Biomerica, Inc. — Form 10-Q Summary
Reporting period: Three months ended August 31, 2014 (fiscal first quarter of 2015). Biomerica develops, manufactures, and markets medical diagnostic products. Comparisons below are with the three months ended August 31, 2013 unless noted.
Financial results and liquidity
- Revenue: $1.034 million, up $20,711 (2.0%). Europe sales increased about $148,000, while Asia sales fell about $120,000.
- Gross profit and margin: $309,911 and 30.0%, compared with $260,291 and 25.7%. Management attributed the improved cost-of-sales ratio to lower wages and royalties and product mix.
- Operating expenses: $534,022, up $99,963. R&D rose $104,449 (114.5%) to $195,706, primarily for development and approval of gastroenterology products; SG&A declined 1.3% to $338,316.
- Net loss: $219,268, or $0.03 per share, versus a loss of $167,714, or $0.02 per share. Operating loss increased to $224,111 from $173,768. No income tax provision or benefit was recorded.
- Cash flow: Operating activities provided $143,641, versus $376,271 used in the prior-year quarter. Collections of receivables contributed $675,047; inventory increased $135,203 and payables and accrued expenses were paid down by $207,546. Cash used in investing was $1,775. Cash and equivalents increased $137,853 to $1.647 million.
- Balance sheet at August 31: Current assets were $4.538 million and current liabilities $348,725; working capital was $4.189 million. Total assets were $6.047 million and shareholders’ equity $5.698 million. The filing reports no drawn debt; a $250,000 bank line was undrawn.
Changes, outlook, and risks
- Revenue was nearly flat, but gross margin improved. The larger R&D investment contributed to a higher quarterly net loss.
- Management said it expected the Company to generate profits later in fiscal 2015; no quantified revenue or earnings guidance was provided. Management cautioned that interim results may not indicate full-year results.
- The bank line is secured by substantially all Company assets and bears interest at 2% plus the Wall Street Journal West Coast prime rate.
- Key stated risks include sales and distributor concentration, customer receivable balances, competition and margin pressure, raw-material availability, regulatory approvals and compliance, product claims or recalls, and economic or operational disruptions. Management identified revenue recognition, bad debts, inventory overhead, and inventory reserves as significant estimate areas.
- Subsequent events: the board approved options for 24,500 shares at $0.85 per share and a proposed 800,000-share stock incentive plan, subject to shareholder approval. The filing reported no legal proceedings or off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the increased gastroenterology R&D spending leads to product approvals, sales, and the expected return to profitability.
- Whether Europe’s sales growth is sustainable and the decline in Asia sales persists; assess customer and distributor concentration.
- Whether operating cash generation continues, given its reliance this quarter on receivables collections and the Company’s inventory and receivables balances.
- The terms, availability, and potential use of the secured credit line, and approval and dilution effects of the proposed incentive plan.
- The potential effect of adopting the new revenue recognition standard; management had not yet determined its impact.