Biomerica, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended November 30, 2012 (fiscal 2013 second quarter). Biomerica develops, manufactures, and markets medical diagnostic products for clinical laboratories and point-of-care markets.
Financial performance
| Metric | Three months ended Nov. 30, 2012 | Prior-year quarter | Six months ended Nov. 30, 2012 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $1.884 million | $1.617 million | $3.586 million | $3.024 million |
| Gross profit | $769,211 | $667,404 | $1.501 million | $1.184 million |
| Gross margin | 40.8% | 41.3% | 41.9% | 39.1% |
| Operating income | $247,502 | $194,086 | $559,644 | $310,987 |
| Net income | $236,919 | $195,092 | $528,550 | $312,884 |
| Diluted EPS | $0.03 | $0.03 | $0.07 | $0.05 |
Quarterly sales grew 16.5%; six-month sales grew 18.6%. Management attributed growth primarily to Asia. Asia sales were $1.042 million for the quarter and $1.944 million for the six months. Operating expenses rose 10.2% for the quarter and 7.9% for the six months. Research and development increased 35.3% and 18.9%, respectively. The six-month effective tax rate was 6%, which the company attributed to federal net operating loss carryforwards.
Cash, liquidity, and balance sheet
- Cash and cash equivalents were $1.194 million at November 30, up from $1.077 million at May 31, 2012. Working capital was $4.297 million, versus $3.894 million.
- Six-month operating cash flow was $396,998, compared with $76,290 in the prior-year period. Accounts receivable increased by $313,358, partly offsetting cash generated from earnings.
- Investing cash outflow was $242,416, principally for equipment to automate production. Financing cash outflow was $37,001, including repayment of the $43,000 line-of-credit balance, partly offset by stock-option proceeds.
- The company reported no line-of-credit balance at period end. The $400,000 facility is secured by substantially all company assets, bears interest at 1% plus the stated prime rate, and was due to expire February 24, 2013.
- Total liabilities were $545,681, all classified as current; shareholders’ equity was $5.513 million. No off-balance-sheet arrangements were reported.
Changes, outlook, and risks
- Quarterly gross margin declined to 40.8% from 41.3%, as certain inventory items were purchased rather than manufactured. For the six-month period, margin improved to 41.9% from 39.1%, reflecting higher production and lower per-unit costs.
- Selling, general and administrative costs increased, including a non-recurring expense related to restructuring the Mexican facility; reductions in bad-debt and stock-compensation expense partly offset the increase. R&D spending rose due to product-development materials and additional personnel.
- The filing provides no specific quantified revenue or earnings guidance. Management cautioned that results are subject to significant uncertainties, including product demand, competition and margin pressures, raw-material availability, regulation, economic conditions, international distributor relationships, and access to capital.
- Customer concentration is significant: one foreign customer represented 62.9% of gross receivables and 54.3% of quarterly sales and 53.5% of six-month sales. Management said it closely monitors collections and may require payment of existing invoices before shipping additional orders.
- Management assessed disclosure controls as effective at a reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter. The filing reported no legal proceedings.
Key facts for investors to verify
- Whether the highly concentrated foreign customer pays its receivable on time and continues ordering.
- Whether Asia-led sales growth is sustainable and how customer and distributor concentration evolves.
- Whether purchased-product costs and product mix continue to pressure quarterly gross margins.
- Whether production-automation spending delivers expected cost or capacity benefits.
- Whether the credit facility was renewed or replaced before its February 2013 expiration.