Biomerica, Inc. — FY2018 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2018, compared with fiscal 2017. The request metadata says “2017 Q4,” but the filing is an annual report for FY2018.
Business context
Biomerica develops, manufactures and sells medical diagnostic test kits for clinical laboratories and point-of-care settings, focusing on gastrointestinal conditions, food intolerances, diabetes and other tests. Sales are primarily international; Asia and Europe together accounted for about 81% of FY2018 revenue. The company reported one operating segment.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Net sales | $5.564 million | $5.792 million |
| Gross profit / gross margin | $1.754 million / 31.5% | $2.022 million / 34.9% |
| Operating loss | $1.482 million | $0.955 million |
| Net loss | $1.466 million | $0.909 million |
| Basic and diluted loss per share | $0.17 | $0.11 |
| Cash used in operating activities | $1.174 million | $0.723 million |
| Cash and cash equivalents at year-end | $1.205 million | $1.225 million |
| Working capital | $3.587 million | $3.681 million |
Current assets were $4.484 million and current liabilities were $0.897 million at May 31, 2018. The balance sheet reports no borrowings or debt line item; the filing does not provide a separate debt metric. Total assets were $5.223 million and shareholders’ equity was $4.326 million. No off-balance-sheet arrangements were reported.
Changes versus FY2017
- Revenue fell 3.9%, primarily because of lower sales in Europe and the United States; Asia sales increased. Management attributed the U.S. decline partly to a drugstore customer’s reduced screening-program purchases.
- Cost of sales rose despite lower revenue, increasing to 68.5% of sales from 65.1%. The company cited higher fixed costs and start-up costs associated with its independently operated Mexico manufacturing facility.
- R&D expense increased 23.7% to $1.398 million, principally for gastrointestinal products and work toward possible FDA clearance. SG&A was nearly flat at $1.838 million.
- Operating cash use increased by $0.451 million. Inventory increased $0.457 million, while accounts receivable declined $0.253 million.
Outlook, risks and notable items
- No quantified revenue, earnings or cash-flow guidance was provided. Management described development of two gastrointestinal tests, including InFoods IBS and a proprietary H. pylori test; clinical studies and regulatory work remained ongoing. The filing gives no assurance of trial success, FDA clearance or commercial acceptance.
- The company raised $1.267 million net through its S-3 stock offering during FY2018 and reported further net proceeds of $0.171 million from post-year-end sales. Proceeds were intended for working capital and general corporate purposes, including R&D, intellectual property, capital expenditures and sales and marketing.
- Revenue is highly concentrated: one distributor accounted for 43.3% of FY2018 sales, and one customer represented 53.3% of gross receivables at year-end. Approximately $632,000 of cash was uninsured. Two suppliers together accounted for 27.7% of raw-material purchases.
- Key risks include dependence on distributors and international markets, regulatory approvals and certifications, clinical-development uncertainty, competition, foreign manufacturing and currency/economic exposures, and potential need for additional capital. The company disclosed a $1.549 million valuation allowance against deferred tax assets and a $31,800 income tax expense despite its pretax loss.
- The Korean Intellectual Property Office issued an InFoods IBS-related patent in August 2018, with protection stated through November 13, 2035. The independent auditor gave an unqualified opinion on the financial statements. Management considered internal controls effective, but the auditor did not attest to internal control effectiveness.
Important facts for investors to verify
- Whether clinical studies and FDA submissions for InFoods IBS and the H. pylori test progress as planned, and what clearances are ultimately obtained.
- Whether the company can reduce operating losses and cash burn, improve gross margins, and fund operations without significant further dilution.
- The durability of the major distributor and customer relationships, collectability of concentrated receivables, and inventory demand and reserve assumptions.
- Current cash, subsequent equity issuance and share count, including outstanding options and remaining equity-plan capacity.
- The status of international product registrations and certifications, including European requirements, and any material developments in supplier or Mexico manufacturing risks.