Biomerica, Inc. — Form 10-Q Summary
Reporting period: The filing covers the fiscal quarter and nine months ended February 28, 2022. Although the request labels this “2021 Q3,” the filing reports fiscal 2022 third-quarter results.
Business context
Biomerica develops and sells diagnostic products and is advancing diagnostic-guided therapies, including InFoods IBS. Fiscal 2022 sales growth was driven primarily by international sales of COVID-19 antigen tests. The filing states that all fiscal 2022 COVID-19 revenue came from antigen tests, not antibody tests.
Financial performance
| Metric | Three months ended Feb. 28, 2022 | Three months ended Feb. 28, 2021, restated | Nine months ended Feb. 28, 2022 | Nine months ended Feb. 28, 2021, restated |
|---|---|---|---|---|
| Net sales | $7.66 million | $3.63 million | $13.57 million | $6.14 million |
| Gross profit (loss) | $1.67 million | $(0.07) million | $2.36 million | $0.35 million |
| Gross margin | 21.8% | (2.0%) | 17.4% | 5.7% |
| Operating loss | $(0.11) million | $(2.17) million | $(2.78) million | $(5.78) million |
| Net loss | $(0.10) million | $(2.12) million | $(2.77) million | $(5.74) million |
| Basic and diluted loss per share | $(0.01) | $(0.18) | $(0.22) | $(0.49) |
For the nine-month period, selling, general and administrative expense decreased 15% to $3.62 million, and research and development expense decreased 20% to $1.52 million. Management attributed the expense declines largely to lower bad-debt expense and reduced COVID-test development costs, respectively.
Operating cash flow was positive $3.78 million for the nine months, compared with cash used of $4.24 million in the prior-year period. The 2022 inflow reflected, among other items, $3.21 million in customer advances and higher accounts payable. Investing activities used $0.15 million; financing activities provided $2.36 million, including $2.32 million net ATM offering proceeds.
At February 28, 2022, cash and cash equivalents were $10.17 million, working capital was $8.53 million, and total liabilities were $7.80 million. Liabilities included $1.44 million of operating lease liabilities; the filing reports no conventional borrowings. Cash included approximately $9.77 million above federally insured limits.
Material changes and unusual items
- Nine-month sales increased 121% year over year, principally from COVID-19 product sales to distributors in Asia and Europe. Asia revenue rose to $8.93 million from $1.65 million; physician’s-office product revenue increased to $10.13 million from $2.74 million.
- COVID-related inventory exposure remains significant: the inventory obsolescence reserve was approximately $1.89 million, of which $1.69 million related to COVID-19 antibody tests and materials amid a market shift toward PCR and antigen tests.
- Prior-year comparative financial statements were restated for errors in stock-based compensation accounting. The nine-month 2021 net loss increased by $0.76 million to $5.74 million; the filing says the non-cash restatement did not change cash, revenue, or operating cash flow.
- During the nine months, the company sold 521,267 shares through its ATM program for approximately $2.32 million in net proceeds. Common shares outstanding were 12,851,924 at February 28, 2022.
Outlook, commentary and risks
Management reported that February 2022 top-line results from an InFoods IBS endpoint study showed statistically significant improvement on multiple endpoints. The company was reviewing full results, selecting endpoint(s), preparing a pivotal-trial protocol for FDA discussion, and intended to begin that trial during calendar 2022. FDA clearance and commercial success are not assured. Management also described plans to assess other potential indications and pursue licensing or partnership opportunities.
Management stated that cash on hand and potential additional ATM financing were expected to fund operations through May 2023; elsewhere in the MD&A it described funding for the next twelve months or more. The company expects significant ongoing clinical-trial and product-development costs. COVID-related disruptions, customer and supplier concentration, supply-chain risks, and inventory obsolescence may affect results. Three foreign customers accounted for 75% of nine-month sales, and one vendor accounted for 85% of raw-material purchases.
The filing reported no pending legal proceedings as of February 28, 2022, no subsequent events, and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Confirm the sustainability and product mix of COVID-19-driven sales, particularly given pandemic-related demand uncertainty and the antibody inventory reserve.
- Track the complete InFoods IBS study results, FDA feedback, pivotal-trial timing, costs, and eventual regulatory outcome.
- Assess the quality and recurrence of operating cash flow, including the impact of customer advances and increased payables.
- Monitor liquidity against management’s May 2023 funding estimate, future ATM use, and potential share dilution.
- Review customer and supplier concentration, uninsured cash exposure, and the restated prior-period financials.