Biomerica, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2018, the company’s fiscal 2019 first quarter (not calendar 2018 Q1). The filing compares results with the three months ended August 31, 2017. Biomerica develops, manufactures, and markets medical diagnostic products for clinical laboratories and point-of-care markets.
Financial results and liquidity
| Metric | Quarter ended Aug. 31, 2018 | Prior-year quarter |
|---|---|---|
| Net sales | $1,272,870 | $1,444,483 |
| Gross profit / margin | $337,223 / 26.5% | $514,571 / 35.6% |
| Operating expenses | $792,009 | $740,599 |
| Operating loss | $(454,786) | $(226,028) |
| Net loss | $(451,740) | $(207,059) |
| Basic and diluted loss per share | $(0.05) | $(0.02) |
| Net cash used in operating activities | $(756,658) | $(124,714) |
- Cash and cash equivalents were $583,693 at August 31, 2018, down from $1,204,903 at May 31, 2018. Working capital was $3,319,596, versus $3,587,221.
- Investing activities used $60,605; financing activities provided $197,379, including common-stock proceeds and option exercises. Cash declined by $621,210 during the quarter.
- Total current liabilities were $797,532, principally accounts payable, accrued expenses, and compensation. The filing does not disclose borrowings or other debt balances.
- Inventory was $2,208,457 and accounts receivable was $1,013,687 at quarter-end. No income tax provision was recorded.
Material changes versus the prior-year quarter
- Sales decreased $171,613, or 11.9%. Management attributed the decline mainly to approximately $140,000 lower European sales, reflecting distributor sales and order timing; U.S. sales fell approximately $44,000, partly offset by approximately $28,000 higher sales in Asia.
- Cost of sales rose to 73.5% of sales from 64.4%, which management attributed to lower volume against fixed costs and higher material costs. Gross margin consequently fell by about 9.1 percentage points.
- Selling, general and administrative expense decreased 11.5% to $400,228, primarily due to lower consulting and outside-services costs. Research and development expense increased 35.1% to $391,781.
- R&D spending supported gastroenterology product development, regulatory work, patent applications, and clinical studies. The company reported receiving a Korean patent for its InFoods IBS product in August 2018.
- Operating cash use increased substantially, with the filing identifying the net loss, higher accounts receivable, and lower accounts payable and accrued expenses as key factors.
Outlook, risks, and other notable items
- Management expects R&D and related spending to continue as it pursues patents and U.S. regulatory approvals. No specific revenue, earnings, or cash-flow guidance is provided.
- The company expects to raise additional funds during the year through its at-the-market (ATM) share issuance agreement to support operations and research projects. The agreement permits sales of up to $7 million of common stock.
- Customer concentration is significant: one customer represented approximately 45.5% of quarterly sales and 53.8% of gross receivables at August 31, 2018. One supplier accounted for approximately 21.3% of raw-material purchases.
- Management cited risks including distributor and international-market dependence, margin pressure, raw-material availability, regulatory approval delays, competition, manufacturing and shipping disruptions, and product claims or recalls.
- Subsequent to quarter-end, the company reported approximately $180,000 of net proceeds from 52,936 ATM shares, $20,500 of gross proceeds from option exercises, and grants of 139,000 options. Management said disclosure controls were effective; no legal proceedings or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Reconcile the equity proceeds disclosures: the cash-flow statement and Note 4 report $179,504 of common-stock proceeds, while Note 6 reports $170,443 of net proceeds from 44,321 shares sold under the ATM during the quarter.
- Check the MD&A cash-flow discussion, which states the quarter’s net loss as $451,070; the financial statements report $451,740.
- Assess cash use, liquidity, and the expected scale and potential dilution of further ATM issuance against continuing operating losses and planned R&D spending.
- Monitor whether sales and receivables concentration, lower gross margin, and delayed or lower distributor orders persist.