Biomerica, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2021; fiscal year ends May 31. Comparative 2020 results were restated for stock-based compensation errors.
Business context
Biomerica develops, manufactures and markets diagnostic and therapeutic products, including tests for gastrointestinal conditions and COVID-19. Its primary development focus is diagnostic-guided therapy products, including InFoods IBS. COVID-19 antigen tests generated approximately 60% of revenue in the first six months of fiscal 2022.
Financial performance
| Metric | Three months ended Nov. 30, 2021 | Three months ended Nov. 30, 2020, restated | Six months ended Nov. 30, 2021 | Six months ended Nov. 30, 2020, restated |
|---|---|---|---|---|
| Revenue | $4.647 million | $1.373 million | $5.909 million | $2.516 million |
| Gross profit / margin | $772,000 / 16.6% | $309,000 / 22.5% | $683,000 / 11.6% | $427,000 / 17.0% |
| Operating expenses | $1.902 million | $2.021 million | $3.353 million | $4.039 million |
| Operating loss | $(1.130) million | $(1.713) million | $(2.670) million | $(3.612) million |
| Net loss | $(1.125) million | $(1.718) million | $(2.668) million | $(3.610) million |
| Basic and diluted loss per share | $(0.09) | $(0.15) | $(0.21) | $(0.31) |
- Quarterly revenue increased 238%; six-month revenue increased 135%, primarily from COVID-19 product sales to distributors in Asia and Europe. Physician-office revenue rose sharply, while quarterly clinical-lab revenue declined 28%.
- Gross margin contracted in both periods as cost of sales grew faster than revenue. For the six months, SG&A declined 15% and R&D declined 20%, reflecting lower legal and bad-debt costs and lower COVID-test development costs, respectively.
- Six-month operating cash flow was positive $1.419 million, versus cash used of $2.880 million in the restated prior period. The current-period inflow was materially supported by a $2.150 million increase in customer advances and other working-capital movements; net loss was $2.668 million.
- Cash and cash equivalents were $7.199 million at November 30, 2021, up from $4.199 million at May 31, 2021. Working capital was $7.662 million, down from $7.931 million. Current assets were $12.403 million and current liabilities $4.741 million.
- Total liabilities were $5.908 million, including $1.502 million in operating lease liabilities. The filing reports no conventional borrowings. Customer advances were $2.150 million. Accumulated deficit was $33.2 million.
- Six-month financing provided $1.719 million, including $1.684 million net proceeds from ATM share sales. Shares outstanding increased from 12.307 million at May 31 to 12.692 million at November 30.
Material changes, outlook and risks
- Restatement and controls: The company restated 2020 comparative results because of errors in stock-option compensation accounting. The six-month 2020 net loss increased by $475,913 to $3.610 million; the correction did not affect cash, revenue or ongoing operations. Management concluded disclosure controls were ineffective due to a material weakness in stock-based compensation accounting. Remediation included new equity-management software, outside review, additional procedures and independent testing.
- Liquidity outlook: Management said available cash and access to the ATM facility were expected to fund operations through February 2023; its MD&A also described funding for the next twelve months or more. The company expects significant ongoing clinical-trial and product-development costs. Approximately $6.95 million of cash was uninsured at November 30.
- Product development: The InFoods IBS endpoint-determination trial was completed, with top-line results expected around the end of January 2022. Management expected to pursue partnership or licensing discussions in the following six months, including potential assistance with FDA clearance. These were expectations, not guaranteed outcomes.
- COVID exposure and operations: Management identified continuing pandemic-related risks, including supply-chain and shipping disruption, production interruptions, customer credit risk and broader economic effects. Inventory reserves totaled approximately $1.799 million, including $1.686 million related to the COVID-19 antibody test and materials amid a market shift toward PCR and antigen tests.
- Concentration and other developments: Two customers represented 66% of six-month sales; three distributors represented 73% of gross receivables. One vendor represented 77% of raw-material purchases. Subsequent to quarter-end, the company sold 157,597 shares at an average $4.13, raising approximately $634,000 net. The SEC notified the company on December 2, 2021 that its investigations concluded with no enforcement-action recommendations. No legal proceedings were pending at November 30.
Important facts for investors to verify
- Whether COVID-19 antigen demand and associated revenue can be sustained, and how sales concentration and lower gross margins evolve.
- Inventory quality and realizability, especially the reserved COVID-19 antibody inventory, and the nature and timing of customer advances.
- InFoods IBS trial results, FDA clearance requirements, and the prospects and economics of any commercial partnership.
- Progress in remediating the stock-compensation material weakness and whether future reporting controls operate effectively.
- Cash burn and funding needs relative to management’s stated runway, including potential additional ATM issuance and shareholder dilution.