Biomerica, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended May 31, 2017, compared with fiscal 2016. Although the request metadata refers to 2016 Q4, this filing reports annual results for FY2017, not a standalone quarter.
Business context
Biomerica develops, manufactures and markets diagnostic test kits for clinical laboratories and point-of-care settings, with products focused on gastrointestinal conditions, food intolerances, diabetes and other tests. Sales are predominantly international. The company is developing two gastrointestinal tests, including InFoods IBS, a diagnostic-guided approach intended to identify foods that may trigger IBS symptoms.
Financial performance and liquidity
| Metric | FY2017 | FY2016 |
|---|---|---|
| Net sales | $5.792 million | $5.140 million |
| Gross profit / gross margin | $2.022 million / 34.9% | $1.524 million / 29.7% |
| Operating loss | $954,633 | $826,952 |
| Net loss | $908,561 | $1.500 million |
| Basic and diluted loss per share | $0.11 | $0.20 |
| Cash used in operating activities | $722,858 | $208,782 |
- Cost of sales was $3.770 million, or 65.1% of sales, versus $3.616 million, or 70.3%, in FY2016. Management attributed the improved cost ratio to higher sales and product mix.
- SG&A rose 17.5% to $1.846 million; R&D rose 44.9% to $1.131 million, primarily for development and possible FDA clearance of gastrointestinal products.
- Cash and cash equivalents were $1.225 million, down from $1.889 million. Working capital was $3.722 million, versus $4.329 million. Total assets were $5.018 million and shareholders’ equity was $4.489 million at year-end.
- Current liabilities totaled $528,866. The balance sheet reports no borrowings or other debt; the filing does disclose future operating-lease payments of approximately $1.546 million.
- Financing provided $157,728, all from stock-option exercises; FY2016 included $995,978 in net private-placement proceeds. Investing used $96,085, primarily for property and equipment.
Changes, outlook and material items
- Sales increased 12.7%, driven mainly by Asia, where sales rose approximately $681,000, and Europe, up approximately $72,000; U.S. sales fell approximately $121,000. Asia represented 41.7% of sales and Europe 38.6%.
- One distributor accounted for 45.2% of FY2017 sales, up from 30.3% in FY2016. Two customers represented 54.2% of year-end gross receivables.
- Management provided no specific revenue or earnings guidance. Its forward-looking discussion identifies demand, regulatory clearances, R&D results, raw-material availability, foreign markets and distributor relationships as important uncertainties.
- InFoods IBS remained in development; the company planned to submit the clinical-laboratory product for regulatory clearance first and expected to pursue an FDA de novo pathway. A South Korean exclusive marketing agreement includes up to $1.25 million in milestone exclusivity fees and contingent minimum royalties totaling $7.25 million; these depend on regulatory and commercial milestones. The agreement could be cancelled if U.S. clearance is not obtained by December 31, 2017, unless extended by agreement.
- The company increased its deferred-tax-asset valuation allowance to $1.435 million, reflecting recent losses and planned R&D; the remaining recognized net deferred tax asset was $41,000. FY2016 net loss included a significant valuation-allowance-related tax charge.
- After year-end, Biomerica filed an S-3 registration statement on June 30, 2017 for a securities offering. The filing describes intended uses of proceeds but does not state the amount of proceeds in the provided text.
- Biomerica de Mexico began operating independently under a direct lease in November 2016; all ties with its former subcontracting arrangement were severed by May 31, 2017. The Irvine headquarters lease runs through August 2021, and the Mexican facility lease is for ten years.
- No legal proceedings were pending at May 31, 2017. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not attest to internal-control effectiveness. The financial-statement auditor issued an unqualified opinion.
Key investor verification points
- Track cash burn, working capital and financing needs, including the size and status of the post-year-end S-3 offering.
- Verify progress, clinical evidence, regulatory pathway and timing for InFoods IBS and other gastrointestinal products; confirm the conditions and economics of the Celtis agreement.
- Assess continued dependence on the leading distributor, collection of concentrated receivables and growth sustainability in Asia and Europe.
- Review whether gross-margin improvement persists and whether increased R&D and SG&A translate into commercial sales.
- Confirm the realizability of tax-loss carryforwards and the basis for maintaining the valuation allowance.