FORM 10-QSB/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 2002 Commission File No. 0-8765
BIOMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2645573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
(Not applicable)
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 5,260,142 shares of
common Stock as of October 13, 2002.
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and
Comprehensive Loss (unaudited) - Three Months Ended
August 31, 2002 and 2001. 2 & 3
Consolidated Balance Sheet (unaudited) - August 31, 2002 4 & 5
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended August 31, 2002 and 2001 6
Consolidated Statement of Changes in Shareholders'
Equity (unaudited) - Three Months Ended August 31, 2002 7
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Selected Financial Data 14-16
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Procedures and controls 16
PART II Other Information 17
Signatures 18
I
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended
August 31,
2002 2001
Net sales $2,089,507 $1,927,198
Cost of sales (1,434,429) (1,436,899)
--------- ---------
Gross profit 655,078 490,299
--------- ---------
Operating Expenses:
Selling, general and administrative 757,759 794,025
Research and development 47,877 57,835
--------- ---------
805,636 851,860
--------- ---------
Operating loss from continuing operations (150,558) (361,561)
--------- ---------
Other Expense (income):
Interest expense (10,797) (6,210)
Other income, net 47,981 5,641
--------- ---------
37,184 (569)
--------- ---------
Loss from continuing operations, before
minority interest in net loss of
consolidated subsidiaries and income taxes (113,374) (362,130)
Minority interest in net losses of consolidated
Subsidiaries 2,004 95,341
--------- ---------
Loss from continuing operations, before income taxes (111,370) (266,789)
Income tax expense 0 800
--------- ---------
Net loss from continuing operations (111,370) (267,589)
2
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS - Continued (UNAUDITED)
Discontinued operations:
Loss from discontinued operations, net (24,094) (36,605)
--------- ---------
Net loss (135,464) (304,194)
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on available-for-sale
securities (1,440) (3,702)
--------- ---------
Comprehensive loss $(136,904) $(307,896)
========= =========
Basic net loss per common share:
Net loss from continuing operations $ (.02) $ (.05)
Net loss from discontinued operations (.01) (.01)
--------- ---------
Basic net loss per common share $ (.03) $ (.06)
========= =========
Diluted net loss per common share:
Net loss from continuing operations $ (.02) $ (.05)
Net loss from discontinued operations (.01) (.01)
--------- ---------
Diluted net loss per common share $ (.03) $ (.06)
========= =========
Weighted average number of common and common
equivalent shares: Basic and diluted 5,249,216 5,043,760
========= =========
The accompanying notes are an integral part of these statements.
3
PART I - FINANCIAL INFORMATION SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS BIOMERICA, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
August 31, 2002
Assets
Current Assets
Cash and cash equivalents $ 271,482
Available for-sale securities 1,092
Accounts receivable, less allowance for
doubtful accounts of $197,588 1,276,172
Inventories, net 2,858,257
Notes receivable 2,419
Prepaid expenses and other 142,529
---------
Total Current Assets 4,551,951
Inventory, non-current 15,000
Property and Equipment, net of accumulated
depreciation and amortization 213,951
Intangible assets, net of accumulated amortization 97,150
Other Assets 35,546
---------
$4,913,598
=========
The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
BIOMERICA, INC. CONSOLIDATED BALANCE SHEET - Continued (UNAUDITED)
August 31, 2002
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit $ 1,208
Accounts payable and accrued liabilities 743,048
Accrued compensation 262,165
Net liabilities from discontinued operations 348,486
---------
Total Current Liabilities 1,354,907
Shareholder loan 337,650
---------
Total Liabilities $1,692,557
---------
Minority interest 2,088,140
Shareholders' Equity
Common stock, $0.08 par value authorized 25,000,000
shares, subscribed or issued and outstanding 5,273,475 480,455
Additional paid-in-capital 16,998,164
Accumulated other comprehensive loss (21,677)
Accumulated deficit (16,324,041)
----------
Total Shareholders' Equity 1,132,901
----------
Total Liabilities and Equity $ 4,913,598
==========
The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the quarter ended August 31, 2002 2001
Cash flows from operating activities:
Net loss from continuing operations $(111,370) $(267,589)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 35,887 50,899
Realized gain on sale of available
for-sale securities -- (977)
Minority interest in net loss of consolidated
Subsidiaries (2,004) (95,341)
Common stock issued for services rendered 12,417 --
Provision for losses on accounts receivable 1,136 (2,059)
Warrants and options issued for services rendered 16,182 23,453
Changes in current assets and liabilities:
Accounts Receivable 145,278 (9,256)
Insurance claim receivable 81,758 --
Inventories 62,755 (126,749)
Prepaid expenses and other current assets (20,055) 265
Accounts payable and other accrued liabilities (163,142) 317,159
Accrued compensation (15,317) (18,622)
-------- --------
Net cash provided by (used in) operating activities 43,525 (128,817)
-------- --------
Cash flows from investing activities:
Sale of available for-sale securities -- 6,217
Purchases of property and equipment (2,966) --
Other assets -- 11,007
-------- --------
Net cash (used in) provided by investing activities (2,966) 17,224
-------- --------
Cash flows from financing activities:
Change in minority interest 5,252 --
Increase (decrease) in shareholder loan (37,350) 130,000
Private placement net of offering costs -- 10,199
Increase (decrease) in line of credit (64,461) 20,000
-------- --------
Net cash (used in) provided by financing activities (96,559) 160,199
-------- --------
Net cash used in discontinued operations (1,795) (35,541)
-------- --------
Net (decrease) increase in cash and cash equivalents (57,795) 13,065
Cash at beginning of period 329,277 136,299
-------- --------
Cash at end of period $271,482 $149,364
======== ========
The accompanying notes are an integral part of these statements.
6
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED AUGUST 31, 2002
Common Stock
Common Stock Subscribed
----------------- --------------
Accumulated
Other
Number Additional Compre Accum
of Paid-in hensive ulated
Shares Amount Capital Shares Amount Loss Deficit Total
Balance at
May 31, 2002 5,172,364 $413,788 $16,981,982 28,333 $23,750 $(20,237) $(16,188,577) $1,210,706
Compensation
expense in
connection
with options
and warrants
granted 16,182 16,182
Change in
unrealized
gain on available
for sale securities (1,440) (1,440)
Common stock
issued for
services rendered 72,778 42,917 42,917
Net loss (135,464) (135,464)
Balance at
August 31,
2002 5,172,364 $413,788 $16,998,164 101,111 $66,667 $(21,677) $(16,324,041) $1,132,901
7
BIOMERICA, INC. CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS' EQUITY (UNAUDITED) FOR THE THREE MONTHS ENDED
AUGUST 31, 2002
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) August 31, 2002
(1) Reference is made to Note 2 of the Notes to Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended May 31, 2002, for a summary of significant
accounting policies utilized by the Company.
(2) The information set forth in these statements is unaudited and may
be subject to normal year-end adjustments. The information reflects all
adjustments which, in the opinion of management, are necessary to
present a fair statement of the consolidated results of operations of
Biomerica, Inc., for the periods indicated. It does not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flow in conformity with
generally accepted accounting principles.
(3) Consolidated results of operations for the interim periods covered
by this Report may not necessarily be indicative of results of operations
for the full fiscal year.
(4) Reference is made to Note 3 of the Notes to Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended May 31, 2002, for a description of the investments
in affiliates and consolidated subsidiaries.
(5) Reference is made to Notes 5 & 11 of the Notes to Consolidated
Financial Statements contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31, 2002, for information on
commitments and contingencies.
(6) Aggregate cost of available-for-sale securities exceeded aggregate
market value by approximately $21,677 at August 31, 2002.
(7) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE ("EPS"). SFAS No. 128 requires dual presentation of
basic EPS and diluted EPS on the face of all income statements issued
after December 15, 1997 for all entities with complex capital structures.
Basic EPS is computed as net income divided by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur from common shares issuable through
stock options, warrants and other convertible securities.
8 The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
For the Three Months Ended August 31, 2002
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
Basic EPS -
Loss from continuing
operations $(111,370) - $ (.02)
Loss from discontinued
operations (24,094) - (.01)
-------- --------- --------
(135,464) 5,172,364 (.03)
Diluted EPS -
Loss attributable to
common share - Holders
plus assumed conversions $(135,464) 5,172,364 $ (.03)
======== ========= ========
For the Three Months Ended August 31, 2001
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------ ---------
Basic EPS -
Loss from continuing
operations $(267,589) - $ (.05)
Loss from discontinued
operations (36,605) - (.01)
-------- --------- --------
(304,194) 5,043,760 (.06)
Diluted EPS -
Loss attributable to
common share - Holders
plus assumed conversions $ (304,194) 5,043,760 $ (.06)
======== ========= ========
The computation of diluted loss per share excludes the effect of
incremental common shares attributable to the exercise of outstanding
common stock options and warrants because their effect was antidilutive
due to losses incurred by the Company. As of August 31, 2002, there
was a total of 3,084,886 potential dilutive shares of common stock.
9
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations", which eliminates the pooling method of accounting for
business combinations initiated after June 30, 2001. In addition, SFAS 141
addresses the accounting for intangible assets and goodwill acquired in a
business combination. This portion of SFAS 141 is effective for business
combinations completed after June 30, 2001. The Company does not expect
SFAS 141 will have a material impact on the Company's financial position or
results of operations.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill And Intangible Assets", which revises the
accounting for purchased goodwill and intangible assets. Under SFAS 142,
goodwill and intangible assets with indefinite lives will no longer be
amortized and will be tested for impairment annually. SFAS 142 is effective
for fiscal years beginning after December 15, 2001, with earlier adoption
permitted. The adoption of FASB 142 did not have a material impact on the
Company's financial position or results of operations.
In August 2001, the FASB issued Statement of Financial Accounting Standards
FAS No. 143 ("SFAS 143"), "Accounting for Asset Retirement Obligations."
This statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to all entities and legal
obligations associated with the retirement of long-lived assets that result
from the acquisition, construction, development and/or normal operations of
long-lived assets, except for certain obligations of leases. This statement
is effective for financial statements issued for fiscal years beginning
after June 15, 2002. Management has not yet determined the impact of the
adoption of SFAS No. 143 on the Company's financial position or results of
operations.
In October 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of Long-
Lived Assets, " or SFAS No. 144 requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net
realizable value or include amounts for operating losses that have not yet
occurred. SFAS No. 144 is effective for financial statements issued for
fiscal years beginning after December 15, 2001 and, generally, is to be
applied prospectively. The adoption of SFAS 144 did not have a material
impact on the Company's financial position or results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 4 and 64,
Amendment of FASB State- ment No. 13, and Technical Corrections, "to
update, clarify and simplify existing accounting pronouncements. FASB
Statement No. 4, which required all gains and losses from debt
extinguishments to be aggregated and, if material, classified as an
extraordinary item, net of related tax effect, was rescinded. Consequently,
FASB Statement No. 64, which amended FASB Statement No. 4, was rescinded
because it was no longer necessary. The adoption of SFAS 145 did not have a
material impact on the Company's financial position or results of operations.
In June 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS
146 addresses accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit An Activity (Including Certain Costs Incurred in a
Restructuring). "SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized and measured initially at
fair value when the liability is incurred. SFAS No. 146 is effective for exit
or disposal activities that are initiated after December 31, 2002, with early
application encouraged. We do not expect the adoption of this statement to
have a material effect on our financial statements.
10
(8) Financial information about foreign and domestic operations and export
sales is as follows:
For the Three Months Ended
8/31/02 8/31/01
--------------------------
Revenues from sales to unaffiliated
customers:
United States $1,253,000 $957,000
Asia 66,000 41,000
Europe 362,000 477,000
South America 97,000 171,000
Middle East 74,000 88,000
Oceania 101,000 80,000
Other 137,000 113,000
--------- ---------
$2,090,000 $1,927,000
========= =========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
(9) Pursuant to a decision by the Nasdaq Listing Qualifications Panel,
the Company's common stock was delisted from the Nasdaq Stock Market
effective June 20, 2002, for failure to comply with the net tangible
assets or shareholders' equity requirements as set forth in Marketplace
Rule 4310(c)(2)(B). The Company's securities were immediately eligible
to trade on The OTC Bulletin Board and are traded under the symbol BMRA.OB.
(10) As of August 31, 2002, the Company had cash and available-for-sale
securities in the amount of $272,574 and working capital of $3,217,044.
Cash and working capital totaling $208,428 and $2,871,664, respectively,
relates to the Lancer subsidiary. Lancer's line of credit restricts
Biomerica's ability to draw on Lancer's resources and, as such, said cash,
working capital and equity are not available to Biomerica. Biomerica, Inc.
and its subsidiaries, are expected to fund their operations for at least
the next twelve months through their existing available financing,
working capital, and its shareholder line of credit.
The Company has suffered substantial recurring losses from operations over
the last couple of years. The Company has funded its operations through
debt and equity financings, and may have to do so in the future. ReadyScript
operations were discontinued in May 2001 and Allergy Immuno Technologies,
Inc. was sold in May 2002. ReadyScript and Allergy Immuno Technologies were
contributors to the Company's losses. The Company has also obtained a line
of credit from a shareholder/officer which it has and will continue to rely
on to help fund operations. The Company has reduced operating costs
through certain cost reduction efforts and plans to concentrate on its core
business in Lancer and Biomerica to increase sales. There can be no assurance
that the Company will be able to become profitable, generate positive cash
flow from operations or obtain the necessary equity or debt financing to fund
operations in the future.
During the quarter ended August 31, 2002, the Company operations provided
cash of $43,525. This compares to cash used in operations of $128,817 in the
same period in the prior fiscal year. Cash used by financing activities was
$96,559, which resulted from the payment on the line of credit at Lancer of
$64,461 and payment of the shareholder loan at Biomerica of $37,350, which
were offset by a $5,252 change in minority interest.
(11) Lancer has a $400,000 line of credit with a financial institution,
expiring October 24, 2003. Borrowings are made at prime plus 2.0%, in no
event less than 8.0%, (8.0% at August 31, 2002) and are limited to specified
percentages of eligible accounts receivable. The outstanding balance at
August 31, 2002 was $1,208 and the unused portion available was
approximately $312,000.
The line of credit is collateralized by substantially all the assets of
Lancer, including inventories, receivables, and equipment. The lending
agreement for the line of credit requires, among other tings, that Lancer
maintain a tangible net worth ratio of $2,100,000, which was met, and that
receivables' payments be sent to a controlled lockbox. In addition to
interest, a management fee of .25% of the average monthly outstanding loan
balance and an unused balance fee of .0425% on the average monthly
unused portion available are required. Lancer is not required to
maintain compensating balances in connection with this lending
agreement.
Proceeds from this line cannot be used to support the operations of
Biomerica.
(12) Biomerica, Inc. entered into a line of credit agreement on September
12, 2000 with Janet Moore, an office and director, whereby she will loan to
the Company, as needed, up to $500,000 for working capital needs. The line
of credit bears interest at 8%, is secured by Biomerica accounts receivable
and inventory and expires September 12, 2003. The unused portion of the line
of credit at August 31, 2002, was $162,350.
11
(13) In July 2002, 67,778 shares of Biomerica restricted common stock (at
$0.60 per share), were approved for issuance in payment of accrued salary for
two officers/directors. In connection with this issuance, Biomerica recorded
compensation expense of $40,667, the fair market value of the stock at the
time of issuance. During the three months ended August 31, 2002, 5,000 shares
of Biomerica's restricted common stock valued at $2,250 were earned in
payment to its Chief Executive Officer for certain management services.
(14) In October 2002, the Company agreed to issue 20,000 options at the then
fair market value to employees. These options will vest over four years.
(15) The Company agreed to a bonus plan for employees of 10% to 20% of the
profit of the diagnostics' division for the year ending May 31, 2003.
(16) On April 10, 2002, the Company filed a Form S-4 for the proposed
registration of between 488,200 and 984,274 shares of Biomerica common stock.
The shares were to be issued for the purchase of the assets of the subsidiary
Lancer Orthodontics, Inc. Due to market conditions, both boards of directors
have agreed not to proceed with the proposed purchase and in July 2002
Biomerica requested that the registration statement be withdrawn.
(17) In June of 2002 the Company signed a distribution agreement with a
company in Japan for the distribution of certain kits. The Company received
a deposit of $35,000 in the month of June 2002 related to this agreement.
(18) In September the Board of Directors approved the grant of a stock option
for 7,000 shares of Biomerica common stock at current market value to an
outside consultant.
(19) During the three months ended August 31, 2002, $16,182 was recorded as
amortization expense for previously issued warrants and options.
(20) Lancer Orthodontics, Inc. issued non-qualified options granted to the
Chief Executive Officer to purchase 113,000 shares of Common Stock at $.30.
These options were granted on December 1, 2001 and are exercisable at the
rate of one-third per year and have a term of five years.
(21) For the three months ended August 31, 2002, other income of $52,655 was
realized from the insurance claim settlement of $134,413 for the theft of
inventory at the Lancer Orthodontics, Inc.'s Mexicali facility, less $81,758
insurance claim receivable valued at cost.
12
(22) Reportable business segments for the quarter ended August 31, 2002
and 2001 are as follows:
2002 2001
---------- ----------
Domestic sales: Orthodontic products $ 755,000 $ 742,000
========= =========
Medical diagnostic products $ 498,000 $ 215,000
========= =========
Foreign sales: Orthodontic products $ 531,000 $ 693,000
========= =========
Medical diagnostic products $ 306,000 $ 277,000
========= =========
Net sales:
Orthodontic products $1,286,000 $1,435,000
Medical diagnostic products 804,000 492,000
--------- ---------
Total $2,090,000 $1,927,000
========= =========
Operating profit (loss):
Orthodontic products $ (46,000) $ (126,000)
Medical diagnostic products (105,000) (236,000)
--------- ---------
Total $ (151,000) $ (362,000)
========= =========
Operating loss from discontinued
segment:
AIT $ -- $ (22,000)
ReadyScript (24,000) (15,000)
--------- ---------
Total $ (24,000) $ (37,000)
========= =========
Domestic long-lived assets:
Orthodontic products $ 91,000 $ 177,000
Medical diagnostic products 197,000 348,000
--------- ---------
Total $ 288,000 $ 525,000
========= =========
Foreign long-lived assets:
Orthodontic products $ 23,000 $ 40,000
Medical diagnostic products -- --
--------- ---------
Total $ 311,000 $ 565,000
========= =========
Total assets:
Orthodontic products $3,467,000 $3,874,000
Medical diagnostic products 1,447,000 1,553,000
--------- ---------
Total $4,914,000 $5,427,000
========= =========
Depreciation and amortization
expense:
Orthodontic products $ 24,000 $ 27,000
Medical diagnostic products 12,000 24,000
--------- ---------
Total $ 36,000 $ 51,000
========= =========
Capital expenditures:
Orthodontic products $ 2,000 $ --
Medical diagnostic products 1,000 --
--------- ---------
Total $ 3,000 $ --
========= =========
The net sales as reflected above consist of sales of unaffiliated customers
only as there were no significant intersegment sales during the quarter
ended August 31, 2002 and 2001.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND SELECTED FINANCIAL DATA
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.
RESULTS OF OPERATIONS
Consolidated net sales for Biomerica were $2,089,507 for the first quarter
of fiscal 2003 as compared to $1,927,198 for the same period in the previous
year. This represents an increase of $162,309, or 8.4%. Of the
total consolidated net sales for fiscal 2002, $1,285,499 is attributable
to Lancer, and $804,008 to Biomerica. Lancer sales decreased by $149,289
over the previous fiscal year due to decreases in Lancer's international
sales. Biomerica sales increased by $311,598 primarily due to greater sales
of the EZ Detect product due to a large screening program and the Aware
product (which had sales of approximately $65,000).
Cost of sales decreased by $2,470 or 0%. Lancer's cost of sales as a
percentage of sales decreased from 75.1% to 71.9%. This decrease was
attributable to a reduction in scrap and other manufacturing efficiencies.
Biomerica's costs decreased from 73.2% of sales to 63.5% due to higher
sales in relation to fixed costs.
Selling, general and administrative costs decreased by $36,266, or 4.6%.
Lancer had decreased selling, general and administrative costs of $90,901
due to decreased labor and travel costs. Biomerica had an increase of
$54,635, which was primarily due to higher commissions associated with
higher sales.
14
Research and development decreased by $9,958, or 17.2%. Lancer had an
increase in research and development costs of $15,186 due to the resumption
of product development. Biomerica had decreased costs of $25,144 primarily
due to lower wages and related costs.
For the three months ended August 31, 2002, other income of $52,655 was
realized from the insurance claim settlement of $134,413 for the theft of
inventory at the Lancer Orthodontics Inc.'s Mexicali facility, less $81,758
insurance claim receivable valued at cost.
Interest expense increased by $4,587 compared to the previous year due
to increased borrowings at Biomerica.
Please refer to Note 3 in the Notes to the Consolidated Financial
Statements in the report on Form 10-KSB for the year ended May 31, 2002,
for a more in-depth discussion of subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2002, the
Company had cash and available-for-sale securities in the amount of $272,574
and working capital of $3,217,044. Cash and working capital totaling $208,428
and $2,871,664, respectively, relates to the Lancer subsidiary. Lancer's line
of credit restricts Biomerica's ability to draw on Lancer's resources and, as
such, said cash, working capital and equity are not available to Biomerica.
Biomerica, Inc. and its subsidiaries, are expected to fund their
operations for at least the next twelve months through their existing
available financing, working capital, and its shareholder line of credit.
The Company has suffered substantial recurring losses from operations
over the last couple of years. The Company has funded its operations through
debt and equity financings, and may have to do so in the future. ReadyScript
operations were discontinued in May 2001 and Allergy Immuno Technologies was
sold in May 2002. ReadyScript and Allergy Immuno Technologies were
contributors to the Company's losses. The Company has also obtained a line
of credit from a shareholder/officer which it has and will continue to rely
on to help fund operations. The Company has reduced operating costs through
certain cost reduction efforts and plans to concentrate on its core business
in Lancer and Biomerica to increase sales. There can be no assurance that the
Company will be able to become profitable, generate positive cash flow from
operations or obtain the necessary equity or debt financing to fund
operations in the future.
The Company wrote off $20,000 of impaired fixed assets for its
discontinued subsidiary, ReadyScript, during the quarter ended August 31,
2002.
During the quarter ended August 31, 2002, the Company operations provided
cash of $43,525. This compares to cash used in operations of $128,817 in the
same period in the prior fiscal year. Cash used by financing activities was
$96,559, which resulted from the payment on the line of credit at Lancer of
$64,461 and payment of the shareholder loan at Biomerica of $37,350, which
were offset by a $5,252 change in minority interest.
Pursuant to a decision by the Nasdaq Listing Qualifications Panel, the
Company's common stock was delisted from the Nasdaq Stock Market effective
June 20, 2002, for failure to comply with the net tangible assets or
shareholders' equity requirements as set forth in Marketplace Rule
310(c)(2)(B). The Company's securities were immediately eligible to trade
on the OTC Bulletin Board and are traded under the symbol BMRA.OB.
15
At August 31, 2002, Lancer had a $400,000 line of credit with a financial
Institution, through October 24, 2003. Borrowings are made at prime plus
2.0% (8.0% at August 31, 2002) and are limited to specified percentages of
eligible accounts receivable. The outstanding balance at August 31, 2002
was $1,208 and the unused portion available was approximately $312,000.
The line of credit is collateralized by substantially all the assets of
Lancer, including inventories, receivables, and equipment. The lending
agreement for the line of credit requires, among other tings, that Lancer
maintain a tangible net worth ratio of $2,100,000, which was met, and that
receivables' payments be sent to a controlled lockbox. In addition to
interest, a management fee of .25% of the average monthly outstanding loan
balance and an unused balance fee of .0425% on the average monthly unused
portion available are required. Lancer is not required to maintain
compensating balances in connection with this lending agreement.
Biomerica, Inc. entered into a line of credit agreement on September
12, 2000 with Janet Moore, an office and director, whereby she will loan to
the Company, as needed, up to $500,000 for working capital needs. The line
of credit bears interest at 8%, is secured by Biomerica accounts receivable
and inventory and expires September 12, 2002. The unused portion of the line
of credit at August 31, 2002, was $162,350.
WE MAY FACE INTERRUPTION OF PRODUCTION AND SERVICES DUE TO INCREASED
SECURITIES MEASURES IN RESPONSE TO TERRORISM:
Our business depends on the free flow of products and services through the
channels of commerce. Recently, in response to terrorists' activities and
threats aimed at the United States, transportation, mail, financial and
other services have been slowed or stopped altogether. Further delays or
stoppages in transportation, mail, financial or other services could have a
material adverse effect on our business, results of operations and financial
condition. Furthermore, we may experience an increase in operating costs,
such as costs for transportation, insurance and security as a result of
the activities and potential activities. We may also experience delays in
receiving payments from payers that have been affected by the terrorist
activities and potential activities. The U.S. economy in general is being
adversely affected by the terrorist activities and potential activities
and any economic downturn could adversely impact our results of operations,
impair our ability to raise capital or otherwise adversely affect our ability
to grow our business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. A
discussion of the Company's exposure to, and management of, market risk
appears in Item 2 of this Form 10-Q under the heading "Management's
Discussion and Analysis of Financial Condition and Selected Financial Data."
Item 4. PROCEDURES AND CONTROLS. Within the 90 days prior to the date of
this report, the Company carried out an evaluation, under the supervision
and with the participation of the Company's management, including the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company's disclosure controls and procedures are
effective. There were no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
16
POTENTIAL CONSEQUENCES OF ALLERGY IMMUNO TECHNOLOGY, INC.'S FAILURE TO
CONDUCT A FORMAL STOCKHOLDER VOTE IN CONNECTION WITH OUR PURCHASE OF ASSETS
FROM IT AND ASSUMPTION OF ITS LIABILITIES
During not less than the preceding three years, AIT, a former majority-owed
subsidiary of ours, had been unprofitable and, for financial statement
reporting purposes, its losses were consolidated into our financial
statements. In March of 2002, AIT ceased its clinical testing services.
Thereafter, in late April of 2002, we entered into a transaction, pursuant
to which, at the end of May of 2002, AIT transferred its remaining assets to
us (valued on its financial statements at approximately $8,000), issued to
us approximately 808,500 shares of its restricted common stock (valued as of
the date of the transaction at approximately $19,000), and we assumed its
remaining liabilities (recorded on its financial statements at approximately
$27,000) (the "Asset/Liability Transaction"). The Asset/Liability
Transaction was approved by our board on April 22, 2002. Approval by our
stockholders was not required under Delaware corporate law. We understand
that AIT's board approved the Asset/Liability Transaction in April of 2002
and that, rather than calling a formal meeting of AIT's stockholders, our
consent to that transaction was deemed to constitute the approval of the
holders of a majority of AIT's capital stock, as permitted by Delaware
corporate law.
The Company's substantial recurring losses from operations during the
preceding years and its lack of readily available capital, other than a line
of credit from a stockholder and officer, to help fund operations were the
major factors in its decision to stop lending funds to AIT. Both
ReadyScript and AIT contributed to the Company's losses. Accordingly, the
Company discontinued operations of ReadyScript in May of 2001 and ceased
funding of AIT one year later. (See Notes 2 and 13 to the Company's Audited
Financial Statements for the year ended May 31, 2002).
At the time of the approval of the Asset/Liability Transaction, our seven
directors were Allen Barbieri, David Barrows, Carlos Beharie, M.D., Francis
R. Cano, Ph.D., Zackary S. Irani, Janet Moore, and Robert A. Orlando, M.D.,
Ph.D., three of whom (Mr. Irani, Ms. Moore, and Dr. Orlando) were also
directors of AIT. AIT's fourth director at such time was Susan Irani, whom
AIT deemed to be an affiliate of ours. Further, at such time, Mr. Irani
served as the Chief Executive Officer and Ms. Moore served as the Chief
Financial Officer and Secretary of both AIT and us. The Asset/Liability
Transaction was negotiated by management common to AIT and us and was
approved by all of our directors (including the directors constituting a
majority of our board, who did not serve in common with AIT). We were
advised that the Asset/Liability Transaction was approved by all of the AIT
directors (each of whom also served as one of our directors or was deemed
to be an affiliate of ours).
Notwithstanding the approval of the Asset/Liability Transaction by AIT's
board and its majority stockholder, AIT may not have provided prompt notice
of that approval to all of its stockholders in a manner fully consistent
with Delaware corporate law. That failure could have certain potential
consequences. Although AIT did not solicit proxies from its stockholders,
it also did not file a Schedule 14C with the Securities and Exchange
Commission in connection with the approval of the Asset/Liability
Transaction by its majority stockholder. Further, the potential exists that
one of AIT's stockholders could bring a legal action under Delaware state
law against AIT either to rescind the Asset/Liability Transaction, or to seek
damages against AIT. Because of our status as an affiliate of AIT at the
time of the Asset/Liability Transaction, such failure to file a Schedule 14C
or a potential action could also name us, our directors, and our officers.
As of the date of this amended filing, no action has been filed, and no
proceeding has been commenced, against us or any of our directors or
officers, and no person or agency has contacted us or our directors or
officers announcing an intention to bring any action or to commence any
proceeding.
We have been advised by counsel to AIT that, as of the date of this amended
filing, no action has been filed, and no proceeding has been commenced,
against AIT or any of its directors or officers, and no person or agency has
contacted AIT or its directors or officers announcing an intention to bring
any action or to commence any proceeding. AIT has informed us that its
present attorney has advised it that the likelihood of such an action or
proceeding is minimal, the possibility of its success on the merits is
remote, and the scope of any potential damages award is nominal for a
variety of reasons. For example,
No AIT stockholder or other person with potential standing to sue has
announced dissatisfaction with the Asset/Liability Transaction, although
it was announced publicly in June of 2002.
The assets that were the subject of the Asset/Liability Transaction had
historically yielded only unprofitable operations, which operations had
ceased prior to the approval of the Asset/Liability Transaction, as well
as the closing of that transaction.
The value of the assets that were the subject of the Asset/Liability
Transaction was small and less than the amount of liabilities that we
concurrently assumed; thus, any award the compensation due to any potential
plaintiffs upon a successful claim would be correspondingly small.
Any potential liability under such a claim would be incapable of precise
determination because the measure of damages under such a claim would depend
upon a subjective valuation of the assets and liabilities that were the
subject of the Asset/Liability Transaction.
We do not believe that such an action is probable, nor that a liability for
such an action, if any, could be estimated. Accordingly, we have not accrued
a liability in the accompanying consolidated financial statements related to
the aforementioned matter.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. Inapplicable.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable.
Item 5. OTHER INFORMATION. Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. A report on Form 8-K was filed
with the Securities and Exchange Commission on June 6, 2002.
(a) Exhibits
99.1 Certifications of Chief Executive Officer and Chief Financial
Officer pursuant To 18 U.S.C., Section 1350, as adopted pursuant
to Section 302 and 906 of the Sarbanes-Oxley Act of 2002.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 5, 2003
BIOMERICA, INC.
By: /S/ Zackary S. Irani
Zackary S. Irani
Chief Executive Officer
18
STATEMENT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER REGARDING
FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS
I, Janet Moore, certify that:
1. I have reviewed this amended quarterly report on Form 10-QSB of
Biomerica, Inc.
2. Based on my knowledge, this amended quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this amended quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
amended quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and Maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14 for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this amended quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
amended quarterly report (the "Evaluation Date"); and; c) presented in this
amended quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
amended quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 5, 2003
/s/ Janet Moore
Chief Financial Officer
19
STATEMENT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 BY
PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER REGARDING FACTS
AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS
I, Zackary Irani, certify that:
1. I have reviewed this amended quarterly report on Form 10-QSB/A of
Biomerica, Inc.
2. Based on my knowledge, this amended quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this amended quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the period presented in this
amended quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this amended quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
amended quarterly report (the "Evaluation Date"); and; c) presented in this
amended quarterly report our conclusions about the effectiveness of the
disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officer and I have indicated in this
amended quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: June 5, 2003
/s/ Zackary S. Irani
Chief Executive Officer
20
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Amended Quarterly Report on Form 10-QSB/A of Biomerica
Inc. for the quarterly period ended August 31, 2002 (the Report) as filed
with the Securities and Exchange Commission on the date hereof, I, Janet
Moore, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
#1350, as adopted pursuant to #906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Janet Moore
Janet Moore
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Amended Quarterly Report on Form 10-QSB/A of Biomerica
Inc. for the quarterly period ended August 31, 2002 (the Report) as filed
with the Securities and Exchange Commission on the date hereof, I, Zackary
Irani, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
#1350, as adopted pursuant to #906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
/s/ Zackary S. Irani
Zackary S. Irani
Chief Executive Officer