Biomerica, Inc. — Form 10-Q Summary
Business and period: Biomerica develops, manufactures, and sells medical diagnostic products through clinical laboratories and point-of-care channels. This filing covers the quarter and nine months ended February 28, 2018 (fiscal Q3); comparisons are to the same periods in 2017. Interim results are not necessarily indicative of full-year results.
Financial performance
| Metric | Three months ended Feb. 28, 2018 | Three months ended Feb. 28, 2017 | Nine months ended Feb. 28, 2018 | Nine months ended Feb. 28, 2017 |
|---|---|---|---|---|
| Net sales | $1.376 million | $1.500 million | $4.434 million | $4.342 million |
| Gross profit | $465,371 | $449,427 | $1.486 million | $1.583 million |
| Gross margin | 33.8% | 30.0% | 33.5% | 36.5% |
| Operating loss | $(322,846) | $(317,722) | $(837,612) | $(603,185) |
| Net loss | $(322,491) | $(304,141) | $(798,211) | $(562,741) |
| Basic and diluted loss per share | $(0.04) | $(0.04) | $(0.09) | $(0.07) |
Quarterly sales fell 8.3%, while nine-month sales rose 2.1%. Quarterly gross margin improved, but nine-month margin declined. Research and development expense increased 37.7% for the quarter and 17.0% year to date, reflecting new-product, regulatory, patent, and existing-product development work. Nine-month SG&A was nearly flat year over year; quarterly SG&A decreased 14.8%.
Cash, liquidity, and capital
- Cash and cash equivalents were $597,030 at February 28, 2018, down from $1.225 million at May 31, 2017. Working capital was $3.290 million, versus $3.681 million.
- Operating cash use was $852,168 for the nine months, compared with $389,380 a year earlier. Investing cash use was $74,303; financing provided $304,347, including $285,733 from common-stock sales and $18,614 from option exercises. Cash decreased by $628,432 over the period.
- Current liabilities were $759,299; the balance sheet reports no long-term debt. Total assets were $4.759 million and shareholders’ equity was $4.000 million.
- The company had an at-the-market agreement permitting up to $7 million of common-stock sales. During the quarter it sold 86,631 shares; the filing reports approximately $390,000 gross proceeds and approximately $318,000 net proceeds, with $286,000 received by period end and approximately $32,000 received in March. After quarter-end, it sold 30,032 shares for approximately $128,000 net proceeds.
Changes, outlook, and key risks
- Management attributed the quarterly sales decline to lower contract-manufacturing sales, timing of EZ Detect screening programs, and orders not shipped in the quarter. Year-to-date growth reflected higher Asia sales and a new South American customer, partly offset by lower U.S. and European sales.
- One customer generated approximately 44.0% of nine-month sales, compared with 38.1% a year earlier. Three customers represented 74.2% of accounts receivable at quarter-end, versus two customers and 54.2% at May 2017.
- Management said continued funding will be needed for operations and research and development, expects to raise additional funds through the ATM as necessary, and expects significant product-development spending to continue. The filing provides no quantified revenue or earnings guidance.
- The company is pursuing clinical studies for its InFoods IBS product at Beth Israel Deaconess Medical Center and the University of Michigan, and clinical work for its Helicobacter pylori test at USC. The Korean InFoods IBS license may be cancelled if U.S. FDA clearance is not obtained by December 31, 2019.
- Risks include the ability to raise capital, obtain regulatory approvals, develop and gain acceptance for new products, maintain Nasdaq listing requirements, manage customer and distributor concentration, control margins, and obtain raw materials. Management identified no legal proceedings or off-balance-sheet arrangements and reported effective disclosure controls.
Facts investors should verify
- Cash burn, available liquidity, and the company’s ability to raise additional capital on acceptable terms.
- Progress and costs of clinical trials, patent applications, and regulatory approvals, including the U.S. clearance milestone tied to the Korean license.
- Sales trends and collection risk from concentrated customers, distributors, and receivables.
- Whether gross-margin performance improves, given the year-to-date margin decline and management’s cited wage and product-mix pressures.
- The actual amount and dilution associated with further ATM share sales.