Biomerica, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended November 30, 2013 (fiscal 2014); filed January 14, 2014. Biomerica develops, manufactures, and markets medical diagnostic products sold through clinical laboratories and point-of-care channels.
Financial performance
| Metric | Three months ended Nov. 30, 2013 | Prior-year quarter | Six months ended Nov. 30, 2013 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $934,841 | $1,883,771 | $1,948,580 | $3,585,719 |
| Gross profit | $255,644 | $769,211 | $515,935 | $1,501,460 |
| Gross margin | 27.3% | 40.8% | 26.5% | 41.9% |
| Operating expenses | $503,146 | $521,709 | $937,206 | $941,816 |
| Operating income (loss) | $(247,502) | $247,502 | $(421,271) | $559,644 |
| Net income (loss) | $(243,357) | $236,919 | $(411,072) | $528,550 |
| Basic loss per share | $(0.03) | $0.03 | $(0.06) | $0.08 |
Sales declined 50.4% in the quarter and 45.7% for the six-month period. Management attributed the declines primarily to a China distribution-channel restructuring. Six-month sales in Asia fell to approximately $216,000 from $1.944 million; Europe sales were approximately $1.199 million, compared with $1.183 million.
Cost of sales rose to 72.7% of quarterly sales and 73.5% of six-month sales, versus 59.2% and 58.1%, respectively, a year earlier. Management cited lower production volumes and fixed costs that limited economies of scale. SG&A decreased modestly, attributed primarily to a Mexico facility restructuring; R&D expense increased due to product development materials and added personnel.
Cash, liquidity, debt, and balance sheet
- Cash and cash equivalents were $1.648 million at November 30, 2013, down from $2.470 million at May 31, 2013. Working capital was $4.299 million, compared with $4.693 million.
- Operating activities used $740,148 in cash in the six months, versus $396,998 provided in the prior-year period. Investing activities used $83,855; financing activities provided $1,780. Cash declined by $822,237.
- Inventory increased to $1.900 million from $1.571 million, including increases in work in progress and raw materials.
- Current liabilities were $400,592; shareholders’ equity was $5.427 million. The filing reports no balance outstanding on the $400,000 secured bank line at November 30, 2013. The facility was scheduled to expire February 24, 2014.
- No material off-balance-sheet arrangements were reported. The filing does not provide a clear formal revenue or earnings forecast.
Outlook, risks, and other notable items
- Management expected sales through the restructured China distribution channel to increase during the remainder of fiscal 2014. It also said Biomerica would begin supplying two point-of-care products to a multinational pharmaceutical company for distribution in one European country, with possible expansion to other countries and products.
- Risks highlighted include sales concentration among distributors and customers, demand and product-mix fluctuations, margin pressure, raw-material availability, foreign operations, regulatory requirements, competition, product liability, and access to capital.
- The company reported no legal proceedings. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material changes in internal control over financial reporting.
- The filing reports no income-tax provision for the current periods. Management had removed its deferred-tax valuation allowance in May 2013 based on its assessment that realization of deferred tax assets was more likely than not.
Investor verification points
- Whether China-channel restructuring restores sales, and whether the reported expected recovery materialized.
- Commercial launch, sales contribution, and expansion prospects for the European point-of-care distribution arrangement.
- Cash burn, inventory growth, gross-margin recovery, and the company’s funding needs.
- Renewal or replacement of the $400,000 credit facility before its February 24, 2014 expiration.
- Basis for deferred-tax-asset realization following the shift from prior-year profits to current-period losses.