Biomerica, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended February 28, 2013; comparisons are to the corresponding periods ended February 29, 2012. The filing is unaudited. Biomerica develops, manufactures, and markets medical diagnostic products sold through clinical laboratories and point-of-care channels worldwide.
Financial performance
| Metric | Quarter ended Feb. 28, 2013 | Prior-year quarter | Nine months ended Feb. 28, 2013 | Prior-year nine months |
|---|---|---|---|---|
| Net sales | $1.417 million | $1.515 million | $5.002 million | $4.539 million |
| Gross profit | $445,382 | $566,843 | $1.947 million | $1.751 million |
| Gross margin | 31.4% | 37.4% | 38.9% | 38.6% |
| Operating income (loss) | $(63,333) | $134,493 | $496,312 | $445,480 |
| Net income (loss) | $(35,614) | $181,445 | $492,937 | $494,329 |
| Basic and diluted EPS | $(0.01) | $0.03 | $0.07 | $0.07 |
- Quarterly sales fell 6.5%, reflecting lower U.S. and European sales. Nine-month sales rose 10.2%, primarily on stronger Asian sales, partly offset by declines in the U.S. and Europe.
- Quarterly cost of sales rose to 68.6% of revenue from 62.6%; management attributed weaker margins to sales mix shifting toward lower-margin products, higher material costs, and lower sales. Nine-month cost of sales was 61.1% of revenue versus 61.4%.
- Quarterly operating expenses increased to $508,715 from $432,350, including higher research and development spending. Nine-month operating expenses increased to $1.451 million from $1.305 million. R&D rose 58.5% for the quarter and 32.9% year to date, mainly due to product development materials and added personnel.
- Prior-year results included a $68,106 insurance gain related to water damage. The current quarter’s income-tax benefit of $20,640 included an adjustment for a California state refund; the nine-month tax provision was $12,389.
Cash, liquidity, and capital
- Cash and cash equivalents were $2.319 million at February 28, 2013, up from $1.077 million at May 31, 2012. Working capital was $4.354 million, compared with $3.894 million.
- Operating activities provided $1.496 million in the nine months, versus $103,134 in the prior-year period. The company cited net income and collections of accounts receivable as key sources.
- Investing activities used $249,410, primarily for equipment to automate production; financing activities used $2,586. The company repaid its prior $43,000 line-of-credit balance.
- The renewed line of credit has a $400,000 limit, is secured by substantially all company assets, and carries interest at 1% plus the stated prime rate. No amount was drawn at period-end. Current liabilities were $584,100; the balance sheet reported no line-of-credit borrowing.
- Property and equipment purchases were $249,410. No off-balance-sheet arrangements were reported.
Changes, outlook, and risks
- After quarter-end, the company ended its China distributor arrangement and appointed a new distributor. The filing gives March 28, 2013 in its subsequent-events note and April 2, 2013 in MD&A.
- On April 8, 2013, Biomerica agreed to sell 400,000 restricted shares at $1.25 per share. It had received an initial $250,000 deposit, corresponding to 200,000 shares; the remaining $250,000 and shares were still pending. Upon completion, the investor may nominate one qualified board member.
- The filing provides no quantified earnings or revenue guidance. Management cautions that results may fluctuate and identifies risks including customer and distributor concentration, product mix and margin pressure, raw-material availability, competition, regulatory requirements, international operations, and the ability to raise needed capital.
- Two customers represented 32.0% of gross receivables at period-end. Two foreign customers accounted for 10.3% of quarterly sales and 48.6% of nine-month sales, respectively. Management said it monitors large balances and may require payment before shipping additional orders.
- Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting. No legal proceedings were reported.
Important facts for investors to verify
- Whether the new China distributor sustains sales and addresses the filing’s stated geographic and customer concentration exposure.
- Whether the remaining $250,000 stock-sale payment was received and the remaining 200,000 shares issued; confirm the related board-nomination provision.
- Whether quarterly margin pressure persists, given the shift toward lower-margin products and higher material costs.
- Whether major customers pay on time and whether the reported receivable concentration changes.
- Confirm the distributor-transition date: the filing cites both March 28 and April 2, 2013.