Biomerica, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended August 31, 2021. Unaudited consolidated results; comparable 2020 figures are restated. Biomerica develops and sells diagnostic products and is focusing development on diagnostic-guided therapies for gastrointestinal and inflammatory diseases.
Financial performance and liquidity
| Metric | Quarter ended Aug. 31, 2021 | Prior-year quarter (restated) |
|---|---|---|
| Net sales | $1.262 million | $1.144 million |
| Gross profit (loss) | $(89,000); approximately -7.0% gross margin | $118,000; approximately 10.3% gross margin |
| Operating expenses | $1.451 million | $2.017 million |
| Operating loss | $(1.540) million | $(1.899) million |
| Net loss / diluted loss per share | $(1.543) million / $(0.12) | $(1.892) million / $(0.16) |
| Cash from (used in) operations | $76,000 | $(1.597) million |
| Cash and cash equivalents at period end | $4.997 million | $6.964 million |
Revenue rose 10%, principally on Asian distributor sales of food-intolerance products. Cost of sales increased 32% to $1.351 million, or 107% of sales, including an approximately $179,000 inventory valuation adjustment for COVID-19 antigen tests. SG&A fell 23% to $1.012 million, mainly due to lower legal costs; R&D fell 38% to $440,000, mainly as COVID-19 test development and validation costs declined.
At August 31, 2021, working capital was approximately $7.464 million, down from $7.931 million at May 31, 2021. Total liabilities were $2.713 million, including $1.564 million of operating lease liabilities; the filing reports no borrowings. The company raised $801,000 net through its at-the-market (ATM) share offering during the quarter. Management said cash on hand and potential ATM proceeds were sufficient to fund operations through November 2022. Approximately $4.790 million of cash was uninsured.
Material changes, outlook, and risks
- Inventory reserves were approximately $1.797 million, including $1.683 million related to the downturn in COVID-19 antibody tests as demand shifted toward PCR and antigen tests. COVID-19 product sales had slowed, though the company continued to fill orders; it reported approximately $226,000 of antigen-test sales during the quarter.
- Management expected final enrolled patients in the InFoods IBS endpoint-determination trial to complete the study and top-line results to be reported around the end of December 2021. It also expected to pursue partnership or licensing discussions to support commercialization and possible FDA clearance. These are expectations, not formal financial guidance.
- The company said it was increasing sales and marketing efforts for non-COVID products, including H. Pylori and EZ Detect. On June 21, 2021, it signed an exclusive Canadian distribution and marketing agreement for its H. Pylori test.
- The filing restated 2020 results for errors in stock-based compensation accounting. Prior-quarter net loss increased by $243,000, from $1.649 million to $1.892 million, and loss per share changed from $0.14 to $0.16. The correction was non-cash and did not change cash flows or total shareholders’ equity at May 31, 2021.
- Management concluded disclosure controls were ineffective at August 31, 2021 due to a material weakness in stock-based compensation accounting. It reported implementing equity-management software, adding review procedures, engaging an outside accounting adviser, and testing the new calculations.
- COVID-19-related supply-chain, production, shipping, customer-credit, and other disruptions could continue to materially affect operations. Two distributors accounted for 60% of quarterly sales, and two distributors together represented 77% of gross receivables at quarter end. The company had reserved approximately $743,000 for doubtful accounts, mostly covering one international distributor.
- The SEC investigation concerning the company’s March 2020 COVID-19 test announcement and related matters remained unresolved. The company and its CEO said they had cooperated; the filing states the duration, scope, and outcome could not be predicted. No legal proceedings were pending as of August 31, 2021.
Important facts for investors to verify
- InFoods IBS trial completion, top-line results, and the regulatory and commercial pathway, including any FDA clearance.
- Cash runway assumptions and the availability and potential dilution from further ATM share sales.
- Whether COVID-19 inventory reserves and distributor exposure lead to further write-downs or collection losses.
- Progress in remediating the stock-compensation material weakness and whether controls are effective in subsequent filings.
- Any developments, costs, or findings from the ongoing SEC investigation.