Biomerica, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended November 30, 2011. Financial statements are unaudited. Biomerica develops, manufactures, and markets diagnostic products for clinical laboratories and point-of-care use, with sales in the U.S. and international markets.
Financial performance
| Metric | Three months ended Nov. 30, 2011 | Three months ended Nov. 30, 2010 | Six months ended Nov. 30, 2011 | Six months ended Nov. 30, 2010 |
|---|---|---|---|---|
| Net sales | $1,616,606 | $1,160,842 | $3,024,271 | $2,338,554 |
| Gross profit | $667,404 | $300,545 | $1,183,825 | $689,325 |
| Gross margin | 41.3% | 25.9% | 39.1% | 29.5% |
| Operating income (loss) | $194,086 | $(177,615) | $310,987 | $(189,845) |
| Net income (loss) | $195,092 | $137 | $312,884 | $(12,049) |
| Basic and diluted EPS | $0.03 | $0.00 | $0.05 | $(0.00) |
Sales increased 39.3% for the quarter and 29.3% year to date. Management attributed growth primarily to Asia. Gross margin improved as sales grew against relatively stable fixed costs and product mix shifted toward higher-margin products. SG&A rose 8.3% for the quarter and 6.1% year to date, primarily because of a higher bad-debt reserve. R&D declined 28.8% and 21.3%, respectively, following completion of some licensed-product development and reduced dedicated research staffing.
Operating results improved substantially from the prior periods. Prior-year other income included a research grant; other income was only $60 in each 2011 comparison period, versus $177,568 for the prior-year quarter and $177,605 for the prior-year six months. Thus, current-period earnings comparisons also reflect the absence of that prior-year grant income.
Cash flow, liquidity, and debt
- Six-month operating cash flow was $76,290, versus $77,563 a year earlier. The increase in receivables of $418,116, largely related to a large quarter-end sale, and lower payables/accruals used cash.
- Investing cash outflow was $74,321, including $49,321 of property and equipment purchases and $25,000 of intangible additions. Financing cash outflow was $23,648, primarily equipment-loan payments. Cash declined $23,302 to $965,968.
- At November 30, current assets were $4,013,565 and current liabilities were $422,126; reported working capital was $3,591,439. Total assets were $5,074,782 and shareholders’ equity was $4,652,656.
- Equipment-loan balance was $11,742, down from $35,390 at May 31, 2011. The $400,000 asset-secured credit line had no outstanding balance; it was due to expire February 24, 2012.
Material changes, outlook, and risks
- Domestic sales were lower than the prior year’s comparison, which management said included initial stocking purchases by a major U.S. drugstore chain. Asia sales increased substantially year over year.
- One customer represented 49.9% of gross accounts receivable at November 30, 2011, versus 22.2% at May 31. The allowance for doubtful accounts rose to $65,183 from $32,204. Management said it closely monitors large balances and may require payment before shipping additional orders.
- The company provided no specific revenue or earnings guidance. It cautioned that future results may vary and identified risks including customer and distributor concentration, product demand, competition and margin pressure, access to raw materials, regulatory approvals and requirements, international and Mexican operations, economic conditions, and the need to raise capital.
- Subsequent event: On January 5, 2012, the board approved options for 402,500 shares at $0.43 per share, expiring in five years. The assigned value was $100,192, to be expensed over the vesting period.
- The filing reported no legal proceedings, defaults on senior securities, or material changes to internal control; management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether the large quarter-end sale and customer receivable concentration convert to cash, and whether the bad-debt allowance is adequate.
- Whether higher Asia sales and improved product mix persist, given the absence of the prior-year drugstore stocking orders and research grant income.
- Renewal or replacement of the $400,000 credit line before its February 24, 2012 expiration.
- The dilution and expense effects of the 402,500 post-quarter options, in addition to the 953,250 options and warrants outstanding at November 30, 2011.
- Regulatory status of products, since the filing notes that some products had not been submitted for FDA diagnostic-use clearance.