Biomerica, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended May 31, 2013, compared with fiscal 2012. Although the request metadata refers to “2012 Q4,” this filing reports full fiscal years, not a standalone quarter. Biomerica develops, manufactures, and sells medical diagnostic products for clinical laboratories and point-of-care markets.
Financial results
| Metric | FY2013 | FY2012 | Change |
|---|---|---|---|
| Net sales | $6.473 million | $6.081 million | +6.4% |
| Gross profit | $2.428 million | $2.297 million | +5.7% |
| Gross margin | 37.5% | 37.8% | -0.3 percentage points |
| Operating income | $514,008 | $504,999 | +1.8% |
| Net income | $536,957 | $548,435 | -2.1% |
| Diluted earnings per share | $0.07 | $0.08 | Lower |
| Cash from operations | $1.394 million | $147,412 | Higher |
| Cash and cash equivalents | $2.470 million | $1.077 million | Higher |
| Working capital | $4.693 million | $3.894 million | Higher |
Operating margin was approximately 7.9% versus 8.3%; net margin was approximately 8.3% versus 9.0%. Cost of sales rose 6.9%, slightly faster than sales, reflecting higher materials and labor costs, partly offset by lower scrap and Mexico-facility expenses. R&D expense increased to $459,086 from $347,128; SG&A was nearly flat at $1.455 million.
FY2013 cash provided by operations was $1.394 million; investing used $257,121, primarily for property and equipment; financing provided $258,514, including $250,000 from a common-stock sale. The company reported no balance on its $400,000 bank line of credit at year-end, which expires February 24, 2014. Current liabilities were $559,893 and total assets were $6.395 million. No off-balance-sheet arrangements were reported.
Material changes and business developments
- Sales growth came mainly from Europe and Asia. Europe revenue rose to $2.840 million from $2.533 million; Asia rose to $2.770 million from $2.420 million. U.S. revenue fell to $822,000 from $1.074 million.
- A customer representing 29.7% of FY2013 sales (37.2% in FY2012) had its contract terminated in the final quarter because of proprietary disagreements. A replacement China customer accounted for 10.8% of FY2013 sales; management said the customer expected sales to reach the former distributor’s levels, but this is not assured.
- Year-end backlog declined to approximately $83,000 from $742,000.
- In FY2013, Biomerica sold 200,000 shares to the new China distributor for $250,000 at $1.25 per share; the investor agreed to purchase another 200,000 shares at the same price at a later date.
Outlook, risks, and unusual items
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management discusses continuing product development, licensing external technology, and expanding marketing and strategic distribution relationships.
- Key risks include dependence on large distributors and customers, international sales and regulatory requirements, competition from larger companies, product liability and recalls, access to certain raw materials, and the ability to maintain required FDA and European certifications.
- FY2012 included approximately $102,000 of insurance proceeds and related gain from water damage; this did not recur in FY2013. This difference contributed to the decline in other income from $101,688 to $50.
- Management released the remaining $280,000 valuation allowance against deferred tax assets in FY2013, citing expected future realization. Deferred tax assets totaled $229,000 at May 31, 2013.
- No legal proceedings were pending at year-end. The company disclosed ordinary-course litigation risk generally, but management did not expect known matters to materially affect its financial position, results, or cash flows.
- The independent auditor gave an unqualified opinion on the financial statements. Management judged internal control over financial reporting effective; the auditor did not provide an attestation on those controls.
Important facts for investors to verify
- Whether the replacement China distributor can rebuild sales after the terminated customer relationship, and whether its expected volume is supported by orders or other evidence.
- Why backlog fell so sharply and whether the $83,000 year-end balance is representative of subsequent demand.
- Whether the modest gross-margin decline and higher R&D spending translate into sustainable growth and improved profitability.
- The recoverability of receivables and inventory, given customer concentration and the estimates used for doubtful accounts and obsolete inventory.
- The status and renewal of the bank line of credit, key regulatory clearances, and any material dependence on limited-source raw materials.
- Potential dilution from outstanding options and the proposed additional 200,000-share purchase; the filing reports 846,500 options outstanding at May 31, 2013.