Biomerica, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2015, the first quarter of fiscal 2016. Biomerica develops, manufactures, and sells diagnostic products worldwide through clinical laboratories and point-of-care markets.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $1.287 million | $1.034 million |
| Gross profit / margin | $421,421 / 32.7% | $309,911 / 30.0% |
| Operating expenses | $497,654 | $534,022 |
| Operating loss | $(76,233) | $(224,111) |
| Net loss | $(72,335), or $(0.01) per share | $(219,268), or $(0.03) per share |
| Operating cash flow | $(195,643) | $143,641 |
Revenue rose $252,543, or about 24%. Higher sales in Asia (approximately $417,000) more than offset declines in Europe (approximately $133,000) and the United States (approximately $66,000). Cost of sales fell to 67.3% of revenue from 70.0%, which management attributed to higher sales volume helping cover fixed costs. R&D expense declined 19.3% to $157,994, primarily due to lower materials, regulatory, and wage costs for gastroenterology product work; SG&A was nearly unchanged.
Liquidity and balance sheet
At August 31, 2015, cash and cash equivalents were $893,265, down from $1.088 million at May 31, 2015. Working capital was $3.925 million, compared with $3.942 million at fiscal year-end. Current assets were $4.464 million and current liabilities were $539,146. Total assets were $6.075 million; shareholders’ equity was $5.536 million. The balance sheet reports no borrowings or other debt line items. Operating cash use reflected increases in accounts receivable ($87,835) and inventory ($81,710). Investing activities used $5,680; financing activities provided $6,624, primarily from option exercises.
Outlook, risks, and notable items
The filing provides no quantitative revenue or earnings guidance. Management cautions that interim results may not indicate full-year results and identifies risks including the ability to raise capital, demand and competition, margin pressures, raw-material availability, regulatory requirements, international distributors, and customer or distributor concentration. In July 2015, the board approved an agreement with an investment banker to seek up to $3.0 million through a sale of restricted common stock; the filing does not state that the financing was completed. The Irvine office lease runs through August 31, 2016, with current monthly rent of $22,080. No legal proceedings or off-balance-sheet arrangements were reported. Management assessed disclosure controls as effective at the reasonable-assurance level.
Key facts for investors to verify
- Whether the proposed equity financing of up to $3.0 million was completed, and its terms and dilution.
- Whether the rise in Asia sales is sustainable and whether weaker U.S. and European sales recover.
- Whether receivables and inventory convert to cash; operating cash flow turned negative year over year.
- Whether gross-margin improvement continues and reduced R&D spending affects product development or regulatory progress.
- Exposure to customer and distributor concentration, foreign operations, and regulatory or supply disruptions.