Biomerica, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2016 (the first quarter of fiscal 2017). The filing was signed October 17, 2016. Biomerica develops, manufactures, and markets diagnostic products, with sales to clinical laboratories and point-of-care markets worldwide.
Financial results and liquidity
| Metric | Quarter ended Aug. 31, 2016 | Prior-year quarter |
|---|---|---|
| Net sales | $1,410,110 | $1,286,993 |
| Gross profit / margin | $576,962 / 40.9% | $421,421 / 32.7% |
| Operating expenses | $642,594 | $497,654 |
| Operating loss | $65,632 | $76,233 |
| Net loss | $55,417 | $72,335 |
| Operating cash flow | $(71,932) | $(195,643) |
- Sales increased 9.6%. Gross margin improved from 32.7% to 40.9%; management attributed the improvement to higher sales volume, lower material costs, and product mix.
- SG&A rose 23.2% to $418,348, including a one-time $45,000 Nasdaq entry fee and higher legal and outside-service costs. R&D rose 41.9% to $224,246, primarily for gastroenterology product development and approval costs.
- Cash and cash equivalents were $1,817,019, down from $1,888,925 at May 31, 2016. Working capital was $4,323,758, versus $4,329,041. Current assets were $4,768,672 and current liabilities were $444,914.
- Cash used in operations improved year over year; investing and financing cash flows were both zero in the quarter. No debt balance is presented in the supplied balance sheet; interest expense was zero.
- Total assets were $5,610,173 and shareholders’ equity was $5,165,259 at August 31, 2016. The company reported 8,169,673 common shares outstanding at period-end.
Material changes and notable items
- Sales growth was led by Asia, up approximately $142,000, and the United States, up approximately $39,000; Europe declined approximately $65,000.
- On August 26, 2016, the common stock began trading on the Nasdaq Capital Market under ticker BMRA.
- The company extended its Irvine facility lease through August 31, 2021. The amended lease began September 1, 2016, at initial base rent of $21,000 per month.
- Options to purchase 55,000 shares were granted during the quarter at exercise prices of $1.52 to $1.61.
Outlook, risks, and contingencies
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management cautions that interim results are not necessarily indicative of full-year results.
- Management identifies risks including capital-raising needs, maintaining Nasdaq listing requirements, product demand and competition, raw-material availability, regulatory approvals and requirements, international distributor relationships, foreign operations, customer and receivables concentration, and potential product claims or recalls.
- Some products have not been submitted for FDA or equivalent clearance for diagnostic use, though they may be sold in certain foreign markets without such approval. Management notes that delayed approvals or regulatory changes could affect results.
- No legal proceedings were reported. The filing lists commitments and contingencies and describes the facility lease; it reports no off-balance-sheet arrangements.
- Management stated that disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Investor facts to verify
- Whether the improved gross margin and sales growth continue, particularly given regional differences in sales.
- Whether higher R&D spending results in product development progress and required regulatory clearances.
- Cash usage, working-capital needs, and the company’s ability to obtain capital if needed.
- Exposure to concentrated customers or distributors, outstanding receivables, and inventory obsolescence.
- Nasdaq listing compliance and the ongoing costs associated with the extended lease.