BIOMERICA INC

Previous wording

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Report and the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024 (our 2024 Annual 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 of operations 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 our 2024 Annual Report.

Current wording

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Report and the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024 (our 2024 Annual 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 our 2024 Annual Report.

Previous wording

Our extensive range of medical diagnostic products is sold worldwide, primarily in two markets: clinical laboratories and point-of-care settings, including physicians’ offices and over-the-counter sales at major retailers such as Walmart, CVS Pharmacy, and Amazon. Most of our products are Conformite Europeenne (“CE”) marked and/or registered with regulatory agencies in various countries for diagnostic use, with several also cleared by the FDA for sale in the United States.

Current wording

Our extensive range of medical diagnostic products is sold worldwide, primarily in two markets: clinical laboratories and point-of-care settings. Most of our products are Conformite Europeenne (“CE”) marked and/or registered with regulatory agencies in various countries for diagnostic use, with several also cleared by the FDA for sale in the United States.

Previous wording

A key outcome from our recent research and development efforts is our patented diagnostic-guided therapy (“DGT”) product, developed on the inFoods® technology platform. This innovative product is designed to treat gastrointestinal conditions such as irritable bowel syndrome (“IBS”) and other inflammatory diseases. The DGT product targets chronic inflammatory illnesses that are widespread and prevalent in large markets. We have launched the inFoods® IBS product, which leverages this patented technology.

Current wording

A key outcome from our research and development efforts is our patented diagnostic-guided therapy (“DGT”) product, developed on the inFoods® technology platform. This innovative technology is designed to treat gastrointestinal conditions such as irritable bowel syndrome (“IBS”) and other inflammatory diseases. The DGT product targets chronic inflammatory illnesses that are widespread and prevalent in large markets. We have launched the inFoods® IBS product, which leverages this patented technology.

Previous wording

Due to the slower-than-expected launch of the Company’s key products, inFoods® IBS and hp+detect™, the Company has initiated significant cost-cutting measures to extend its cash runway and work towards increasing revenues to cover overhead costs. These measures include a workforce reduction of nearly 15% during this fiscal quarter, which incurred one-time labor costs such as severance, impacting typical cost trends and margins. In addition, the Company is actively exploring strategic opportunities to enhance and create shareholder value.

Current wording

Due to the slower-than-expected launch of the Company’s key products, inFoods® IBS and hp+detect™, the Company has initiated significant cost-cutting measures to extend its cash runway and work towards increasing revenues to cover overhead costs. These measures include a workforce reduction of nearly 15% during this fiscal year, which incurred costs such as severance, impacting typical cost trends and margins. Additionally, we raised $567,000 in net proceeds from the ATM offering filed in May 2024, providing additional liquidity to support our operations. The Company is actively exploring strategic opportunities to enhance and create shareholder value.

Previous wording

For the three months ended August 31, 2024, interest and dividend income totaled approximately $56,000, compared to $123,000 for the corresponding period in 2023, representing a decrease of $67,000, or 54%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by August 31, 2024.

Current wording

For the three months ended November 30, 2024, interest and dividend income totaled approximately $40,000, compared to $109,000 for the corresponding period in 2023, representing a decrease of $69,000, or 63%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by November 30, 2024.

Previous wording

For the three months ended August 31, 2024, consolidated cost of sales amounted to approximately $1,518,000, or 84% of net sales, compared to $1,301,000, or 76% of net sales, for the same period in 2023, representing an increase of $217,000, or 17%. A key driver of the cost increase was directly correlated to the growth in contract manufacturing sales. Additionally, direct labor costs were significantly impacted by one-time severance expenses related to the reduction in force (“RIF”) executed in July, which elevated labor costs and negatively impacted gross margins. Gross margin was negatively impacted by 12% by the one-time RIF expenses within the fiscal quarter. Excluding these RIF-related costs, gross margins are consistent with the prior period.

Current wording

For the six months ended November 30, 2024, consolidated cost of sales was approximately $2,720,000, or 79% of net sales, compared to $2,541,000, or 77% of net sales, for the same period in 2023. This represents an increase of $179,000, or 7%. A key driver of the cost increase was directly correlated with the growth in contract manufacturing sales. Additionally, direct labor costs were significantly impacted by the RIF executed in July 2024, which decreased labor costs and improved gross margins.

Previous wording

For the three months ended August 31, 2024, consolidated research and development (“R&D”) expenses totaled approximately $297,000, representing a decrease of 37% from $472,000 in the same period of 2023. This $175,000 reduction was primarily driven by an $86,000 decline in R&D wages resulting from the one-time severance expenses associated with the RIF executed in July. In line with the Company’s strategic initiatives for cost-cutting measures, several clinical trials were reduced, resulting in decreased expenditures. Additionally, with the commercialization of inFoods® IBS, there has been a deliberate reduction in R&D allocations to this area, contributing to an overall decrease of $80,000 in related expenses.

Current wording

For the six months ended November 30, 2024, consolidated R&D expenses totaled approximately $554,000, representing a decrease of 37% from $883,000 in the same period of 2023. This $329,000 decrease was primarily driven by a $242,000 decline in R&D wages resulting from the RIF executed in July 2024. In line with the Company’s strategic initiatives for cost-cutting measures, several clinical trials were scaled back, resulting in decreased expenditures. Additionally, with the commercialization of inFoods® IBS, there has been a deliberate reduction in R&D allocations to this area, contributing to an overall decrease of $74,000 in related expenses.

Previous wording

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN

Current wording

LIQUIDITY AND CAPITAL RESOURCES AND GOING CONCERN

Previous wording

As of August 31, 2024 and May 31, 2024, the Company had cash and cash equivalents of approximately $2,820,000 and $4,170,000, respectively. As of August 31, 2024 and May 31, 2024, the Company had working capital of approximately $4,294,000 and $5,527,000, respectively.

Current wording

As of November 30, 2024 and May 31, 2024, the Company had cash and cash equivalents of approximately $2,372,000 and $4,170,000, respectively. As of November 30, 2024 and May 31, 2024, the Company had working capital of approximately $4,069,000 and $5,527,000, respectively.

Previous wording

As part of our efforts to reduce costs, we have initiated significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. These measures include a workforce reduction of nearly 15% in July 2024 and a substantial reduction in other operating expenses.

Current wording

As part of our efforts to reduce costs, we are executing significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. These measures included a workforce reduction of nearly 15% in July 2024 and a substantial reduction in other operating expenses.

Previous wording

As part of our financing plan, on September 28, 2023, we filed a “shelf” registration statement on Form S-3 with the Securities and Exchange Commission (“SEC”), which was declared effective on September 29, 2023, allowing us to issue up to $20,000,000 in common shares. Under this registration statement, shares of our common stock may be sold from time to time for up to three years from the filing date. On May 10, 2024, the we filed a prospectus supplement with the SEC to facilitate the sale of up to $5,500,000 in common stock through at-the-market (“ATM”) offerings, as defined in Rule 415 under the Securities Act. As part of this transaction, we incurred $81,000 in deferred offering costs. The amount of capital that we can raise under the ATM offering is highly dependent upon the trading volume and the trading price of our stock. The average trading volume of our stock over the last three full calendar months is approximately 83,068 shares per day and the high and low trading price of our stock during the same period of time was $0.59 and $0.28, respectively. If our stock continues to trade at low volumes and price, the amount of capital that we can raise under the ATM offering will be constrained.

Current wording

As part of our financing plan, on September 28, 2023, we filed a new “shelf” registration statement on Form S-3 with the SEC, to replace the expiring S-3 that was filed in July 2020, which was declared effective on September 29, 2023, allowing us to issue up to $20,000,000 in common shares. Under this registration statement, shares of our common stock may be sold from time to time for up to three years from the filing date. On May 10, 2024, we filed a prospectus supplement with the SEC to facilitate the sale of up to $5,500,000 in common stock through at-the-market (“ATM”) offerings, as defined in Rule 415 under the Securities Act. As part of this transaction, we incurred $81,000 in deferred offering costs. The amount of capital that we can raise under the ATM offering is highly dependent upon the trading volume and the trading price of our stock. The average trading volume of our stock over the last three full calendar months is 886,303 shares per day and the high and low trading price of our stock during the same period of time was $0.48 and $0.26, respectively. If our stock continues to trade at low volumes and price, the amount of capital that we can raise under the ATM offering will be constrained.

Previous wording

During the three months ended August 31, 2024, cash used in operating activities was approximately $1,344,000. The primary factors that contributed to this were a loss of approximately $1,316,000, an increase in accounts receivable of $616,000, and a decrease in lease liability of $78,000. These were partially offset by a decrease in inventories of $429,000, a decrease in prepaid expenses and other of $106,000, and non-cash expenses of approximately $191,000.

Current wording

During the six months ended November 30, 2024, cash used in operating activities was approximately $2,135,000. The primary factors that contributed to this were a loss of approximately $2,266,000, an increase in accounts receivable of $387,000, and a decrease in accounts payable and accrued expenses of $290,000. These outflows were partially offset by a decrease in inventories of $585,000 and non-cash expenses of approximately $439,000.

Previous wording

During the three months ended August 31, 2023, cash used in operating activities was approximately $1,674,000. The primary factors that contributed to this were a loss of approximately $1,132,000, non-cash expenses of $122,000, primarily associated with depreciation and amortization, share-based compensation, inventory reserves and amortization of right-of-use assets. This was partially offset by changes in asset and liability accounts of $664,000.

Current wording

During the six months ended November 30, 2023, cash used in operating activities was approximately $2,516,000. The primary factors that contributed to this was a loss of approximately $2,639,000, non-cash expenses of $294,000, primarily associated with depreciation and amortization, provision for credit losses, inventory reserves, share-based compensation, and amortization of right-of-use assets. This was partially offset by changes in asset and liability accounts of approximately $171,000.

Previous wording

During the three months ended August 31, 2023, cash used in investing activities was approximately $63,000. During the three months ended August 31, 2023, we purchased approximately $21,000 of property and equipment and had $42,000 in expenditures related to patents.

Current wording

During the six months ended November 30, 2023, cash used in investing activities was approximately $27,000 for purchases of property and equipment and $48,000 for expenditures related to patents.

Previous wording

During the three months ended August 31, 2024, and 2023, the Company did not have any cash provided by financing activities, with no net proceeds from the sale of common stock or stock option exercises.

Current wording

During the six months ended November 30, 2023, cash provided by financing activities was $0, with no net proceeds from the sale of common stock or from stock option exercises.

Previous wording

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 may affect the reported amounts of revenues and expenses during the reporting period. We evaluate and base our estimates and assumptions on historical experience and various other factors and circumstances that we believe to be reasonable. Different assumptions or conditions may cause actual results to differ materially from these estimates. We continue to monitor significant estimates made during the preparation of our financial statements. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions.

Current wording

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.

Previous wording

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 reserves, 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. There have been no significant changes to our critical accounting policies from those disclosed in our 2024 Annual Report. 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.

Current wording

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 reserves, 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 condition 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. Our critical accounting policies are discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2024 and there have been no changes to such policies during the current quarter.