric | Feb 29, 2024 | | :------------------------------------ | :----------- | | Weighted-average remaining lease term | 2.77 years | | Weighted-average discount rate | 6.50% | RECENT ACCOUNTING PRONOUNCEMENTS This section discusses the anticipated impact of recent accounting pronouncements on the company's financial statements - Recent accounting pronouncements from FASB and SEC are not anticipated to materially impact the company's current or future consolidated financial statements[125] NOTE 3: SHAREHOLDERS' EQUITY This note details changes in shareholders' equity, including common stock, additional paid-in capital, accumulated comprehensive loss, and deficit, along with information on stock offerings - The company sold 3,333,333 shares of common stock in a public offering in March 2023, generating net proceeds of approximately $7,300,000; no shares were sold under the shelf registration during the nine months ended February 29, 2024[31][99] - A new Form S-3 shelf registration statement, effective September 29, 2023, registers the sale of up to $20,000,000 of equity securities over three years[33] NOTE 4: GEOGRAPHIC INFORMATION This note breaks down net sales by geographic region and asset location, highlighting Asia, Europe, and North America as primary markets, with emerging Middle East sales Net Sales by Geographic Region | Region | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Asia | $210,000 | $345,000 | $1,843,000 | $1,822,000 | | Europe | $331,000 | $301,000 | $1,085,000 | $1,268,000 | | North America | $393,000 | $461,000 | $1,069,000 | $1,130,000 | | Middle East | $78,000 | $0 | $291,000 | $0 | | South America | $5,000 | $4,000 | $11,000 | $11,000 | | Total | $1,017,000 | $1,111,000 | $4,299,000 | $4,231,000 | - As of February 29, 2024, approximately $15,000 of property and equipment and $575,000 of gross inventory were located in Mexicali, Mexico[100][128] NOTE 5: LEASES The company operates through leased facilities, including its corporate headquarters and international subsidiaries, with detailed lease terms and costs, totaling $283,000 for operating leases in the nine months ended February 29, 2024 - The company leases its corporate headquarters in Irvine, CA (22,000 sq ft, lease extended to 2026), a 10-year manufacturing space in Mexicali, Mexico, and a small office in Lindau, Germany[101][129] Lease Costs | Lease Cost Type | 3 Months Ended Feb 29, 2024 | 3 Months Ended Feb 28, 2023 | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Operating lease cost | $88,000 | $88,000 | $265,000 | $265,000 | | Variable lease cost | $3,000 | $0 | $8,000 | $0 | | Short-term lease cost | $8,000 | $1,500 | $10,000 | $3,000 | | Total lease cost | $99,000 | $89,500 | $283,000 | $268,000 | Future Minimum Lease Payments | Year Ending February 29 | Operating Leases | | :---------------------- | :--------------- | | 2024 | $365,000 | | 2025 | $373,000 | | 2026 | $195,000 | | Total minimum future lease payments | $933,000 | | Less: imputed interest | $71,000 | | Total operating lease liabilities | $862,000 | NOTE 6: COMMITMENTS AND CONTINGENCIES The company is occasionally involved in legal proceedings, but no material legal proceedings were pending as of February 29, 2024 - The company is involved in legal proceedings in the ordinary course of business, but no material legal proceedings were pending as of February 29, 2024[104][132] NOTE 7: SUBSEQUENT EVENTS No subsequent events were reported - No subsequent events were disclosed[133] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on financial performance, condition, and liquidity, focusing on strategic products, sales, expenses, and global challenges - The company's primary focus is on the research, development, and commercialization of diagnostic-guided therapy (DGT) products for gastrointestinal diseases, particularly the inFoods IBS product[135] - The company successfully launched the inFoods IBS test with GI physician groups and received FDA clearance for the H. pylori diagnostic test, initiating marketing efforts in the U.S. and discussions with international distributors[136][138] - The company anticipates sustained revenue growth from the inFoods IBS product rollout and a favorable revenue trajectory for the H. pylori test in 2024[47][138] OVERVIEW This overview describes the company as a biomedical technology firm focused on diagnostic and therapeutic products, notably inFoods® IBS and an FDA-cleared H. pylori test, with COVID-19 sales ceased - Biomerica, Inc. is a biomedical technology company specializing in advanced diagnostic and therapeutic products, with a core focus on patented diagnostic-guided therapy (DGT) products for gastrointestinal diseases, such as IBS[135][155] - The inFoods IBS product, which identifies patient-specific food immunoreactivity to alleviate IBS symptoms, has been successfully launched with numerous GI physician groups, with ongoing efforts to optimize ordering and expand to other physician segments[135][136] - The company achieved FDA clearance for its H. pylori diagnostic test on December 18, 2023, and has begun marketing in the U.S. and engaging international distributors, expecting a favorable revenue trajectory in 2024[138] - Sales of COVID-19 related diagnostic tests, which contributed significant revenues in fiscal 2021 and 2022, ceased in the three months ended February 29, 2024, due to falling demand[109] RESULTS OF OPERATIONS This section analyzes the company's financial performance for the three and nine months ended February 29, 2024, detailing changes in net sales, cost of sales, operating expenses, and interest income - For the three months ended February 29, 2024, net sales decreased by 8% to $1,017,000, primarily due to reduced sales in food intolerance products, while cost of sales increased by 18% due to international shipping logistics[139][160] - For the nine months ended February 29, 2024, net sales increased by 2% to $4,299,000, driven by growth across all non-COVID product lines, and cost of sales decreased by 3% due to reduced COVID-19 product sales[143][144] - Selling, general and administrative (SG&A) expenses increased by 9% for the three months due to a new sales force and marketing, but decreased by 8% for the nine months due to reductions in legal and share-based compensation expenses[140][164] - Research and development (R&D) expenses decreased by 13% for the three months due to reduced salary costs, but slightly increased by 1% for the nine months due to salaries and wages, partially offset by lower share-based compensation[141][147] - Interest and dividend income significantly increased by 139% for the three months and 312% for the nine months, driven by higher market interest rates on cash and cash equivalents[142][166] Net Sales and Cost of Sales (Three months ended February 29, 2024) This section analyzes net sales and cost of sales for the three months ended February 29, 2024, highlighting product line performance and cost drivers Net Sales by Product Line (Three Months) | Product Line | Feb 29, 2024 | Feb 28, 2023 | Change ($) | Change (%) | | :----------------- | :----------- | :----------- | :--------- | :--------- | | Clinical lab | $404,000 | $532,000 | $(128,000) | -24% | | Over-the-counter | $329,000 | $292,000 | $37,000 | 13% | | Contract manufacturing | $281,000 | $284,000 | $(3,000) | -1% | | Physician's office | $3,000 | $3,000 | $0 | 0% | | Total Net Sales | $1,017,000 | $1,111,000 | $(94,000) | -8% | - Consolidated cost of sales increased by 18% to $1,166,000 (115% of net sales) for the three months ended February 29, 2024, primarily due to complexities in international shipping logistics[139] Operating Expenses (Three months ended February 29, 2024) This section details changes in selling, general and administrative (SG&A) and research and development (R&D) expenses for the three months ended February 29, 2024 Operating Expenses (Three Months) | Expense Type | Feb 29, 2024 | Feb 28, 2023 | Increase (Decrease) ($) | Increase (Decrease) (%) | | :----------------------------------- | :----------- | :----------- | :---------------------- | :---------------------- | | Selling, General and Administrative | $1,508,000 | $1,379,000 | $129,000 | 9% | | Research and Development | $343,000 | $392,000 | $(49,000) | -13% | - The increase in SG&A expenses was primarily due to a $212,000 rise in total salaries and marketing expenses for a new sales force, partially offset by an $87,000 decrease in legal expenses[140] - The reduction in R&D expenses was primarily driven by a decrease in salary and compensation costs for the research and development team[141] Interest and Dividend Income (Three months ended February 29, 2024) This section reports the interest and dividend income for the three months ended February 29, 2024, and its change from the prior year Interest and Dividend Income (Three Months) | Metric | Feb 29, 2024 | Feb 28, 2023 | Increase ($) | Increase (%) | | :-------------------------- | :----------- | :----------- | :----------- | :----------- | | Interest and dividend income | $86,000 | $36,000 | $50,000 | 139% | Net Sales and Cost of Sales (Nine months ended February 29, 2024) This section analyzes net sales and cost of sales for the nine months ended February 29, 2024, detailing product line performance and cost drivers Net Sales by Product Line (Nine Months) | Product Line | Feb 29, 2024 | Feb 28, 2023 | Change ($) | Change (%) | | :----------------- | :----------- | :----------- | :--------- | :--------- | | Clinical lab | $2,683,000 | $2,580,000 | $103,000 | 4% | | Over-the-counter | $1,078,000 | $971,000 | $107,000 | 11% | | Contract manufacturing | $530,000 | $431,000 | $99,000 | 23% | | Physician's office | $8,000 | $249,000 | $(241,000) | -97% | | Total Net Sales | $4,299,000 | $4,231,000 | $68,000 | 2% | - The increase in net sales for the nine months ended February 29, 2024, reflects growth across all non-COVID product lines, highlighting the effectiveness of post-pandemic strategic initiatives[143][162] - Consolidated cost of sales decreased by 3% to $3,708,000 (86% of net sales) for the nine months ended February 29, 2024, primarily due to a $160,000 decrease in costs associated with reduced COVID-19 product sales[144] Operating Expenses (Nine months ended February 29, 2024) This section details changes in selling, general and administrative (SG&A) and research and development (R&D) expenses for the nine months ended February 29, 2024 Operating Expenses (Nine Months) | Expense Type | Feb 29, 2024 | Feb 28, 2023 | Increase (Decrease) ($) | Increase (Decrease) (%) | | :----------------------------------- | :----------- | :----------- | :---------------------- | :---------------------- | | Selling, General and Administrative | $4,204,000 | $4,589,000 | $(385,000) | -8% | | Research and Development | $1,226,000 | $1,215,000 | $11,000 | 1% | - The decrease in SG&A expenses was primarily driven by reductions of $384,000 in legal expenses and $330,000 in share-based compensation expenses[164] - The increase in R&D expenses was primarily due to salaries and wages ($80,000), partially offset by decreases in share-based compensation ($32,500) and lab supplies ($22,800)[147] Interest and Dividend Income (Nine months ended February 29, 2024) This section reports the interest and dividend income for the nine months ended February 29, 2024, and its change from the prior year Interest and Dividend Income (Nine Months) | Metric | Feb 29, 2024 | Feb 28, 2023 | Increase ($) | Increase (%) | | :-------------------------- | :----------- | :----------- | :----------- | :----------- | | Interest and dividend income | $317,000 | $77,000 | $240,000 | 312% | LIQUIDITY AND CAPITAL RESOURCES The company's cash and working capital decreased, but management believes current liquidity is sufficient for the next year, with plans to increase sales, reduce expenses, and seek additional financing Liquidity Metrics | Metric | Feb 29, 2024 | May 31, 2023 | | :-------------------- | :----------- | :----------- | | Cash and cash equivalents | $5,319,000 | $9,719,000 | | Working capital | $6,855,000 | $10,852,000 | - Management believes existing cash and cash equivalents are sufficient to meet operating cash requirements and strategic objectives for growth for at least the next year[148] - For capital requirements beyond the next year, the company plans to increase sales, reduce expenses, and may seek additional debt or equity financing[148] Operating Activities This section details the net cash used in operating activities and the primary factors contributing to it Net Cash Used in Operating Activities | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in operating activities | $(4,317,000) | $(4,511,000) | - The primary factors for cash used in operating activities for the nine months ended February 29, 2024, included a net loss of $4,557,000, non-cash expenses of $723,000, and changes in asset/liability accounts of $483,000[167] Investing Activities This section outlines the net cash used in investing activities, primarily for property, equipment, and intangible asset purchases Net Cash Used in Investing Activities | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash used in investing activities | $(91,000) | $(64,000) | - Investing activities for the nine months ended February 29, 2024, included $27,000 for property and equipment purchases and $64,000 for intangible asset expenditures[183] Financing Activities This section details the net cash provided by financing activities, including proceeds from stock sales and option exercises Net Cash Provided by Financing Activities | Metric | 9 Months Ended Feb 29, 2024 | 9 Months Ended Feb 28, 2023 | | :------------------------------------ | :-------------------------- | :-------------------------- | | Net cash provided by financing activities | $0 | $2,040,000 | - For the nine months ended February 29, 2024, there were no net proceeds from the sale of common stock or stock option exercises, resulting in $0 cash provided by financing activities[184] CRITICAL ACCOUNTING POLICIES This section identifies critical accounting policies requiring subjective judgments, including revenue recognition, credit losses, inventory, leases, and share-based compensation, acknowledging future impacts - Critical accounting policies requiring subjective judgments include revenue recognition, credit losses, inventory overhead application, inventory reserves, right-of-use assets and lease liabilities, and share-based compensation[186] OFF BALANCE SHEET ARRANGEMENTS The company had no off-balance sheet arrangements as of February 29, 2024 - There were no off-balance sheet arrangements as of February 29, 2024[185] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a smaller reporting company, the registrant is not required to provide detailed quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is exempt from providing detailed quantitative and qualitative disclosures about market risk[151] ITEM 4. CONTROLS AND PROCEDURES Management concluded that disclosure controls and procedures were effective at a "reasonable assurance" level as of February 29, 2024, with no material changes in internal control - Management concluded that the company's disclosure controls and procedures were effective at the "reasonable assurance" level as of February 29, 2024[172][188] - No material changes in internal control over financial reporting were identified during the last fiscal quarter[152] PART II - OTHER INFORMATION This part provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS There were no material legal proceedings pending against the company as of February 29, 2024 - No material legal proceedings were pending against the company as of February 29, 2024[104][174] ITEM 1A. RISK FACTORS Investing in the company's common stock involves risks, and investors should review the 2023 Annual Report's "Risk Factors" section, as no material changes were identified - Investing in the company's common stock involves risks, and investors should review the "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the "Risk Factors" in the 2023 Annual Report on Form 10-K[175] - No material changes to the risks and uncertainties described in the 2023 Annual Report on Form 10-K were identified during the nine months ended February 29, 2024[175] ITEM 5. OTHER INFORMATION No other information was reported in this section - No other information was disclosed in this section[175] ITEM 6. EXHIBITS This section lists exhibits filed with the quarterly report on Form 10-Q, including Sarbanes-Oxley Act certifications and Interactive Data Files - The exhibits include certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act by Zackary S. Irani and Gary Lu[176][191][192] - Interactive Data Files (XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, Presentation Linkbase) are filed pursuant to Rule 405 Regulation S-T[177] SIGNATURES The report was signed on April 12, 2024, by Zackary S. Irani (CEO) and Gary Lu (CFO) as authorized representatives of Biomerica, Inc - The report was signed on April 12, 2024, by Zackary S. Irani (Chief Executive Officer) and Gary Lu (Chief Financial Officer)[180][193][194]