Business Context and Reporting Period
Company: Biomerica, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Three and six months ended November 30, 2017
Business Overview: Biomerica develops, manufactures, and markets medical diagnostic products for the early detection of chronic diseases, focusing on gastrointestinal, food intolerance, and diabetes tests. Products are sold to clinical laboratories and point-of-care providers globally.
Key Financial Metrics
| Metric | Six Months Ended Nov 30, 2017 | Six Months Ended Nov 30, 2016 | Three Months Ended Nov 30, 2017 | Three Months Ended Nov 30, 2016 |
|---|---|---|---|---|
| Net Sales | $3,058,119 | $2,842,317 | $1,613,636 | $1,432,206 |
| Gross Profit | $1,020,762 | $1,133,651 | $506,191 | $556,684 |
| Gross Margin | 33.4% | 40.0% | 31.4% | 38.9% |
| Net Loss | $(475,720) | $(258,600) | $(268,661) | $(202,887) |
| Loss Per Share (Basic/Diluted) | $(0.06) | $(0.03) | $(0.03) | $(0.02) |
| Cash and Equivalents (Nov 30, 2017) | $817,810 | |||
| Working Capital (Nov 30, 2017) | $3,294,728 | |||
| Net Cash Used in Operating Activities (6mo) | $(363,350) | $(307,891) | N/A |
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 7.6% for the six-month period and 12.7% for the three-month period compared to the prior year. Growth was driven by a new distributor in Mexico and increased sales in Europe and Asia.
- Margin Compression: Gross margins declined significantly. Cost of sales as a percentage of sales rose from 60.1% to 66.6% (six months) and 61.1% to 68.6% (three months). Management attributed this to reduced inventory capitalization of labor/overhead and one-time costs establishing a maquiladora facility in Mexico.
- Operating Expenses: Selling, general, and administrative (SG&A) expenses increased 9.0% (six months) due to higher legal fees, consulting, and CE Mark compliance costs. R&D expenses increased 6.8% (six months) due to higher wages and IP filing costs.
- Liquidity: Cash and cash equivalents decreased by approximately $407,652 during the six-month period, primarily due to operating losses, increased prepaid expenses, and inventory buildup.
Outlook, Risks, and Unusual Items
- Capital Raising: On December 1, 2017, the company entered an "At Market Issuance Sales Agreement" to sell up to $7,000,000 of common stock to fund working capital, clinical studies, and product development.
- Product Development: The company is actively pursuing FDA clearance for its InFoods IBS product and Helicobacter pylori test. Clinical trials for the IBS product were announced in January 2018 with leading research institutes.
- Regulatory Approvals: In January 2018, the China Food and Drug Administration (CFDA) approved the EZ Detect colorectal screening test.
- Risks: Key risks include the ability to raise capital, dependence on a few large customers (one customer accounted for 44.6% of sales in the six months ended Nov 30, 2017), regulatory approval delays, and competition. The company has a history of net losses and an accumulated deficit of approximately $16.2 million.
Investor Verification Checklist
- Cash Burn Rate: Verify the sustainability of current cash reserves ($817,810) against the reported operating cash burn of ~$363k per six months.
- Customer Concentration: Assess the risk associated with one customer representing 44.6% of consolidated sales.
- Margin Recovery: Monitor if gross margins can recover from the 33% range to historical levels as the new Mexico facility stabilizes.
- Dilution Impact: Review the terms and potential dilution from the $7 million "At Market" equity offering.
- Regulatory Milestones: Track progress on FDA 510(k) submissions for the InFoods IBS product and Helicobacter pylori test.