Biomerica, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, three months ended August 31, 2022; comparisons are with the three months ended August 31, 2021 unless stated otherwise. The filing was signed October 13, 2022.
Business context
Biomerica develops and sells diagnostic and therapeutic products for clinical laboratories, physicians’ offices, and over-the-counter markets. Its strategic focus is the InFoods technology platform, including InFoods IBS. Non-COVID-19 products generated over 88% of quarterly revenue; COVID-19 antigen products contributed less than 12% as demand declined.
Financial performance and liquidity
| Metric | Quarter ended Aug. 31, 2022 | Prior-year quarter |
|---|---|---|
| Net sales | $1.637 million | $1.262 million |
| Gross loss | $55,000; gross margin approximately -3.4% | $89,000; gross margin approximately -7.0% |
| Operating expenses | $2.015 million | $1.451 million |
| Operating loss | $2.070 million | $1.540 million |
| Net loss / loss per share | $2.072 million / $0.16 | $1.543 million / $0.12 |
| Operating cash flow | $(1.573) million | $76,000 provided |
- Cash and cash equivalents were $6.075 million at August 31, up from $5.917 million at May 31, 2022. Working capital was $7.410 million, slightly below $7.416 million at fiscal year-end.
- Investing activities used $34,000. Financing provided $1.778 million, primarily from $1.764 million of net ATM offering proceeds. The company sold 523,977 shares through the ATM during the quarter; approximately $9.6 million remained available under the prospectus supplement.
- Total liabilities were $2.728 million, including $1.315 million of operating lease liabilities. The filing reports no interest expense and no material off-balance-sheet arrangements.
- Accumulated deficit was $37.1 million. Management stated that available cash and potential financing were expected to fund operations through at least November 2023.
Changes versus the prior comparable period
- Revenue increased $375,000, or 30%, driven mainly by clinical laboratory sales in Asia and OTC sales in the United States. Clinical lab revenue rose 29%; OTC rose 170%; physician’s-office revenue fell 29%.
- Cost of sales increased 25% to $1.692 million, attributed to higher food-intolerance product volume and cost inflation. Cost of sales exceeded revenue, leaving a gross loss, although the gross loss narrowed from the prior year.
- SG&A increased $584,000, or 55%, mainly from approximately $300,000 higher bad-debt expense, $73,000 higher compensation, and $65,000 higher legal expense. R&D decreased 5% to $361,000, primarily due to reduced COVID-19 research.
- Operating cash flow shifted from $76,000 provided to $1.573 million used. The current quarter included a $388,000 use of cash from accounts receivable, partly offset by inventory reduction and non-cash charges.
Outlook, commentary, and risks
- Management expected to begin generating InFoods IBS revenue in fiscal third quarter through a CLIA-certified laboratory as a laboratory-developed test, while continuing work toward FDA clearance. It was preparing a pivotal-trial protocol for FDA discussion in fiscal 2023 and intended to begin the trial by June 30, 2023.
- The InFoods endpoint trial had reported statistically significant improvements in multiple IBS endpoints; the company was reviewing the full dataset and selecting endpoints for the planned pivotal trial. These are company-reported trial results, not a guarantee of regulatory clearance or commercial success.
- The company was awaiting FDA clearance of its H. pylori test following a 510(k) submission and FDA follow-up requests. No specific clearance timing was provided.
- Management cited ongoing pandemic-related operational disruptions and potential supply-chain, inflation, logistics, customer-credit, and staffing challenges. Quarterly sales may be volatile due to periodic, infrequent orders.
- Customer concentration is significant: two foreign customers accounted for 64% of quarterly sales, and two customers represented 67% of gross receivables at August 31. The doubtful-account allowance rose to $383,000 from $153,000 at May 31; inventory reserves rose to $982,000 from $846,000.
- The company had no legal proceedings pending at August 31, 2022. Management reported disclosure controls effective at a reasonable-assurance level and no material changes in internal control over financial reporting. The board adopted amended bylaws on October 11, including majority voting for most matters and new forum-selection provisions.
Important facts for investors to verify
- Whether InFoods IBS launches on the expected timetable, generates meaningful revenue, and advances through the planned pivotal trial and FDA process.
- FDA status and timing for the H. pylori 510(k) submission.
- Whether sales growth can translate into positive gross margins despite inflation and product costs exceeding sales in the quarter.
- Cash burn, the November 2023 funding runway estimate, and the potential need for further financing or ATM share issuance.
- Customer collection trends, the adequacy of receivables and inventory reserves, and continuing dependence on a small number of foreign customers.