Biomerica(BMRA) - 2019 Q3 - Quarterly Report

Part I - Financial Information Item 1. Financial Statements The company experienced decreased net sales and increased net loss, with negative operating cash flow offset by financing activities Condensed Consolidated Statements of Operations and Comprehensive Loss Net sales decreased by 9.0% to $4.03 million for nine months, with net loss doubling to $1.61 million; Q3 also saw sales decline and net loss more than double Statement of Operations Highlights (Unaudited) | Metric | Nine Months Ended Feb 28, 2019 | Nine Months Ended Feb 28, 2018 | YoY Change | Three Months Ended Feb 28, 2019 | Three Months Ended Feb 28, 2018 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Sales | $4,034,822 | $4,433,785 | -9.0% | $1,261,161 | $1,375,666 | -8.3% | | Gross Profit | $1,111,207 | $1,486,133 | -25.2% | $365,924 | $465,371 | -21.4% | | Loss from Operations | ($1,647,971) | ($837,612) | +96.7% | ($707,248) | ($322,846) | +119.1% | | Net Loss | ($1,607,730) | ($798,211) | +101.4% | ($678,746) | ($322,491) | +110.3% | | Diluted Net Loss per Share | ($0.18) | ($0.09) | +100.0% | ($0.07) | ($0.04) | +75.0% | Condensed Consolidated Balance Sheets Total assets decreased to $5.07 million, cash to $0.92 million, with increased liabilities and shareholders' equity at $3.95 million Balance Sheet Summary (Unaudited) | Account | Feb 28, 2019 | May 31, 2018 | | :--- | :--- | :--- | | Current Assets | | | | Cash and cash equivalents | $917,935 | $1,204,903 | | Total current assets | $4,329,331 | $4,484,029 | | Total Assets | $5,067,927 | $5,222,582 | | Current Liabilities | | | | Accounts payable and accrued expenses | $889,702 | $686,956 | | Total current liabilities | $1,113,456 | $896,808 | | Total Shareholders' Equity | $3,954,471 | $4,325,774 | Consolidated Statements of Shareholders' Equity Shareholders' equity decreased from $4.33 million to $3.95 million, primarily due to a $1.61 million net loss, partially offset by stock sales - Net proceeds from the sale of common stock amounted to $1,011,636 for the nine months ended February 28, 2019[10] - The net loss of $1,607,730 was the primary driver for the reduction in total shareholders' equity during the period[10] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $1.26 million, offset by $1.10 million from financing, resulting in a $0.29 million net cash decrease Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Feb 28, 2019 | Nine Months Ended Feb 28, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($1,257,708) | ($852,168) | | Net cash used in investing activities | ($119,173) | ($74,303) | | Net cash provided by financing activities | $1,097,298 | $304,347 | | Net decrease in cash | ($286,968) | ($628,432) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, customer/vendor concentrations, geographic sales, capital raising, and a subsequent patent allowance - The company has significant customer concentration, with one customer accounting for 46.8% of consolidated sales for the nine months ended February 28, 2019[16] - The company is raising capital through an 'At Market Issuance Sales Agreement', receiving $1,011,636 in net proceeds during the nine months ended February 28, 2019[31] - Subsequent to the quarter end, the USPTO issued a Notice of Allowance for a patent related to the company's InFoods® products for Irritable Bowel Syndrome (IBS)[33] Revenues by Geographic Region (Nine Months Ended Feb 28) | Region | 2019 | 2018 | | :--- | :--- | :--- | | Asia | $1,973,000 | $2,112,000 | | Europe | $1,330,000 | $1,562,000 | | United States | $423,000 | $533,000 | | Middle East | $180,000 | $115,000 | | South America | $129,000 | $106,000 | | Total | $4,035,000 | $4,434,000 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Sales decreased due to lower contract manufacturing and international sales; net loss increased from higher cost of sales and 38.9% R&D expense rise Results of Operations Net sales decreased by 9.0% to $4.03 million due to lower contract manufacturing and international sales; R&D expenses rose 38.9% - The 9.0% decrease in net sales for the nine-month period was primarily due to lower contract manufacturing sales and lower sales to China and Europe[34] - Cost of sales as a percentage of sales increased from 66.5% to 72.5% for the nine-month period, attributed to increased material costs and fixed costs relative to lower sales[35] - Research and development expenses increased by 38.9% for the nine-month period due to expenditures on new products, higher patent legal fees for international filings, and clinical studies[35] Liquidity and Capital Resources Cash was $0.92 million and working capital $3.22 million; operations are funded by an 'At Market Issuance Sales Agreement' that raised $1.01 million - The company is funding its R&D and operational needs through an 'At Market Issuance Sales Agreement'[35] Liquidity Position | Metric | Feb 28, 2019 | May 31, 2018 | | :--- | :--- | :--- | | Cash and cash equivalents | $917,935 | $1,204,903 | | Working capital | $3,215,875 | $3,587,221 | Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, the company is exempt from providing quantitative and qualitative disclosures about market risk - As a smaller reporting company, Biomerica is exempt from providing quantitative and qualitative disclosures about market risk[38] Item 4. Controls and Procedures Management concluded disclosure controls were effective at a 'reasonable assurance' level, with no material changes to internal controls - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the 'reasonable assurance' level[39] - No changes in internal control over financial reporting occurred during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal controls[39] Part II - Other Information Item 1. Legal Proceedings The company reported no legal proceedings - There are no legal proceedings to report[40] Item 1A. Risk Factors The company faces risks including competition, new product development, regulatory approvals, supply chain, key personnel, and customer concentration - Key business risks include competition, the need for new product development, reliance on government regulatory approvals, and potential supply chain disruptions[40] - The company notes a concentration of sales with certain distributors, and the loss of these distributors could lead to significantly reduced sales[40] Item 2. Unregistered Sales of Equity Securities & Use of Proceeds The company reported no unregistered sales of equity securities - There were no unregistered sales of equity securities or use of proceeds to report[41] Item 5. Other Information The Annual Meeting of Stockholders was held on December 12, 2018, with results detailed in a Form 8-K filing - The Annual Meeting of Stockholders was held on December 12, 2018[42] Item 6. Exhibits Exhibits include Sarbanes-Oxley Act certifications from the CEO and CFO, and interactive data files (XBRL) - Exhibits filed with the report include Sarbanes-Oxley Act certifications from the CEO and CFO, and interactive data files (XBRL)[44]