Biomerica, Inc. — FY2012 Form 10-K
Reporting period: Fiscal year ended May 31, 2012; comparative figures are for the year ended May 31, 2011. This is an annual filing, not a report for calendar Q4. Biomerica develops, manufactures, and sells diagnostic test kits to clinical laboratories and point-of-care markets. Sales are primarily international.
Financial performance and position
| Metric | FY2012 | FY2011 |
|---|---|---|
| Net sales | $6.081 million | $4.899 million |
| Gross profit and margin | $2.297 million; 37.8% | $1.526 million; 31.1% |
| Operating income (loss) | $505,000 | $(132,000) |
| Net income | $548,000 | $157,000 |
| Diluted earnings per share | $0.08 | $0.02 |
| Cash provided by operating activities | $147,000 | $329,000 |
- Sales grew 24.1%, primarily from higher sales in Asia. Gross margin improved as sales rose while certain fixed costs increased less; FY2011 cost of sales also included distributor incentive product.
- Operating expenses were $1.792 million, including $1.445 million SG&A and $347,000 R&D. SG&A increased 16.8%; R&D declined 17.5%, in part because FY2011 included costs related to ending the dedicated research department.
- Net income included $108,000 of total other income, versus $292,000 in FY2011. FY2011 included a net $286,000 government grant; FY2012 included approximately $102,000 of insurance proceeds related to water damage.
- Cash and cash equivalents were $1.077 million at year-end, versus $989,000. Working capital was $3.894 million, versus $3.261 million; current assets were $4.487 million and current liabilities $592,000.
- Operating cash flow fell mainly as accounts receivable increased $534,000. Accounts receivable, net, was $1.201 million at year-end, compared with $747,000 a year earlier.
- Investing activities used $113,000, including $165,000 for property and equipment and $50,000 for licenses, partly offset by insurance proceeds. Financing activities provided $55,000.
- Debt at May 31, 2012 included $43,000 drawn on a $400,000 bank line of credit, secured by company assets and expiring February 24, 2013. The equipment loan was repaid during FY2012. No off-balance-sheet arrangements were reported.
Material changes and business developments
- Asia sales rose to $2.420 million from $1.153 million; Europe sales were $2.533 million versus $2.483 million. U.S. sales declined to $1.074 million from $1.160 million.
- One customer represented 37.2% of FY2012 sales, up from 22.2%; that customer also represented 45.6% of gross receivables at year-end. Backlog increased to approximately $742,000 from $256,000.
- Management’s strategy is to license more developed external technology to expand the product line and shorten time to market. R&D expense continued for product development and improvement despite elimination of the dedicated research group in 2010.
- Headcount increased to 33 employees from 28. Manufacturing and assembly are conducted in Irvine and Mexicali.
Outlook, risks, and unusual items
- The filing provides no quantified revenue, earnings, or cash-flow guidance. Management identifies demand, margins, raw-material availability, distributor relationships, regulatory approvals, and international economic conditions as factors that could affect results.
- Products are subject to FDA and other regulatory requirements; some products are not FDA-cleared and are sold internationally or in the U.S. for research use. The California manufacturing license was due for renewal on November 19, 2012; the company reported no prior renewal failures.
- Other material risks include distributor and customer concentration, limited OTC trading liquidity, competition from larger companies, product liability, and potential supply constraints for certain materials. Two vendors accounted for 30.8% of raw-material purchases in FY2012.
- A burst pipe caused $33,522 of expenses and damage to fully depreciated equipment and fixtures. The company received $101,628 in insurance proceeds, approximately covering expenses and replacement costs.
- Management reported disclosure controls and internal control over financial reporting were effective at the reasonable-assurance level. The auditor issued an unqualified opinion on the financial statements but did not attest to internal control effectiveness. No legal proceedings were pending at year-end.
Key facts for investors to verify
- Whether the major customer’s elevated share of sales and receivables, and the large FY2012 receivables increase, translated into collections and repeat business.
- Whether the Asia-driven sales growth and higher backlog continued, and whether customer and regional concentration changed after year-end.
- Whether gross-margin improvement persisted as product mix, pricing, and production costs changed.
- Whether the credit line was renewed before its February 2013 expiry and whether liquidity remained adequate.
- Regulatory status and commercial progress of products still awaiting clearance, along with renewal of required licenses and certifications.