Biomerica, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2015; the filing is an annual report, not a stand-alone fourth-quarter report. Comparisons are with fiscal 2014. Biomerica develops, manufactures, and sells diagnostic test kits for clinical laboratories and point-of-care markets. Its shares trade on the OTC Bulletin Board.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $4.962 million | $5.120 million |
| Gross profit / gross margin | $1.542 million / 31.1% | $1.669 million / 32.6% |
| Operating loss | $671,000 | $447,000 |
| Net loss / loss per share | $331,000 / $0.04 | $216,000 / $0.03 |
| Cash used in operating activities | $405,000 | $862,000 |
| Cash and cash equivalents at year-end | $1.088 million | $1.509 million |
| Working capital | $3.942 million | $4.357 million |
| Current liabilities | $524,000 | $556,000 |
Revenue fell 3.1%. Cost of sales declined slightly, but increased to 68.9% of revenue from 67.4%; management attributed the higher unit cost ratio partly to lower sales and fixed labor and overhead costs. SG&A decreased 3.1% to $1.479 million, while research and development rose 24.4% to $734,000, primarily for development and potential FDA clearance of gastrointestinal tests. Cash used in operations improved chiefly because receivables were collected; cash nevertheless declined by $421,000 during the year. The filing reports no debt balance at year-end. The $250,000 secured bank line expired in March 2015 and was not renewed.
Material changes and business developments
- Net loss widened to $331,000 from $216,000 as the lower gross profit and higher R&D spending increased the operating loss.
- Sales declined in Asia, partly due to lengthy product-registration processes completed during FY2015, and in the United States due to lower EZ Detect over-the-counter screening-program sales. Europe revenue increased to $2.716 million from $2.450 million; Asia revenue decreased to $1.016 million from $1.300 million.
- One distributor represented 16.3% of FY2015 sales, down from 23.4% in FY2014. Two customers represented 53.0% of gross receivables at year-end.
- Backlog declined to approximately $154,000 from $376,000.
- At May 31, 2015, inventory was $2.027 million, including $831,000 of work in progress, versus total inventory of $1.766 million a year earlier.
Outlook, risks, and other matters
The filing provides no quantified revenue, earnings, or cash-flow guidance. Management said the major distributor anticipated improved sales in FY2016 following completion of registrations. The company was pursuing two gastrointestinal tests and investigating other sources of operating capital to support research. In July 2015, the board approved an agreement with an investment banker to seek up to $3.0 million through restricted common stock; the filing does not establish that the financing was completed.
Principal risks include reliance on distributors and international markets, regulatory clearance and continuing certifications, product liability and recalls, access and cost of specialized raw materials, competition from larger companies, and limited access to financing. Foreign sales were approximately 79% of FY2015 revenue. Management reported no pending legal proceedings as of May 31, 2015; the financial-statement note describes ordinary-course claims generally but says none were pending on that date. No off-balance-sheet arrangements were reported.
The statements received an unqualified audit opinion. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not attest to internal-control effectiveness. The company recorded a $315,000 income tax benefit and reported $744,000 in net deferred tax assets, with no valuation allowance.
Important facts for investors to verify
- Whether the proposed stock financing of up to $3.0 million was completed, on what terms, and with what dilution.
- Whether the distributor’s expected FY2016 improvement materialized and whether customer and receivables concentration changed.
- Progress, regulatory status, costs, and commercialization prospects for the gastrointestinal tests and other products under development.
- Cash consumption and financing needs after the bank line expired; the filing reports operating cash outflow despite positive working capital.
- Recoverability of deferred tax assets and inventory, given recurring losses, elevated work in progress, and management’s demand estimates.
- Any changes in regulatory approvals, raw-material supply, product-liability exposure, or international market conditions.