Biomerica, Inc. — FY2022 Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2022, compared with fiscal 2021. Although the request metadata refers to “2021 Q4,” this filing is an annual report for FY2022, not a quarterly filing.
Business context
Biomerica develops, manufactures and sells diagnostic tests for clinical laboratories, physicians’ offices and consumer use. Its strategic focus is diagnostic-guided products for gastrointestinal and other inflammatory conditions, particularly InFoods IBS. Existing products include COVID-19 tests, EZ Detect colon screening and Aware Breast Self Exam. Most FY2022 COVID-19 test revenue came from international sales of antigen tests.
Key financial results
| Metric | FY2022 | FY2021 |
|---|---|---|
| Net sales | $18.871 million | $7.199 million |
| Gross profit | $2.977 million | $0.366 million |
| Gross margin | 15.8% | 5.1% |
| Operating expenses | $7.511 million | $7.866 million |
| Operating loss | $4.534 million | $7.500 million |
| Net loss | $4.531 million | $7.446 million |
| Basic and diluted loss per share | $0.36 | $0.62 |
| Cash used in operating activities | $0.481 million | $5.252 million |
| Cash and cash equivalents at year-end | $5.917 million | $4.199 million |
| Working capital at year-end | $7.416 million | $7.931 million |
Sales rose 162%, primarily because of COVID-19 test sales. Cost of sales increased 133%; it was 84% of sales, versus 95% in FY2021. The prior-year cost ratio included a non-recurring inventory allowance. Despite the improved gross margin and smaller net loss, the company remained loss-making. R&D expense fell 17% to $1.812 million; selling, general and administrative expense was broadly flat at $5.699 million.
Revenue was highly concentrated: two distributors generated 65% of FY2022 sales, and the largest accounted for 55%. Asia provided 71% of revenue, up from 26% in FY2021; Europe contributed 23%, down from 60%. Physician-office sales increased to $14.259 million from $2.801 million. Year-end net accounts receivable was $0.774 million, after a $0.153 million allowance; net inventory was $2.416 million, after an $0.846 million reserve.
Financing activities provided $2.395 million, mainly from common-stock sales. The company reported no conventional borrowings in the presented balance sheet; operating lease liabilities totaled $1.380 million, including $0.341 million current. Total liabilities were $3.050 million. There were no off-balance-sheet arrangements reported. Management stated it believed available cash and financing access were sufficient for at least the next year; the financial-statement note specifically projected funding through at least August 2023.
Material changes and notable items
- Revenue growth was driven mainly by COVID-19 products, rather than established non-COVID product lines. Asia’s share of revenue rose substantially.
- Operating cash use narrowed sharply year over year, while cash increased. Working capital nevertheless declined by about $0.515 million.
- Inventory reserves declined from $1.617 million to $0.846 million, mainly following disposal of COVID-19 antibody inventory previously reserved. The FY2022 auditor identified inventory reserve valuation as a critical audit matter.
- The company recorded a $0.210 million impairment adjustment to intangible assets in FY2022.
- The company raised $2.317 million net through at-the-market common-stock sales during FY2022. After year-end and through filing, it sold another 523,977 shares for approximately $1.765 million net.
Outlook, risks and contingencies
- InFoods IBS: An endpoint-determination study reported statistically significant improvements across IBS subtypes in top-line results. The company was reviewing the full dataset and preparing a pivotal-trial protocol, with plans to present it to FDA in FY2023 and an intention to begin the trial by May 31, 2023. These were plans, not completed milestones.
- Commercialization: The company was preparing an InFoods IBS laboratory-developed test through a CLIA-certified, high-complexity laboratory and expected to begin generating revenue by December 31, 2022. FDA clearance had not been obtained. A final FDA 510(k) decision was also pending for the H. pylori test.
- Other products: Walmart.com had begun selling Aware after year-end; a July 2022 supplier agreement provided for the product to be sold in Walmart’s retail system. The company was also exploring new disease applications and licensing or commercial partnerships.
- Key risks: Continued losses and reliance on future financing; substantial distributor and geographic concentration; changing demand for COVID-19 tests; supply-chain and inflationary cost pressures; regulatory clearance and EU IVDR compliance; clinical-trial execution and commercial adoption; and foreign receivable collection and currency or political risks. One raw-material vendor represented 84% of purchases.
- Capital and dilution: The company disclosed remaining capacity of approximately $9.610 million under its ATM prospectus supplement, subject to the applicable public-float offering limit. Further equity issuance could dilute shareholders. Management stated it may seek additional debt or equity financing.
- Contingencies and governance: No legal proceedings were pending at May 31, 2022. Management reported effective disclosure controls and internal control over financial reporting, but the auditor did not provide an internal-control attestation. The auditor changed to Haskell & White LLP for FY2022; the filing reported no disagreement with the former auditor.
Important facts for investors to verify
- Whether COVID-19-related revenue is recurring, and the extent of sales concentration by product, distributor and geography.
- FDA status, pivotal-trial design and timing for InFoods IBS, and whether the anticipated LDT launch and revenue materialized.
- FDA clearance and commercial launch timing for the H. pylori test, plus Walmart retail distribution and resulting sales for Aware.
- Cash burn, liquidity runway, future financing needs and dilution from ATM or other equity offerings.
- Recoverability of inventory and receivables, including dependence on key distributors and suppliers and the adequacy of reserves.
- Progress toward EU IVDR compliance and any effects on product certifications or international sales.