EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS
QUARTERLY REPORT ON FORM 10-Q MAY BE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 27A OF
THE SECURITIES ACT OF 1933. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN
RISKS AND UNCERTAINTIES WHICH MAY CAUSE BIOMERICA'S RESULTS IN FUTURE PERIODS TO
DIFFER MATERIALLY FROM FORECASTED RESULTS.
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Like other businesses, THE COMPANY IS susceptible to macroeconomic downturns in
the United States or abroad, as were experienced recently AND AS CURRENTLY
CONTINUE, that may affect the general economic climate and OUR performance or
OUR customers. Aside from general macroeconomic downturns, the additional
material factors, RISKS AND UNCERTAINTIES that could affect future financial
results include, but are not limited to: THE CONTINUED DEMAND FOR THE COMPANY'S
PRODUCTS; AVAILABILITY OF RAW MATERIALS; RESULTS OF RESEARCH AND DEVELOPMENT
ACTIVITIES; THE ABILITY TO RETAIN KEY EMPLOYEES AND CUSTOMERS; THE ABILITY TO
COLLECT RECEIVABLES FROM CUSTOMERS; THE CONTINUED ABILITY OF THE COMPANY TO
ATTAIN AND MAINTAIN THE LICENSES AND APPROVALS REQUIRED, INCLUDING EUA CLEARANCE
FROM THE FDA FOR THE COMPANY'S COVID-10 PRODUCTS;Regional or global pandemics,
GOVERNMENT RESPONSES TO SUCH PANDEMICS, and the economic and social disruptions
these cause ESPECIALLY IN THE HEALTHCARE INDUSTRY IN WHICH WE OPERATE; SHUTDOWNS
OR DISRUPTIONS IN OUR MANUFACTURING DUE TO WIDESPRED ILLNESS, OR OTHER ISSUES;
terrorist attacks and the impact of such events; existing and potential increase
in trade tariffs, especially with China; diminished or no access to raw
materials that directly enter into our manufacturing process; shipping labor
disruption or other major degradation of the ability to ship out products to end
users; inability to successfully control our margins which are affected by many
factors including RAW MATERIALS, competition and product mix; protracted
shutdown of the U.S. border due to an escalation of terrorist or counter
terrorist activity; any changes in our business relationships with international
distributors or the economic climate they operate in; any event that has a
material adverse impact on our foreign manufacturing operations may adversely
affect our operations as a whole; failure to manage the future expansion of our
business could have a material adverse effect on our revenues and profitability;
possible costs in complying with government regulations and the delays in
receiving required regulatory approvals or the enactment of new adverse
regulations or regulatory requirements; numerous competitors, some of which have
substantially greater financial and other resources than we do; potential claims
and litigation brought by patients or medical professionals alleging harm caused
by the use of or exposure to our products; recalls of products; inability to
obtain FDA clearance on products or excessive costs incurred in order to obtain
such approvals; regulatory actions taken by government agencies such as the FDA,
SEC, USDA and other regulators; quarterly variations in operating results caused
by a number of factors, including business and industry conditions; and other
factors beyond our control. All these factors make it difficult to predict
operating results for any particular period.
EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW, WE MAY NOT UPDATE OR REVISE OUR
FORWARD-LOOKING STATEMENTS AND THE LACK OF SUCH UPDATE DOES NOT IMPLY THAT
ACTUAL EVENTS ARE AS ORIGINALLY EXPRESSED BY SUCH FORWARD-LOOKING STATEMENTS.
YOU SHOULD READ THE DISCLOSURES IN THIS REPORT AND OTHER REPORTS, WHICH WE FILE
WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE RISK FACTORS
CONTAINED THEREIN.
OVERVIEW
Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries,
Biomerica de Mexico and BioEurope GmbH), (the "Company", "we", "our") is a
biomedical technology company that develops, patents, manufactures and markets
advanced diagnostic and therapeutic products used at the point-of-care
(physicians' offices and over-the-counter through drugstores and online) and in
hospital/clinical laboratories for detection and/or treatment of medical
conditions and diseases. Our diagnostic test kits are used to analyze blood,
urine or fecal material from patients in the diagnosis of various diseases, food
intolerances and other medical complications, or to measure the level of
specific hormones, antibodies, antigens or other substances, which may exist in
the human body in extremely small concentrations. The Company's products are
designed to enhance the health and well-being of people, while reducing total
healthcare costs.
Our primary focus is the research and development of disruptive, patented
diagnostic-guided therapy ("DGT") products to treat gastrointestinal diseases,
such as irritable bowel syndrome ("IBS"), and other inflammatory diseases. These
products are directed at chronic inflammatory illnesses that are widespread and
common, and as such address very large markets. If these DGT products prove
effective in their clinical trials, and are ultimately cleared for sale by the
U.S. FDA, management believes the revenue potential to the Company is
significant.
Due to the global 2019 SARS-CoV-2 novel coronavirus ("COVID-19") pandemic, in
March 2020 we began redirecting and focusing a majority of our resources to
develop, test, validate, seek regulatory approval for, and sell diagnostic
products that indicate if a person has been infected by COVID-19. These
diagnostic tests use a patient's blood sample to detect if the patient has
certain antibodies to COVID-19 that were created as part of their body's immune
response to a COVID-19 infection, even if the infection was asymptomatic. The
Company is marketing and selling outside of the U.S. a disposable rapid
finger-prick blood test, which detects COVID-19 IgG/IgM antibodies within 10
minutes.
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Following fiscal 2020 year-end, we submitted to the FDA an application under an
Emergency Use Authorization ("EUA") to sell in the U.S. a lab-scale, high
throughput ELISA COVID-19 antibody test kit that would be sold to labs and
hospitals to perform COVID-19 antibody testing. The Company also anticipates
selling this test kit outside of the U.S. under a CE Mark (European Conformity).
This ELISA lab test can be run using blood drawn by a medical professional, or
can be run using a finger prick blood sample that can be collected by a patient
in their own home, using our proprietary "at-home" blood collection kit, that
the patient sends to a lab for processing on our ELISA test. Our EUA
application/submission for the ELISA COVID-19 antibody test includes the at-home
blood collection kit. Initial sales for the ELISA test kit and the at-home
blood collection kits are expected following EUA clearance from the FDA for the
products to be sold in the US. The FDA has now assigned an examiner to review
this submission and the Company is actively working with the FDA to attain EUA
clearance. The Company manufactures this COVID-19 ELISA test on its automated
equipment at the Company's California facility that is also used to produce
serology antibody tests for other diseases. Since we did not receive FDA
clearance for this product during our second quarter of fiscal year 2021, we did
not record any sales in the U.S. for our COVID-19 ELISA products. Further, sales
of our disposable rapid finger prick blood test, which is only authorized for
sale outside of the U.S., were slower in the second quarter as we are told by
customers that most government health agencies are focused on viral testing
(determining who is currently infected) while the infection rates in the
territories we serve showed lower overall cases. However, the Company believes
even with vaccines beginning to become available in the market, demand for
serology (antibody) tests, like those we produce, could increase. In addition,
the infection rates in the territories we serve have increased, which we believe
will result in a higher demand for both antibody and viral testing, as long as
pandemic continues. Vaccines are designed to create antibodies in individuals
that will enable them to avoid serious illness when exposed to the COVID-19
virus. Therefore, following vaccination, the Company believes many patients will
want to know if the vaccination worked and they have produced antibodies to the
COVID-19 virus. Further, at various points following vaccination (e.g., 3
months, 6 months, etc.), we anticipate people will want to receive an antibody
test to determine if the level of antibodies produced from the vaccine are still
adequate to fight off a serious infection. Therefore, we believe demand for
COVID-19 antibody testing will begin to strengthen near term, and could remain
strong into the foreseeable future, even after demand for actual virus testing
begins to fall.
During the first and second fiscal quarters of 2021, we also focused resources
on developing and validating a COVID-19 antigen test that uses nasal (via a
nasal swab) or saliva human samples to detect if the COVID-19 antigen is present
in a person's nasal and oral fluids, indicating that the person has been
infected with the COVID-19 virus, and may still be actively infected and
infectious to others.
Aside from the current focus on COVID-19 products in research, development and
clinical trials, the products we continue to sell are primarily focused on
gastrointestinal diseases, food intolerances, diabetes and certain esoteric
tests. These diagnostic test products utilize immunoassay technology. Our
products are CE marked and/or sold for diagnostic use where they are registered
by each country's regulatory agency. In addition, some products are cleared for
sale in the U.S. by the FDA.
Finally, the Company continues to see progress in completing the testing
required to attain FDA clearance for our patented InFoods® IBS DGT product that
is designed to diagnose and treat sufferers of IBS. Mayo Clinic, Beth Israel
Deaconess Medical Center Inc., a Harvard Medical School teaching hospital,
University of Texas Health Science Center at Houston, Houston Methodist and the
University of Michigan are participating in our clinical trials for this
product.
InFoods® IBS is a unique, patented product that can allow physicians to identify
specific foods (e.g., pork, milk, onions, sugar, chickpeas, etc.) for each IBS
patient, that when removed from that patient's diet, may alleviate or improve
their IBS symptoms and suffering.
Upon demonstrating efficacy and obtaining FDA approval, we believe the long-term
opportunities for the InFoods IBS product could be comparable to any of the
major drugs currently used to treat IBS.
Further, the United States Patent and Trademark Office ("USPTO") has issued the
Company two patents with broad claims that protect the InFoods® IBS product.
Patents have also been issued in the countries of Japan, Korea and recently
Singapore with many other patents still pending globally. Additional patents
have also been filed for other diseases that utilize the InFoods® DGT technology
platform which include: functional dyspepsia, Crohn's Disease, ulcerative
colitis, gastroesophageal reflux disease ("GERD"), migraine headaches, and
osteoarthritis.
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RESULTS OF OPERATIONS
Consolidated net sales for Biomerica were $1,372,526 for the three months ended
November 30, 2020 as compared to $1,596,408 for the same period in the previous
year. This represents a decrease of $223,882, or 14%. Consolidated net sales for
Biomerica were $2,516,332 for the six months ended November 30, 2020 as compared
to $2,790,823 for the same period in the previous year. This represents a
decrease of $274,491, or 10%. The decrease for the three months ended November
30, 2020 as compared to the same period in the previous year was primarily due
to softness in demand for our non-COVID products in certain markets due to the
pandemic. However, the Company believes demand to be returning for certain
regions as orders for non-COVID products received from Asian customers during
the first six weeks of fiscal third quarter 2021 were over $700,000.
Nevertheless, the Company still believes that total sales of non-COVID-19
products could continue to be negatively impacted by the world-wide pandemic.
Because the Company sells both COVID-19 and Non-COVID-19 products, the impact
COVID-19 will have on future revenues is difficult to predict.
Consolidated cost of sales for Biomerica were $1,011,030 for the three months
ended November 30, 2020 as compared to $1,127,536 for the same period in the
previous year. This represents a decrease of $116,506, or 10%. Consolidated cost
of sales for Biomerica were $1,971,960 for the six months ended November 30,
2020 as compared to $1,954,647 for the same period in the previous year. This
represents an increase of $17,313, or 1%. The percentage of cost of sales
relative to sales for the three months ended November 30, 2020 increased from
71% to 74%. The percentage of cost of sales relative to sales for the six months
ended November 30, 2020 increased from 70% to 78%. The Company's standard margin
on products sold was similar to previous periods. However, during the three and
six months ended November 30, 2020 the manufacturing facilities were not running
at 100% capacity due to the negative impact COVID-19 had on sales of the
Company's non-COVID-19 products. This generated unfavorable manufacturing
variances within our reported cost of sales. Because the Company sells both
COVID-19 and Non-COVID-19 products, the impact COVID-19 will have on future cost
of sales is difficult to determine.
Consolidated selling, general and administrative expenses for Biomerica were
$1,254,847 for the three months ended November 30, 2020 as compared to $553,761
for the same period in the previous year. This represents an increase of
$701,086, or 127%. Consolidated selling, general and administrative expense for
Biomerica were $2,419,411 for the six months ended November 30, 2020 as compared
to $1,060,958 for the same period in the previous year. This represents an
increase of $1,358,453, or 128%. The increase in the three and six month periods
was primarily due to legal expenses related to responding to the SEC inquiry
discussed in Part II, as well as an increase in the allowance for doubtful
accounts, additional consulting fees, and increased personnel costs as the
Company is expanding and strengthening its management team in sales, marketing,
and administration.
Consolidated research and development expenses for Biomerica were $586,403 for
the three months ended November 30, 2020 as compared to $404,854 for the same
period in the previous year. This represents an increase of $181,549, or 45%.
Consolidated research and development expense for Biomerica were $1,261,096 for
the six months ended November 30, 2020 as compared to $775,320 for the same
period in the previous year. This represents an increase of $485,776, or 63%.
The increase in the three and six month periods was primarily a result of
increases in costs related to the research, development and validation of
COVID-19 tests, and the initiation costs at Mayo Clinic, University of Houston
Texas, and Methodist Hospital in Texas for clinical trials for our InFoods® IBS
product.
Interest and dividend income were $7,983 for the three months ended November 30,
2020 as compared to $4,488 for the same period in the previous year. This
represents an increase of $3,495, or 78%. Interest and dividend income were
$16,074 for the six months ended November 30, 2020 as compared to $8,551 for the
same period in the previous year. This represents an increase of $7,523, or 88%.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2020 and May 31, 2020, the Company had cash and cash
equivalents in the amount of $5,683,787 and $8,641,027 and working capital of
$10,072,883 and $13,289,670, respectively.
During the six months ended November 30, 2020, the Company's operations used
cash of $2,880,218 compared to cash used in operations of $365,994 in the same
period of the prior fiscal year. Cash used by operations increased year to date
in fiscal 2021 compared to year-to-date fiscal 2020 primarily due to operating
losses of $3,134,579, growth in inventory of $1,359,320 driven by an increase in
COVID-19 inventory of approximately $1,519,000 partially offset by a reduction
in prepaids of $1,055,946 which was primarily driven by a repayment of an
advance the Company had with one of our suppliers. Cash used in investing
activities year to date in fiscal 2021 was $61,566 for purchases of fixed assets
and $61,536 for increased intangibles. Cash provided by financing activities in
fiscal year 2021 to date was $49,330 which was a result of stock option
exercises.
We have been working on new products that address large markets for the
gastroenterology sector. Patent applications for these new products have been
filed and six patents have been issued (two in the USA, two in Korea, and one
each in Japan, and Singapore). The Company has been working on obtaining
additional patents and U.S. regulatory approvals for these products. Due to the
significant revenue opportunities these products represent, the Company has been
spending significant funds on research, development, patents and related costs,
and expects this will continue in order to strengthen and expand our patent
protection, and attain regulatory approvals of these products.
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On July 21, 2020, the Company filed with the SEC a new Form S-3 "Shelf"
registration statement to replace the registration statement that expired on
July 20, 2020. The new registration statement registers common shares to be
issued in a maximum aggregate amount of $90,000,000. Included in this
registration statement was the registration of all of the common shares issued,
or to be issued, to Palm Global Small Cap Master Fund LP upon conversion of
their convertible Preferred stock into common shares. This S-3 registration
statement became effective September 30, 2020. The Company intended to use the
net proceeds from this offering for general corporate purposes, including,
without limitation, sales and marketing activities, clinical studies and product
development, making acquisitions of assets, businesses, companies or securities,
capital expenditures, and for working capital needs.
OFF BALANCE SHEET ARRANGEMENTS
There were no off-balance sheet arrangements as of November 30, 2020.
CRITICAL ACCOUNTING POLICIES
The preparation of condensed 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 in the circumstances; however, actual results may differ from these
estimates under different future conditions.
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 reserve, 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. 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.
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BIOMERICA, INC. 
