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 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).

Previous wording

We launched our inFoods® product across numerous gastroenterology (“GI”) physician groups in various states and regions, including collaboration with one of the largest GI groups in the U.S. Feedback from GI specialty physicians have generally been positive, and we are actively expanding our network by onboarding additional physician practices. These GI practices are beginning to prescribe inFoods® IBS to their patients. Our dedicated sales team is deepening relationships within the GI segment and strategically targeting opportunities to introduce inFoods® to other medical specialties. By leveraging their expertise and building strong partnerships, our sales team is now working to engage with key physician groups outside the GI field such as integrated health practices and primary-care general practitioners. These efforts aim to broaden our market reach and enhance the overall adoption of inFoods® across various healthcare sectors and to capitalize on the distinct advantages of inFoods® for a strong foundation of meaningful growth in the future. We are also continuing to evaluate distribution, partnership and licensing opportunities with U.S. and multinational companies, which have the potential to significantly aid in the commercialization and accelerated growth of inFoods® products both domestically and internationally.

Current wording

We began commercializing our inFoods® product with select gastroenterology (“GI”) physician groups in various states and regions, including collaboration with one of the largest GI groups in the U.S. This initial phase was focused on gathering real-world feedback, optimizing physician engagement, and validating operational processes. Feedback from GI specialists has been generally positive, and we are continuing to expand our network by onboarding additional physician practices.

Previous wording

The hp+detect™ test offers physicians and medical centers a reliable tool for diagnosing H. pylori infections and monitoring treatment efficacy. The test is marketed directly to laboratories, where patient samples are processed to provide timely and accurate diagnoses. To support the widespread adoption and distribution of hp+detect™, the Company is actively engaging with large reference laboratories, aiming to improve patient outcomes through early detection and effective treatment of H. pylori infections.

Current wording

The hp+detect™ test offers physicians and medical centers a reliable tool for diagnosing H. pylori infections and monitoring treatment efficacy. The test is marketed directly to laboratories, where patient samples are processed to provide timely and accurate diagnoses. To support the widespread adoption and distribution of hp+detect™, the Company is working with large reference laboratories, aiming to improve patient outcomes through early detection and effective treatment of H. pylori infections.

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 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.

Current wording

Due to the slower-than-expected launch of the Company’s key products, inFoods® IBS and hp+detect™, the Company has executed 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 $2,015,000 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

Consolidated net sales were approximately $1,636,000 for the three months ended November 30, 2024, as compared to $1,567,000 for the three months ended November 30, 2023, an increase of approximately $69,000, or 4%. This increase for the three months ended November 30, 2024, was primarily driven by higher sales of Aware® products in the Middle East market and increased contract manufacturing billings. However, these increases were partially offset by a decrease in clinic lab sales, which experienced volatility due to periodic and timing of orders.

Current wording

Consolidated net sales were approximately $1,119,000 for the three months ended February 28, 2025, as compared to $1,017,000 for the three months ended February 29, 2024, an increase of approximately $102,000 or 10%. This increase for the three months ended February 28, 2025, was primarily attributed to increased sales of our food intolerance products, reflecting a growing interest and engagement in this category. Sales in this segment are subject to periodic and infrequent orders, contributing to potential volatility in quarterly sales.

Previous wording

Consolidated cost of sales were approximately $1,199,000, or 73% of net sales, for the three months ended November 30, 2024, as compared to $1,242,000, or 79% of net sales, for the three months ended November 30, 2023, a decrease of approximately $43,000, or 3%. The decrease for the three months ended November 30, 2024, was primarily driven by the reduction in force (“RIF”) executed in July 2024, which helped to decrease labor costs for the quarter.

Current wording

Consolidated cost of sales were approximately $1,100,000, or 98% of net sales, for the three months ended February 28, 2025, as compared to $1,166,000, or 115% of net sales, for the three months ended February 29, 2024, a decrease of approximately $66,000, or 6%. The decrease for the three months ended February 28, 2025 was primarily driven by the reduction in force (“RIF”) executed in July 2024, which helped to decrease labor costs for the quarter.

Previous wording

For the three months ended November 30, 2024, consolidated research and development (“R&D”) expenses totalled approximately $257,000, representing a decrease of 38% from $412,000 in the same period of 2023. This $155,000 reduction was primarily driven by a $156,000 decline in R&D wages resulting from the RIF executed in July 2024.

Current wording

For the three months ended February 28, 2025, consolidated research and development (“R&D”) expenses totaled approximately $217,000, representing a decrease of 37% from $343,000 in the same period of 2024. This $126,000 reduction was primarily driven by a $64,000 decline in R&D wages due to a RIF executed in July 2024, and a reduction of $39,000 in expenses related to clinical trial studies.

Previous 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.

Current wording

For the three months ended February 28, 2025, interest and dividend income totaled approximately $43,000, compared to $86,000 for the corresponding period in 2024, representing a decrease of $43,000, or 50%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by February 28, 2025.

Previous 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.

Current wording

For the nine months ended February 28, 2025, consolidated cost of sales was approximately $3,820,000, representing 84% of net sales, compared to $3,708,000, or 86% of net sales, for the same period in 2024. This 3% increase, amounting to $112,000, was primarily driven by expanded contract manufacturing sales. Notably, the implementation of a RIF in July 2024 effectively reduced direct labor costs, thereby contributing to improved gross margins.

Previous 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.

Current wording

For the nine months ended February 28, 2025, consolidated R&D expenses were approximately $771,000, a decrease of 37% from $1,226,000 during the same period in 2024. This $455,000 reduction was largely due to a $303,000 decrease in R&D wages following a RIF implemented in July 2024. As part of our strategic cost-cutting initiatives, several clinical trials were scaled back, leading to lower expenditures. Furthermore, with the commercialization of inFoods® IBS, we strategically reduced R&D funding in this area, which accounted for an additional $75,000 decrease in related expenses.

Previous wording

For the six months ended November 30, 2024, interest and dividend income totaled approximately $97,000, compared to $231,000 for the corresponding period in 2024, representing a decrease of $134,000, or 58%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by November 30, 2024.

Current wording

For the nine months ended February 28, 2025, interest and dividend income totaled approximately $140,000, compared to $317,000 for the corresponding period in 2024, representing a decrease of $177,000, or 56%. This reduction was primarily attributable to lower market interest rates affecting our lower cash balances, which had decreased by February 28, 2025

Previous wording

LIQUIDITY AND CAPITAL RESOURCES AND GOING CONCERN

Current wording

LIQUIDITY AND CAPITAL RESOURCES

Previous 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.

Current wording

As of February 28, 2025 and May 31, 2024, the Company had cash and cash equivalents of approximately $3,058,000 and $4,170,000, respectively. As of February 28, 2025 and May 31, 2024, the Company had working capital of approximately $4,555,000 and $5,527,000, respectively.

Previous wording

To address our capital needs and sustain operations beyond the next year, we are actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, seek additional financing through debt or equity, and seek other strategic alternatives. While we are committed to these plans, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements.

Current wording

To address our capital needs and sustain operations beyond the next year, we are actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, seek additional financing through debt or issuance of equity, and seek other strategic alternatives. While we are committed to these plans, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements.

Previous 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.

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 7,798,345 shares per day and the high and low trading price of our stock during the same period of time was $0.27 and $1.03, 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 six months ended November 30, 2024, the Company sold 1,515,348 shares of its common stock at prices ranging from $0.36 to $0.47 pursuant to the May 2024 ATM Offering, which resulted in gross proceeds of approximately $603,000 and net proceeds to the Company of $567,000, after deducting commissions for each sale and legal, accounting, and other fees related to offering in the amount of $36,000.

Current wording

During the nine months ended February 28, 2025, the Company sold 3,525,359 shares of its common stock at prices ranging from $0.36 to $1.04 pursuant to the May 2024 ATM Offering, which resulted in gross proceeds of approximately $2,143,000 and net proceeds to the Company of $2,015,000 after deducting commissions for each sale and legal, accounting, and other fees related to offering in the amount of $128,000.

Previous 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.

Current wording

During the nine months ended February 28, 2025, cash used in operating activities totaled approximately $3,180,000. The primary contributors to this outflow were a net loss of approximately $3,429,000, an increase in accounts receivable of $327,000, a decrease in accounts payable and accrued expenses totaling $506,000, and a reduction in lease liabilities of $242,000. These cash outflows were partially offset by a decrease in inventories of $766,000 and non-cash expenses of $610,000. The non-cash expenses included depreciation and amortization, provision for allowance on accounts receivable, inventory reserves, share-based compensation, and amortization of right-of-use assets.

Previous 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.

Current wording

During the nine months ended February 29, 2024, cash used in operating activities was approximately $4,317,000. The primary factors that contributed to this was a loss of approximately $4,557,000, non-cash expenses of $723,000, primarily associated with depreciation and amortization, provision for allowance on accounts receivable, 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 $483,000.

Previous wording

During the six months ended November 30, 2024, cash used in investing activities was approximately $33,000 in expenditures related to patents.

Current wording

During the nine months ended February 28, 2025, cash used in investing activities was $0 for purchases of property and equipment, and $37,000 in expenditures related to patents.

Previous 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.

Current wording

During the nine months ended February 29, 2024, cash used in investing activities was approximately $27,000 for purchases of property and equipment, and $64,000 in expenditures related to patents.

Previous 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.

Current wording

During the nine months ended February 29, 2024, cash provided by financing activities was $0, with no net proceeds from the sale of common stock or from stock option exercises.

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 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.

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, credit losses, inventory overhead application, inventory reserves, right-of-use assets and lease liabilities and share-based compensation. 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.