Biomerica, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended February 28, 2023. The company develops and sells diagnostic products, with a stated strategic focus on its InFoods IBS diagnostic-guided therapy platform.
Financial results
| Metric | Three months ended Feb. 28, 2023 | Three months ended Feb. 28, 2022 | Nine months ended Feb. 28, 2023 | Nine months ended Feb. 28, 2022 |
|---|---|---|---|---|
| Net sales | $1.11 million | $7.66 million | $4.23 million | $13.57 million |
| Gross profit / margin | $120,000 / 10.8% | $1.67 million / 21.8% | $417,000 / 9.9% | $2.36 million / 17.4% |
| Operating expenses | $1.77 million | $1.78 million | $5.80 million | $5.13 million |
| Net loss | $1.65 million | $104,000 | $5.35 million | $2.77 million |
| Operating cash flow | Not presented separately | Not presented separately | $(4.51) million | $3.78 million |
- Quarterly sales fell 85% year over year; nine-month sales fell 69%. Management attributed the decline primarily to reduced demand for COVID-19 products, especially physician-office sales in Asia. Excluding COVID-19 sales, management reported sales down 13% for the quarter and up 16% for the nine-month period.
- For the nine months, SG&A rose 20% to $4.59 million, attributed mainly to bad-debt expense, patent-related legal costs, and online-commerce consulting. R&D declined 8% to $1.22 million.
- Cash and cash equivalents were $3.35 million at February 28, down from $5.92 million at May 31, 2022. Working capital was $5.09 million, versus $7.42 million. Cash used in investing activities was $64,000; financing activities provided $2.04 million, mainly from common-stock sales.
- Total liabilities were $2.22 million, including $1.18 million of lease liabilities. The balance sheet reports no borrowings; the filing describes no off-balance-sheet arrangements. Accumulated deficit was $40.43 million.
Material changes and capital
- After quarter-end, the company closed a public offering on March 7, 2023, selling 3,333,333 shares at $2.40 per share for $8 million gross proceeds. Management reported approximately $7.4 million in expected net proceeds and estimated existing cash plus offering proceeds would fund operations through at least September 2024. The ATM sales agreement was suspended.
- During the nine-month period, the company sold 573,889 shares through its ATM offering, generating approximately $1.96 million net proceeds. Common shares outstanding were 13,488,313 at quarter-end; the filing reports 16,821,646 outstanding as of April 14, 2023.
- The company recorded a $465,000 reduction in gross accounts receivable and its related allowance for a 2022 COVID-product customer balance not expected to be collected. It also reported approximately $428,000 of increased bad-debt expense in nine-month SG&A.
Outlook, developments and risks
- The InFoods IBS test completed validation at a CLIA-certified, CAP-accredited laboratory and began accepting patient samples as an LDT by quarter-end. It had not received FDA clearance. The company plans a follow-on pivotal trial to support a future FDA submission and is developing trial protocols.
- The company reported positive statistical results from an earlier InFoods IBS endpoint trial and is evaluating other potential indications and commercial partnerships. The H. pylori test remained under FDA 510(k) review, with additional information requested by the FDA.
- Management expects continuing costs for product development, clinical work, and launches; it may seek additional debt or equity financing beyond its stated cash runway. Management noted risks from supply-chain and cost disruptions, geopolitical conditions, customer credit, and potentially volatile, infrequent orders. One customer represented 22% of quarterly sales and 38% of nine-month sales.
- No legal proceedings were pending at February 28, 2023. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- COVID-19 revenue disclosures do not fully align: the notes say COVID products were 0.4% of quarterly sales and 6% of nine-month sales, while MD&A says no quarterly COVID revenue and 0% of nine-month sales. The notes’ product-market table also reports $249,000 of nine-month physician-office revenue, equal to the stated 6% share. Confirm the correct figures and definitions.
- Non-COVID sales comparisons: management reports non-COVID sales of $1.108 million for the quarter and $3.982 million for nine months; verify these amounts against the product and revenue disclosures given the COVID-revenue inconsistency.
- Track InFoods IBS LDT adoption, test volumes, pricing and reimbursement, and the timeline, cost and outcome of the planned pivotal trial and FDA pathway.
- Assess the cash-burn rate and runway assumptions, particularly following the offering, and monitor the effect of the additional shares on dilution.
- Monitor customer concentration, receivable collectability, inventory reserves, gross margins, and whether non-COVID product growth can offset the decline in COVID-related demand.