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BMRA > SEC Filings for BMRA > Form 10-Q on 14-Jan-2014All Recent SEC Filings

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Form 10-Q for BIOMERICA INC


14-Jan-2014

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CERTAIN INFORMATION CONTAINED HEREIN (AS WELL AS INFORMATION INCLUDED IN ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE OR TO BE MADE BY BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND SUCCESS OR CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION INVOLVES IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT ANTICIPATED RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF BIOMERICA. THE POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS. THESE RISKS AND UNCERTAINTIES ALSO INCLUDE THE SUCCESS OF THE COMPANY IN RAISING NEEDED CAPITAL, THE ABILITY OF THE COMPANY TO MAINTAIN REQUIREMENTS TO BE LISTED ON NASDAQ, THE CONTINUAL DEMAND FOR THE COMPANY'S PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE MARKETPLACE, AVAILABILITY OF RAW MATERIALS, HEALTH CARE REGULATIONS AND THE STATE OF THE ECONOMY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF, AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS.

OVERVIEW

Biomerica, Inc. and Subsidiaries ("Biomerica", the "Company", "we" or "our") develops, manufactures, and markets medical diagnostic products designed for the early detection and monitoring of chronic diseases and medical conditions. Our medical diagnostic products are sold worldwide in two markets: 1) clinical laboratories and 2) point of care (physicians' offices and over-the-counter drugstores). Our diagnostic test kits are used to analyze blood, urine or stool samples from patients in the diagnosis of various diseases and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations.

RESULTS OF OPERATIONS

Consolidated net sales for Biomerica were $934,841 for the three months ended November 30, 2013 as compared to $1,883,771 for the same period in the previous year. This represents a decrease of $948,930 or 50.4%. For the six month period ended November 30, 2013 as compared to 2012, net sales were $1,948,580 as compared to $3,585,719. This represents a decrease of $1,637,139, or 45.7%. The decrease for both periods was due to the decrease of sales in Asia which resulted from the restructuring of the Company's distribution channel in China which is negatively impacting sales in the near term. Management anticipates that sales volume through this distribution channel shall increase in the balance of the fiscal year. In addition, Biomerica will begin supplying two of its point of care products to a multinational pharmaceutical company for distribution in one European country with the possibility of expanding into other countries throughout Europe. In addition, the multinational company is considering distribution of other Biomerica point of care products.

For the three months ended November 30, 2013 as compared to November 30, 2012, cost of sales increased as a percentage of sales from 59.2% of sales or $1,114,560, to 72.7% of sales or $679,197. For the six months ended November 30, 2013 as compared to 2012, cost of sales increased as a percentage of sales from 58.1% of sales or $2,084,259, to 73.5% of sales or $1,432,646. The increase in cost of sales as a percentage for both periods was a result of decreased sales without a corresponding decrease in expenses due to certain fixed costs. Because produced units were lower, the Company did not realize the benefits of economies of scale.

For the three months ended November 30, 2013 compared to 2012, selling, general and administrative costs decreased by $39,611, or 9.8%. For the six month period ended November 30, 2013 as compared to 2012, these expenses decreased by $28,934, or 3.9%. The overall decrease in selling, general and administrative costs was primarily due to the Mexico facility restructuring in the second quarter of 2013.

For the three months ended November 30, 2013 compared to 2012, research and development expenses increased by $21,048 or 18.2%. For the six month period ended November 30, 2013 as compared to 2012, these expenses increased by $24,324, or 11.9%. The increases were primarily due to materials purchased to be used in development and refining of certain products and the addition of personnel in the research and development department.

For the three months ended November 30, 2013 as compared to November 30, 2012, dividend and interest income and interest expense remained relatively constant.


LIQUIDITY AND CAPITAL RESOURCES

As of November 30, 2013 and May 31, 2013, the Company had cash and cash equivalents in the amount of $1,647,559 and $2,469,796 and working capital of $4,298,533 and $4,693,462, respectively.

During the six months ended November 30, 2012 the Company's operations used cash of $740,148 as compared to cash generated of $396,998 in the same period of the prior fiscal year. Cash used by operations in fiscal 2014 was a result of a net loss of $411,072, payment of accounts payable of $65,525, increases in inventory of $321,700 of inventory, and payout of accrued compensation of $87,358. In addition to this there were non-cash charges of approximately $97,352 for depreciation and amortization expense. Cash used in investing activities in the six months ended November 30, 2013 was $83,855 as compared to $242,416 in the six months ended November 30, 2012. Cash provided by financing activities in the six months ended November 30, 2013 was $1,780 as compared to cash used of $37,001 in the six months ended November 30, 2012. Cash provided by financing activities for the six months ended November 30, 2013, was a result of the exercise of stock options, whereas cash used of $37,001 in the prior fiscal year was due to the payment of $43,000 on the line of credit which was offset by $5,999 for the exercise of stock options.

On February 13, 2009, the Company renewed the line of credit (the "Line") with its bank which has a borrowing limit of $400,000. The Line is secured by substantially all of the Company's assets, bears interest at 1.0% plus the Wall Street Journal Prime West Coast Edition prime rate and expires February 24, 2014. The balance at November 30, 2013 and May 31, 2013 was $0.

OFF BALANCE SHEET ARRANGEMENTS - None.

CRITICAL ACCOUNTING POLICIES

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.

We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, and inventory reserve. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. We suggest that our significant accounting policies be read in conjunction with this Management's Discussion and Analysis of Financial Condition and Results of Operations.

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