Biomerica, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2012 (the first quarter of fiscal 2013; the filing describes the comparable period as the prior fiscal year). Biomerica develops, manufactures, and markets medical diagnostic products for clinical laboratories and point-of-care use.
Financial performance and liquidity
- Revenue: $1.702 million, up 20.9% from $1.408 million. Management attributed the increase primarily to higher sales in Asia.
- Gross profit and margin: $732,261 and approximately 43.0%, compared with $516,421 and 36.7%. Management cited higher sales and lower per-unit costs from increased production and absorption of fixed expenses.
- Operating income: $312,151, versus $116,901. Operating expenses were $420,110, up 5.2%; selling, general and administrative expense rose 5.9%, primarily from trade shows and product promotion, while R&D rose 2.4%.
- Net income: $291,640, or $0.04 per basic and diluted share, versus $117,792, or $0.02 per share. The 2012 quarter included a $21,319 income-tax provision; the comparable period had no provision.
- Cash flow: Net cash provided by operating activities was $330,405, compared with $108,024. Investing activities used $65,186 and financing activities used $43,000, including repayment of the outstanding line-of-credit balance. Cash increased by $222,138 to $1.299 million. The MD&A refers to $222,138 as cash generated by operations, but the cash-flow statement identifies that figure as the net increase in cash.
- Liquidity and debt: Working capital was $4.175 million, up from $3.894 million at May 31, 2012. Current assets were $4.885 million and current liabilities $710,260. The $400,000 secured credit line had no balance at quarter-end; it expires February 24, 2013.
- Balance sheet: Total assets were $5.980 million and shareholders’ equity was $5.270 million. The company reported no preferred shares outstanding and 6,952,339 common shares outstanding at August 31, 2012.
Material changes and business developments
- Sales to Asia increased to $901,666 from $631,752; Europe sales declined to $508,167 from $580,918, while U.S. sales rose to $279,509 from $186,449.
- Accounts receivable increased to $1.373 million from $1.201 million. One customer represented 60.2% of gross receivables after placing a large order near quarter-end.
- Inventory was essentially unchanged at $1.821 million. The company recorded a $24,780 inventory-reserve adjustment in operating cash-flow reconciliation.
- Cash paid for income taxes was $61,540, compared with $1,680 in the prior-year quarter.
Outlook, risks, and contingencies
- The filing provides no quantified revenue or earnings guidance. Management cautions that interim results may not indicate full-year results.
- Risks cited include sales and receivables concentration, changes in international distributors or foreign markets, competition and margin pressure, availability of raw materials, shipping disruptions, manufacturing and expansion risks, economic conditions, and regulatory approvals or changes. Management also identifies the need to raise capital as a potential risk.
- Some clinical laboratory products had not been submitted for FDA diagnostic-use clearance and could be sold in certain foreign markets.
- The company reported no legal proceedings. It disclosed a lease for its Irvine facility through August 31, 2016, and a secured credit facility expiring February 24, 2013.
- Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the large customer responsible for 60.2% of gross receivables paid its balance, and how customer and distributor concentration affects collections and future sales.
- Whether Asia’s sales growth is sustainable and whether the decline in Europe sales continues.
- Whether improved gross margin persists as production volumes, product mix, and input costs change.
- The company’s ability to renew or replace its credit line before its February 2013 expiration and to maintain adequate funding.
- The status of regulatory clearances for products not submitted for FDA diagnostic-use clearance.
- The filing’s cash-flow narrative should be read against the cash-flow statement: $330,405 was operating cash flow, while $222,138 was the net increase in cash.