NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) 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, nasal 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, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our InFoods® Technology platform that treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases. These InFoods® based products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. The first product we are launching using this patented InFoods Technology is our InFoods® IBS product which uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation. Instead of broad and difficult to manage dietary restrictions, the InFoods® IBS product works by identifying a patient’s above normal immunoreactivity to specific foods. A food identified as positive and causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms. We are currently in discussions with key gastroenterology (GI) physician groups who are interested in offering this product to their patients. As such, we are expecting to begin generating revenues from the launch of our InFoods® IBS product during our fiscal third quarter.
Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter at Walmart, Amazon, and Walgreens). The diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens, or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations.
Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected. While we initially offered a COVID-19 antibody diagnostic test to determine if a person has previously been infected by the COVID-19 virus, all of our COVID-19 revenues in fiscal 2022 and 2023 have come from international sales of our COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if the patient is currently infected with the virus. Due to falling demand, less than 12% of our revenues during the three months ended August 31, 2022 were from sales of our COVID-19 related products.
Our non-COVID-19 products that accounted for over 88% of our revenues during the three months ended August 31, 2022, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. Most of 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 United States by the FDA.
The unaudited consolidated financial statements herein have been prepared by management pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). The accompanying interim unaudited consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest fiscal year ended May 31, 2022. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three months ended August 31, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2023. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2022 included in the Company's Annual Report on Form 10-K filed with the SEC on August 29, 2022. Management has evaluated all subsequent events and transactions through the date of filing this report.
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NOTE 2: SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of Biomerica, Inc. as well as its German subsidiary (BioEurope GmbH) and Mexican subsidiary (Biomerica de Mexico). All significant intercompany accounts and transactions have been eliminated in consolidation.
ACCOUNTING ESTIMATES
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical practices with a customer; stock option forfeiture rates, which are calculated based on historical data; inventory obsolescence, which is based on projected and historical usage of materials; and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, the likelihood of lease extensions to occur, asset valuation, among other things; and other items that may be necessary to estimate using current, historical and judgment based information. Actual results could materially differ from those estimates.
MARKETS AND METHODS OF DISTRIBUTION
Due to the Coronavirus global pandemic, and the economic disruptions that have followed, the Company’s operations have been negatively impacted. The Company has faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, cost inflation, loss of contracts and/or customers, closure of the Company’s manufacturing or distribution facilities or of the facilities of the Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities. These ongoing pandemic related disruptions have materially negatively impacted the Company’s operations and financial performance and may continue to have significant material negative impacts on the Company.
LIQUIDITY
The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $37.1 million as of August 31, 2022. Management expects to continue to incur significant costs as it advances its clinical trials and product development activities. As of August 31, 2022, the Company had cash and cash equivalents of approximately $6,075,000 and working capital of approximately $7,410,000.
On July 21, 2020, the Company filed with the SEC a “shelf” registration statement on Form S-3. The registration statement registers common shares that may be issued by the Company in a maximum aggregate amount of up to $90,000,000. Shares of the Company’s common stock may be sold from time to time under this registration statement for up to three years from the filing date. On January 22, 2021, the Company filed a prospectus supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering (“ATM Offering”) under the shelf registration statement, of which approximately $9,600,000, remains available for sale under the prospectus supplement.
The Company intends to use the net proceeds from such 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.
The sales agent under the ATM Offering agrees to use commercially reasonable efforts to sell on the Company’s behalf all of the shares requested to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between the sales agent and the Company. The Company has no obligation to sell any of the shares under the ATM Offering, and may at any time suspend offers under, or terminate the ATM Offering.
During the quarter ended August 31, 2022, the Company sold 523,977 shares of its common stock at prices ranging from $3.15 to $3.55 under its ATM Offering which resulted in gross proceeds of approximately $1,811,000 and net proceeds to the Company approximately of $1,764,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.
As a result of cash and cash equivalents on hand at August 31, 2022, and the ability to raise additional funds, including through the ATM Offering noted above, management believes the Company has sufficient funds to operate through at least November 2023.
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CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. As of August 31, 2022, the Company had approximately $5,834,000 of uninsured cash. The Company does not believe it is exposed to any significant credit risks.
Consolidated net sales were approximately $1,637,000 for the three months ended August 31, 2022, as compared to $1,262,000 for the three months ended August 31, 2021. For the three months ended August 31, 2022 and 2021, the Company had two key customers who are located in foreign countries which accounted for 64% and 60% of net consolidated sales, respectively.
Total gross receivables on August 31, 2022 and May 31, 2022 were approximately $1,315,000 and $927,000, respectively. On August 31, 2022 and May 31, 2022, the Company had two and one key customers who are located in foreign countries which accounted for a total of 67% and 50%, respectively, of gross accounts receivable.
For the three months ended August 31, 2022 and 2021, the Company had one key vendor which accounted for 9% and 17% of the purchases of raw materials, respectively. As of August 31, 2022 and May 31, 2022, the Company had one and two key vendors which accounted for 11% and 69%, respectively, of accounts payable.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits and money market accounts with original maturities of less than three months.
ACCOUNTS RECEIVABLE
The Company extends unsecured credit to its customers on a regular basis. International accounts are usually required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria. Based on various criteria, initial credit levels for individual distributors are approved by designated officers and managers of the Company. All increases in credit limits are also approved by designated upper-level management. Management evaluates receivables on a quarterly basis and adjusts the allowance for doubtful accounts accordingly. Balances over ninety days old are usually reserved for unless collection is reasonably assured.
Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables balances relative to the total gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.
As of August 31, 2022 and May 31, 2022, the Company has established a reserve of approximately $383,000 and $153,000, respectively, for doubtful accounts.
PREPAID EXPENSES AND OTHER
The Company occasionally prepays for items such as inventory, insurance, and other items. These items are reported as prepaid expenses and other, until either the inventory is physically received, or the insurance and other items are expensed.
As of August 31, 2022 and May 31, 2022, the prepaid expenses and other were approximately $239,000 and $320,000, respectively, composed of prepayments to insurance and various other suppliers.
INVENTORIES, NET
The Company values inventory at the lower of cost (determined using a combination of specific lot identification and the first-in, first-out methods) or net realizable value. Management periodically reviews inventory for excess quantities and obsolescence. Management evaluates quantities on hand, physical condition, and technical functionality as these characteristics may be impacted by anticipated customer demand for current products and new product introductions. The reserve is adjusted based on such evaluation, with a corresponding provision included in cost of sales. Abnormal amounts of idle facility expenses, freight, handling costs and wasted material are recognized as current period charges and the allocation of fixed production overhead is based on the normal capacity of the production facilities.
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Net inventories are approximately the following:
| | August 31, 2022 | | May 31, 2022 |
| Raw materials | $ | 1,732,000 | | $ | 1,717,000 |
| Work in progress | | 723,000 | | | 763,000 |
| Finished products | | 449,000 | | | 782,000 |
| Total gross inventory | $ | 2,904,000 | | $ | 3,262,000 |
| Inventory reserves | | (982,000) | | | (846,000) |
| Net inventory | $ | 1,922,000 | | $ | 2,416,000 |
Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically reserve for obsolete inventory. As of August 31, 2022, and May 31, 2022, inventory reserves were approximately $982,000 and $846,000, respectively.
PROPERTY AND EQUIPMENT, NET
Property and equipment are stated at cost. Expenditures for additions and major improvements are capitalized. Repairs and maintenance costs are charged to operations as incurred. When property and equipment are sold, retired or otherwise disposed of, the related cost and accumulated depreciation or amortization are removed from the accounts, and gains or losses from sales, retirements and dispositions are credited or charged to income.
Depreciation and amortization are provided over the estimated useful lives of the related assets, ranging from 5 to 10 years, using the straight-line method. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the lease. Depreciation and amortization expense on property and equipment were approximately $20,000 and $28,000 for the three months ended August 31, 2022 and 2021, respectively.
INTANGIBLE ASSETS, NET
Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on Accounting Standards Codification (“ASC”), ASC 350 Intangibles – Goodwill and Other (“ASC 350”). In that regard, intangible assets that have indefinite useful lives are not amortized but are tested at least annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired.
Intangible assets are being amortized using the straight-line method over the useful life, not to exceed 18 years for marketing and distribution rights, 10 years for purchased technology use rights, and 20 years for patents. Amortization expense was approximately $9,000 and $7,000 for the three months ended August 31, 2022 and 2021, respectively.
The Company assesses the recoverability of these intangible assets by determining whether the amortization of the asset’s balance over its remaining life can be recovered through projected undiscounted future cash flows. The Company uses a qualitative assessment to determine whether there was any impairment. As of August 31, 2022 and 2021, an impairment adjustment was made of $6,000 and $0, respectively.
INVESTMENTS
From time-to-time, the Company makes investments in privately held companies. Investments represent the Company’s investment in a Polish distributor, which is primarily engaged in distributing medical products and devices. The Company owns approximately 6% of the investee and invested approximately $165,000 into the Polish distributor.
Equity holdings in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence ("Cost Method Holdings") are accounted for at the Company's initial cost, minus any impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends received are recorded as other income.
The Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an equity holding may not be recoverable. Management reviewed the underlying net assets of the Company's equity method holding as of August 31, 2022 and determined that the Company's proportionate economic interest in the entity indicates that the equity holding was not impaired. There were no observable price changes in orderly transactions for identical or a similar holding or security of the Company’s Cost Method Holding during the period ended August 31, 2022.
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SHARE-BASED COMPENSATION
The Company follows the guidance of ASC 718, Share-based Compensation (“ASC 718”), which requires the use of the fair-value based method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments (options). The fair value of each option award is estimated on the date of grant using the Black-Scholes options-pricing model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the foreseeable future. Expected volatilities are based on weighted averages of the historical volatility of the Company’s common stock estimated over the expected term of the options. The expected forfeiture rate is based on historical forfeitures experienced. The expected term of options granted is derived using the “simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term as historically the Company had limited exercise activity surrounding its options. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under the straight-line attribution method.
The Company expensed approximately $304,000 and $320,000 of stock-based compensation during the three months ended August 31, 2022 and 2021, respectively.
The following summary presents the options granted, exercised, expired, canceled and outstanding for the three months ended August 31, 2022:
| | Option Shares | | Exercise Price Weighted Average |
| Outstanding May 31, 2022 | 2,321,616 | | $ | 3.72 |
| Granted | 146,000 | | | 3.37 |
| Exercised | (15,000) | | | 0.95 |
| Cancelled or expired | (64,000) | | | 4.78 |
| Outstanding August 31, 2022 | 2,388,616 | | $ | 3.69 |
During the three months ended August 31, 2022, options to purchase 15,000 shares of common stock were exercised at prices ranging from $0.82 to $1.20. Total net proceeds to the Company were approximately $14,000.
During the three months ended August 31, 2022, the Company granted 146,000 options to purchase common stock at an average purchase price of $3.37, with the majority of those options issued to the Company’s new Chief Commercial Officer, who is managing the commercialization and roll-out of the InFoods IBS test.
REVENUE RECOGNITION
The Company has various contracts with customers. All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control of goods has occurred and at which point title passes.
The Company does not typically allow for returns from international customers except in the event of defective merchandise and therefore does not establish an allowance for returns. The Company does allow for a return merchandise allowance of approximately one percent of sales to certain domestic retailers. This allowance reduces revenue recognition by approximately one percent, and is included in sales discounts. In addition, the Company has contracts with customers wherein they receive purchase discounts for achieving specified sales volumes. The Company evaluated the status of these contracts during the three months ended August 31, 2022 and 2021, and does not believe that any additional discounts will be given through the end of the contract periods.
Services for contract work performed by the Company for others are invoiced and recognized as that work has been performed and as the project progresses. The Company sells clinical lab products to domestic and international distributors, including hospitals and clinical laboratories, medical research institutions, medical schools and pharmaceutical companies. OTC products are sold directly to drug stores and e-commerce customers as well as to distributors. Physicians’ office products are sold to physicians and distributors, all of whom are categorized below according to the type of products sold to them. We also manufacture certain components on a contract basis for domestic and international manufacturers.
As of August 31, 2022, the Company had approximately $151,000 of advances from certain foreign customers. The majority of these advances are prepayments on orders that are expected to ship during our second quarter ended November 30, 2022.
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Disaggregation of revenue:
The following is a breakdown of revenues according to markets to which the products are sold:
| | | Three Months Ended August 31, |
| | | 2022 | | 2021 |
| Clinical lab | | $ | 1,146,000 | | $ | 886,000 |
| Over-the-counter | | | 213,000 | | | 79,000 |
| Physician's office | | | 183,000 | | | 257,000 |
| Contract manufacturing | | | 95,000 | | | 40,000 |
| Total | | $ | 1,637,000 | | $ | 1,262,000 |
See Note 4 for additional information regarding revenue concentrations.
SHIPPING AND HANDLING FEES
The Company includes shipping and handling fees billed to customers in net sales.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred. The Company expensed approximately $361,000 and $382,000 of research and development costs during the three months ended August 31, 2022 and 2021, respectively.
INCOME TAXES
The Company has provided a full valuation allowance on deferred income tax assets of approximately $7,402,000 and $6,967,000 as of August 31, 2022 and May 31, 2022, respectively.
ADVERTISING COSTS
The Company reports the cost of advertising as expense in the period in which those costs are incurred. Advertising costs were approximately $18,000 and $8,000 for the three months ended August 31, 2022 and 2021, respectively.
FOREIGN CURRENCY TRANSLATION
The subsidiary located in Mexico operates primarily using the Mexican peso. The subsidiary located in Germany operates primarily using the U.S. dollar, with an immaterial amount of transactions occurring using the Euro. Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period. The resulting translation adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss. There are no foreign currency transactions that are included in the consolidated statements of operations for the three months ended August 31, 2022 and 2021.
RIGHT-OF-USE ASSETS AND LEASE LIABILITY
Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. Leases are classified as financing or operating which will drive the expense recognition pattern. The Company has elected to exclude short-term leases. The Company leases office space and copy machines, all of which are operating leases. Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. The leases do not include the options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
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NET LOSS PER SHARE
Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible securities using the treasury stock method. The total amount of anti-dilutive stock options not included in the loss per share calculation at August 31, 2022 and 2021 was 2,388,616 and 2,081,116, respectively.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent ASU's issued by the FASB and guidance issued by the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This ASU will require the measurement of all expected credit losses for financial assets, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. In November 2019, the FASB issued ASU 201·9- 10, "Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates," which, among other things, defers the effective date of ASU 2016-13 for public filers that are considered smaller reporting companies as defined by the Securities and Exchange Commission to fiscal years beginning after December 15, 2022, including interim periods within those years. Early adoption is permitted. The Company is currently reviewing the requirements of this ASU to determine its impact on the Company’s consolidated results of operations and financial position.
RECLASSIFICATIONS
Certain comparative figures in the August 31, 2021 condensed consolidated statement of operations have been reclassified to conform to the current period presentation.
NOTE 3: SHAREHOLDERS’ EQUITY
Stock option expense during the three months ended August 31, 2022 and 2021 was approximately $304,000 and $320,000, respectively.
During the three months ended August 31, 2022, the Company sold 523,977 shares of its common stock at prices ranging from $3.15 to $3.55 under its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $1,811,000 and net proceeds to the Company of approximately $1,764,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering.
NOTE 4: GEOGRAPHIC INFORMATION
The Company operates as one segment. Geographic information regarding net sales is approximately as follows:
| | Three Months Ended August 31, |
| | 2022 | | 2021 |
| Revenues from sales to unaffiliated customers: | | | | | |
| Asia | $ | 814,000 | | $ | 675,000 |
| Europe | | 552,000 | | | 471,000 |
| North America | | 268,000 | | | 105,000 |
| South America | | 3,000 | | | 3,000 |
| Middle East | | - | | | 8,000 |
| | $ | 1,637,000 | | $ | 1,262,000 |
As of August 31, 2022, and May 31, 2022, approximately $725,000 and $621,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.
As of August 31, 2022, and May 31, 2022, approximately $20,000 and $17,000 of Biomerica’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.
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NOTE 5: LEASES
The Company leases its facilities. On August 31, 2022, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, which it has been leasing since 2009. The lease for its headquarters expired on August 31, 2016. The Company had an option to extend the term of its lease for two additional sixty-month periods. On November 30, 2015, the Company exercised its option to extend its lease for an additional sixty-month period and entered into the First Amendment to Lease wherein it extended its lease until August 31, 2021. On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years. When the Company extended its lease in April 2021, it was also granted an additional five-year lease extension option. The current rent is approximately $26,000 per month. The security deposit is approximately $22,000.
In November 2016, the Company’s Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space. The Company has one 10-year option to renew at the end of the initial lease period. The current rent is approximately $3,400 per month. Biomerica de Mexico also leases a smaller unit on a month-to-month basis for use in one manufacturing process.
In addition, the Company leases a small office in Lindau, Germany on a month-to-month basis, as headquarters for BioEurope GmbH, its Germany subsidiary.
Total gross rent expense in the United States for the three months ended August 31, 2022 and 2021 was approximately $78,000 and $78,000, respectively. Rent expense for the Mexico facility for the three months ended August 31, 2022 and 2021 was approximately $11,000 and $10,000, respectively.
For purposes of determining straight-line rent expense, the lease term is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any renewal options periods that the Company is reasonably certain of exercising. The Company’s office and equipment leases generally have contractually specified minimum rent and annual rent increases are included in the measurement of the right-of-use asset and related lease liability. Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs. Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liability but are instead recognized as variable lease expense in the Consolidated Statements of Operations and Comprehensive Loss when they are incurred.
Supplemental cash flow information related to leases for the three months ended August 31, 2022:
| Operating cash flows from operating leases | | $ | 86,000 |
| Right-of-use assets obtained in exchange for new operating lease liabilities | | $ | - |
| Weighted average remaining lease term (in years) | | | 4.02 |
| Weighted average discount rate | | | 6.50% |
The approximate maturity of lease liabilities as of August 31, 2022 are as follows:
| Less than 1 year | | $ | 354,000 |
| 1 to 2 years | | | 364,000 |
| 2 to 3 years | | | 375,000 |
| 3 to 4 years | | | 387,000 |
| 4 to 5 years | | | 8,000 |
| Total undiscounted lease payments | | | 1,488,000 |
| Less imputed interest | | | 173,000 |
| Total operating lease liabilities | | $ | 1,315,000 |
According to the terms of the lease in Irvine, the Company is also responsible for routine repairs of the building and for certain increases in property tax.
The Company also has various insignificant leases for office equipment.
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NOTE 6: COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business.
There were no legal proceedings pending as of August 31, 2022.
NOTE 7: SUBSEQUENT EVENTS
On September 29, 2022, the Company announced that its Aware® Breast Self Exam device and EZ Detect Colon Disease test are being sold on Amazon and fulfilled by Amazon.