Biomerica, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended February 28, 2015 (fiscal 2015 third quarter), filed April 14, 2015. The filing’s period differs from the “2014 Q3” request metadata. Biomerica develops, manufactures, and sells medical diagnostic products through clinical laboratories and point-of-care channels.
Financial performance
| Metric | Three months ended Feb. 28, 2015 | Prior-year quarter | Nine months ended Feb. 28, 2015 | Prior-year period |
|---|---|---|---|---|
| Net sales | $1.299 million | $1.493 million | $3.467 million | $3.441 million |
| Gross profit / margin | $459,000 / 35.3% | $579,000 / 38.7% | $1.076 million / 31.0% | $1.094 million / 31.8% |
| Operating expenses | $594,000 | $546,000 | $1.685 million | $1.483 million |
| Operating income (loss) | $(136,000) | $33,000 | $(610,000) | $(389,000) |
| Net income (loss) | $(117,000) | $27,000 | $(574,000) | $(385,000) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $(319,000) | $(853,000) |
Quarterly sales fell 13.0% year over year, while nine-month sales increased 0.8%. Nine-month sales benefited from a $234,000 increase in Europe, offset by lower screening-program sales and lower Asia sales following a Chinese distribution-channel restructuring. Quarterly domestic sales of EZ Detect declined because of lower screening-program sales. R&D spending rose 31.7% for the quarter and 52.7% for the nine months, primarily for new products, regulatory approvals, and patent applications.
Liquidity, cash flow, and capital
- Cash and equivalents were $1.172 million at February 28, 2015, down from $1.509 million at May 31, 2014. Working capital was $3.948 million, versus $4.357 million.
- Current assets were $4.431 million and current liabilities $483,000. The company reported no borrowings on its $250,000 secured line of credit at quarter-end; the line expired March 21, 2015. The filing does not identify other debt.
- Nine-month operating cash use was $319,000; investing cash use was $21,000, and financing provided $4,000. Cash declined by $337,000. Inventory increased by $345,000 from May 31, 2014, while accounts receivable declined by $516,000.
- Shares outstanding were 7,554,714 at February 28, 2015. The company reported 1,170,000 options and warrants outstanding, with a weighted-average exercise price of $0.60.
Outlook, risks, and notable items
- No quantified revenue or earnings guidance was provided. Management cautioned that interim results may not indicate full-year results and highlighted operating volatility and dependence on product demand, capital access, competition, raw-material availability, and regulatory conditions.
- The company was developing a gastroenterology product intended to aid in treatment of irritable bowel syndrome; patent applications had been filed and additional patent costs were expected. U.S. regulatory approval was under consideration and could involve substantial cost. In April 2015, the company established a scientific advisory board to guide regulatory-approval efforts for the test.
- Customer concentration is notable: one customer represented 34.2% of gross receivables at February 28, 2015; one foreign customer accounted for 8.2% of quarterly sales and 21.9% of nine-month sales.
- Management recorded a valuation allowance of approximately $236,000 against deferred tax assets, compared with none at May 31, 2014. A $17,420 tax refund receivable was recorded; the filing states no income tax benefit was recorded for the nine-month period.
- No legal proceedings or off-balance-sheet arrangements were reported. Management said disclosure controls were effective at the reasonable-assurance level and reported no material changes in internal control over financial reporting.
Important facts for investors to verify
- Confirm the sharp quarterly sales decline and the sustainability and timing of European growth, screening-program sales, and recovery in Asia.
- Assess whether lower gross margins and increased R&D spending can be supported by cash generation, given the nine-month net loss and cash use.
- Review the effect of the expired credit line and the company’s plans for financing ongoing operations and potential regulatory work.
- Monitor customer concentration, receivable collectability, and the substantial inventory balance and related obsolescence estimates.
- Reconcile operating cash use: the cash-flow statement reports $318,913, while MD&A reports $318,915.