Biomerica, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2021, compared with fiscal 2020. Although the request metadata says “2020 Q4,” this filing is an annual report for fiscal 2021; it also reports fourth-quarter results.
Business context
Biomerica develops and sells diagnostic tests for clinical laboratories and point-of-care/home use. Its fiscal 2021 sales included COVID-19 antibody and antigen tests sold outside the United States. The company’s longer-term development focus is its InFoods IBS diagnostic-guided therapy, alongside H. pylori and other non-COVID products.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $7.20 million | $6.69 million |
| Gross profit | $497,000 | $1.78 million |
| Gross margin | 6.9% | 26.6% |
| Operating expenses | $7.02 million | $4.18 million |
| Operating loss | $6.52 million | $2.40 million |
| Net loss | $6.47 million | $2.34 million |
| Basic and diluted loss per share | $0.54 | $0.23 |
| Cash used in operating activities | $5.25 million | $4.30 million |
| Cash and cash equivalents at year-end | $4.20 million | $8.64 million |
| Working capital at year-end | $7.93 million | $13.29 million |
Cost of sales rose to $6.70 million, or 93% of sales, from $4.91 million, or 73%. Management attributed the deterioration primarily to a large reserve for slow-moving COVID-19 antibody inventory. SG&A increased 103% to $4.61 million, including higher doubtful-account provisions, personnel costs, SEC-investigation legal fees and consulting costs. R&D increased 26% to $2.41 million.
Investing activities used $296,000; financing activities provided $1.11 million, mainly from common-stock sales and option exercises. Total liabilities were $2.59 million, including $1.62 million of operating lease liabilities; the filing reports no off-balance-sheet arrangements and does not identify conventional borrowings as a material liability. Management said cash on hand was sufficient for at least the next year; the financial-statement note estimates funds would support operations through August 2022, assuming access to the stated financing capacity.
Material changes and unusual items
- Annual sales increased 8%, principally because COVID-19 test revenue offset pandemic-related declines in other product lines. Sales were highly variable due to large orders. Fourth-quarter sales fell to $1.05 million from $2.73 million a year earlier as COVID-19 sales declined.
- Inventory reserves increased to approximately $1.62 million from $67,000. About $1.50 million related to COVID-19 antibody tests and materials as demand shifted toward PCR and antigen tests.
- The allowance for doubtful accounts increased to $837,000 from $71,000. The auditor identified valuation of inventory and receivable allowances as a critical audit matter. A distributor in China represented 41% of gross receivables; two distributors together represented 73%.
- Fiscal 2021 operating cash use exceeded the prior year, while cash fell by $4.44 million. The company raised $1.01 million net through its at-the-market equity offering in fiscal 2021, compared with $10.23 million from common-stock sales and $1.92 million from preferred stock in fiscal 2020.
- Revenue concentration shifted geographically: Europe rose to 60% of sales from 36%, while South America fell to 3% from 24%. Two distributors represented 60% of fiscal 2021 sales, versus three representing 57% in fiscal 2020.
Outlook, risks and contingencies
- No formal financial guidance is provided. Management expected to complete enrollment or follow-up for the InFoods IBS endpoint study by the second fiscal quarter of 2022, report results shortly thereafter, and pursue partnership or licensing discussions. A further pivotal study and FDA clearance would be required for U.S. commercialization.
- The company expected to submit its H. pylori test for FDA 510(k) clearance in fiscal 2022; international sales could precede U.S. sales. Management also cited increased retailer and distributor interest in EZ Detect and expanded sales and marketing staffing.
- COVID-19-related order volatility, supply interruptions, changing demand and reduced non-COVID sales remain material risks. The company also cited customer concentration and collection risk, dependence on key suppliers, competition, clinical-trial and regulatory uncertainty, and the possibility of needing additional capital. Future equity financing could dilute shareholders.
- EU IVDR requirements were due to replace the existing framework in May 2022. The company said it was unclear which products would meet the new requirements in time, potentially affecting sales in relevant markets.
- The SEC investigation disclosed in 2020 concerns events preceding the March 17, 2020 COVID-19 test announcement and related stock transactions and communications. The company and its CEO cooperated; the duration, scope and outcome remained uncertain. The filing does not quantify a potential financial exposure.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an ICFR attestation. The financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Whether COVID-19 test demand and inventory reserves continue to affect revenue, gross margin and cash consumption.
- Subsequent collections from major distributors, particularly the China distributor, and whether the doubtful-account allowance proves adequate.
- InFoods IBS trial results, timing and cost of any pivotal study, and the path to FDA or international clearance.
- H. pylori submission and clearance progress, and whether the product achieves commercial sales.
- Progress on EU IVDR compliance and any resulting product-registration or sales interruptions.
- Outcome and potential consequences of the SEC investigation, and the company’s available financing capacity and any further dilution.