Biomerica, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended February 28, 2017, compared with periods ended February 29, 2016. Although the request labels this “2016 Q3,” the filing reports fiscal 2017 third-quarter results. Interim financial statements are unaudited.
Business context and financial results
Biomerica develops, manufactures, and markets diagnostic products for clinical laboratories and point-of-care markets. Its products are sold in the United States and international markets.
| Metric | Three months ended Feb. 28, 2017 | Three months ended Feb. 29, 2016 | Nine months ended Feb. 28, 2017 | Nine months ended Feb. 29, 2016 |
|---|---|---|---|---|
| Net sales | $1.500 million | $1.362 million | $4.342 million | $3.814 million |
| Gross profit | $449,427 | $344,518 | $1.583 million | $1.178 million |
| Gross margin | 30.0% | 25.3% | 36.5% | 30.9% |
| Operating expenses | $767,149 | $613,626 | $2.186 million | $1.733 million |
| Operating loss | $(317,722) | $(269,108) | $(603,185) | $(555,115) |
| Net loss | $(304,141) | $(135,002) | $(562,741) | $(274,105) |
| Basic and diluted loss per share | $(0.04) | $(0.02) | $(0.07) | $(0.04) |
Cash flow: For the nine months, operating activities used $389,380, investing activities used $95,833, and financing activities provided $138,997, primarily from option exercises. Cash declined by $347,217 to $1.542 million.
Balance sheet and liquidity: At February 28, 2017, cash was $1.542 million, current assets $4.644 million, current liabilities $656,744, and working capital $3.987 million. Total assets were $5.477 million and shareholders’ equity was $4.820 million. The balance sheet presents no interest-bearing debt; total liabilities consisted of current liabilities of $656,744.
Material changes and management commentary
- Nine-month sales increased 13.9%; quarterly sales increased 10.2%. Management attributed growth primarily to higher clinical laboratory product sales in Asia, and, for the quarter, Europe.
- Gross margin improved in both periods. Management cited higher sales absorbing fixed costs and lower material costs.
- SG&A increased 21.1% for the nine months, reflecting higher bad-debt expense, Nasdaq uplisting and ongoing fees, legal and investor-conference costs, and consultants. Quarterly SG&A growth was attributed primarily to reserves for two overdue foreign accounts.
- R&D increased 36.3% for the nine months, due to new-product research, regulatory applications, patent preparation, and development of existing products.
- Despite sales and gross-margin growth, operating and net losses widened. The prior-year nine-month period included a $254,000 income-tax benefit; no tax benefit was recorded in the current period.
Outlook, risks, and contingencies
- The company provided no quantified revenue, earnings, or cash-flow guidance. It cautioned that interim results may not indicate full-year performance.
- Biomerica is developing gastrointestinal products, has filed patent applications, and entered a clinical trial agreement with a major U.S. university in December 2016. Further patent costs are expected; pursuing U.S. regulatory approval could involve substantial costs.
- The board authorized pursuit of an S-3 shelf registration statement. The company said it did not intend to sell securities immediately if the registration became active.
- Risks cited include funding needs, Nasdaq listing requirements, demand and competition, raw-material availability, regulation and approval delays, international distributors and operations, customer concentration, receivable collection, and operating-margin variability. One customer represented 38.1% of nine-month sales and 32.9% of gross receivables at period-end.
- The filing reports no legal proceedings or off-balance-sheet arrangements. It describes leases, including a ten-year Mexican subsidiary lease for which Biomerica, Inc. is not guarantor.
Important facts for investors to verify
- Collection status and reserve adequacy for the two overdue foreign accounts; the allowance for doubtful accounts rose to $67,595 from $8,405 at May 31, 2016.
- Dependence on the leading customer and international distributors, and the effect any sales or payment disruption could have on revenue and liquidity.
- Cash use, working-capital needs, and financing requirements if operating losses continue; the filing identifies capital raising as a risk.
- Costs, timing, clinical results, patent progress, and potential U.S. regulatory requirements for the gastrointestinal products.
- Potential effects of adopting pending accounting standards; management had not determined the impact of several standards, including the new revenue-recognition guidance.