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 February 28, 2003 Commission File No. 0-8765
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BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
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(Not applicable)
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(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
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Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes No X
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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 April 9, 2003.
BIOMERICA, INC.
INDEX
PART I
Item 1. Financial Statements:
Consolidated Statements of Operations and Comprehensive Loss
(unaudited) - Nine Months and Three Months Ended
February 28, 2003 and 2002....................................2 & 3
Consolidated Balance Sheet (unaudited) - February 28, 2003....4 & 5
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended February 28, 2003 and 2002..................6 & 7
Consolidated Statement of Changes in Shareholders' Equity
(unaudited) Nine Months Ended February 28, 2003...................8
Notes to Consolidated Financial Statements.....................9-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data...................................16-18
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......18
Item 4. Procedures and controls......................................... 19
PART II Other Information................................................19
Signatures....................................................20-24
1
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Nine Months Ended Three Months Ended
February 28, February 28,
2003 2002 2003 2002
----------- ------------ ------------ ------------
Net sales ........................................... $6,517,414 $ 6,468,779 $ 2,291,377 $ 2,306,135
Cost of sales .................................. 4,515,017 4,384,346 1,562,663 1,487,521
----------- ------------ ------------ ------------
Gross profit ................................... $2,002,397 2,084,433 728,714 818,614
----------- ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative ............ 2,113,020 2,322,817 655,151 728,778
Research and development ....................... 185,459 125,755 75,253 37,105
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2,298,479 2,448,572 730,404 765,883
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Operating (loss) income from continuing operations... (296,082) (364,139) (1,690) 52,731
----------- ------------ ------------ ------------
Other Expense (income):
Interest expense ............................... 25,273 26,087 7,573 10,834
Other (income) expense, net .................... (51,108) ( 5,222) 814 (17,136)
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(25,835) 20,865 8,387 (6,302)
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(Loss) income from continuing operations,
before minority interest in net loss of
consolidated subsidiaries ......................
and income taxes ............................... (270,247) (385,004) (10,077) 59,033
Minority interest in net (losses) profits of
consolidated subsidiaries ...................... 31,209 (4,012) 13,343 (34,867)
----------- ------------ ------------ ------------
(Loss) income from continuing operations, before
income taxes ........................................ (301,456) (380,992) (23,420) 24,166
Income Tax Expense .................................. 3,018 1,600 1,224 0
----------- ------------ ------------ ------------
Net (loss) income from continuing operations ........ (304,474) (382,592) (24,644) 24,166
2
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Nine Months Ended Three Months Ended
February 28, February 28,
2003 2002 2003 2002
----------- ------------ ------------ ------------
Discontinued operations:
Loss from discontinued operations, net ......... (40,022) (78,774) (1,491) (39,533)
----------- ------------ ------------ ------------
Net loss .......................................... (344,496) (461,366) (26,135) (15,367)
Other comprehensive loss, net of tax
Unrealized loss on available-for-sale
securities...................................... (2,122) (11,001) (365) (5,815)
----------- ------------ ------------ ------------
Comprehensive loss .............................. $ (346,618) $ (472,367) $ (26,500) $ (21,182)
=========== ============ ============ ============
Basic net loss per common share:
Net income (loss) from continuing operations ... $ (.06) $ (.08) $ (.00) $ .00
Net loss from discontinued operations .......... (.01) (.01) (.00) (.00)
----------- ------------ ------------ ------------
Basic net loss per common share ................... $ (.07) $ (.09) $ (.00) $ (.00)
=========== ============ ============ ============
Diluted net loss per common share:
Net income (loss) from continuing operations ..... $ (.06) $ (.08) $ (.00) $ .00
Net income (loss) from discontinued operations ... (.01) (.01) (.00) (.00)
----------- ------------ ------------ ------------
Diluted net loss per common share ................. $ (.07) $ (.09) $ (.00) $ (.00)
=========== ============ ============ ============
Weighted average number of common and
common equivalent shares:
Basic and diluted ............................ 5,224,867 5,065,534 5,258,475 5,120,654
=========== ============ ============ ============
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
February 28,
2003
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Assets
Current Assets
Cash and cash equivalents ............................... $ 580,147
Available-for-sale securities ........................... 410
Accounts receivable, less allowance for doubtful
accounts of $194,492.. 1,538,485
Inventory, net .......................................... 2,504,772
Notes receivable ........................................ 2,419
Prepaid expenses and other .............................. 80,542
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Total Current Assets .............................. 4,706,775
Inventory, non-current ...................................... 17,000
Property and Equipment, net of accumulated depreciation
and amortization... 264,917
Intangible assets, net of accumulated amortization .......... 85,282
Other Assets ................................................ 39,197
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$5,113,171
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The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED), CONTINUED
February 28,
2003
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Liabilities and Shareholders' Equity
Current Liabilities
Line of credit ......................................... $ 478
Accounts payable and accrued liabilities ............... 956,056
Accrued compensation ................................... 325,241
Shareholder loan........................................ 328,250
Net liabilities from discontinued operations ........... 363,914
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Total Current Liabilities ......................... 1,973,939
Minority interest ........................................... 2,134,081
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Shareholders' Equity
Unrealized loss on available-for-sale of securities..... (22,359)
Common stock, $0.08 par value authorized 25,000,000 shares,
subscribed or issued and outstanding 5,478,324 ....... 420,810
Common stock subscribed................................. 66,600
Additional paid-in-capital ............................. 17,073,173
Accumulated deficit .................................... (16,533,073)
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Total Shareholders' Equity .................................. 1,005,151
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Total Liabilities and Shareholders' Equity .................. $ 5,113,171
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The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002
2003 2002
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Cash flows from operating activities:
Net loss from continuing operations ................ $(304,474) $(382,592)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization ................. 106,138 149,211
Realized gain on sale of available for-sale
securities.. -- (10,026)
Minority interest in net income (loss) of consolidated
subsidiaries ................................ 31,209 (4,012)
Common stock issued for services rendered ..... 67,517 61,886
Provision for losses on accounts receivable ... (1,960) (4,905)
Warrants and options issued for services rendered 48,546 64,560
Changes in current assets and liabilities:
Accounts Receivable ......................... (32,181) (112,381)
Inventories ................................. 414,240 (58,580)
Prepaid expenses and other current assets ... 41,932 (23,209)
Accounts payable and other accrued liabilities 49,866 138,214
Accrued compensation ........................ 17,259 51,482
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Net cash provided by (used in)operating activities 438,092 (130,352)
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Cash flows from investing activities:
Sale of available for-sale securities ......... -- 39,116
Increase in notes receivable .................. -- --
Purchases of property and equipment ........... (90,328) (8,341)
Other assets .................................. (3,651) (1,971)
Purchases of intangible assets ................ (21,987) (10,591)
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Net cash (used in) provided by investing activities (115,966) 18,213
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Cash flows from financing activities:
Issuance of shares by subsidiary ............. 17,980 --
Proceeds from sale of common stock subscribed 25,000 --
Private placement net of offering costs ...... -- 4,400
Exercise of stock options .................... -- 1,128
(Decrease) increase in line of credit ........ (65,191) (22,815)
Increase in shareholder loan ................. (46,750) 215,000
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6
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
NINE MONTHS ENDED FEBRUARY 28, 2003 AND 2002
2003 2002
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Net cash (used in) provided by financing activities (68,961) 197,713
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Net cash used in discontinued operations ........... (2,295) (103,001)
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Net increase (decrease) in cash .................... 250,870 (17,427)
and cash equivalents
Cash at beginning of period ........................ 329,277 136,299
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Cash at end of period .............................. $ 580,147 $ 118,872
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The accompanying notes are an integral part of these statements.
7
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED FEBRUARY 28, 2003
Common Stock
Common Stock Subscribed
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Accumulated
Number Additional Other
of Paid-in Comprehensive Accumulated
Shares Amount Capital Shares Amount Loss (Deficit) Total
------------- ---------- ------------ --------- --------- ---------- ------------- ------------
Balances 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 -- -- 48,546 -- -- -- -- 48,546
Shares subscribed for cash -- -- -- 100,000 25,000 -- -- 25,000
Change in unrealized
gain on available
for sale securities -- -- -- -- -- (2,122) -- (2,122)
Common stock subscribed
for services rendered -- -- -- 11,667 5,250 -- -- 5,250
Common stock for
Services rendered 67,778 5,422 35,245 -- -- -- -- 40,667
Common stock issued 20,000 1,600 7,400 (20,000) (9,000) -- -- --
Common stock subscribed
For services -- -- -- 98,182 21,600 -- -- 21,600
Net loss -- -- -- -- -- -- (344,496) (344,496)
------------- ---------- ------------ --------- --------- ---------- ------------- ------------
Balances at
February 28, 2003 5,260,142 $ 420,810 $17,073,173 218,182 $ 66,600 $ (22,359) $(16,533,073) $ 1,005,151
============= ========== ============ ========= ========= ========== ============= ============
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
February 28, 2003
(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 consolidated 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 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 & 10 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 $22,359 at February 28, 2003.
(7) Earnings Per Share
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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. For all periods presented, no common stock
equivalents have been included in the computation of diluted
earnings per share as they were determined to be anti-dilutive.
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
9
For the Nine Months Ended February 28, 2003
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Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ----------------
Basic EPS -
(Loss) gain from continuing operations $ (304,474) -- $ (.06)
(Loss) gain from discontinued operations (40,022) 5,224,867 (.01)
-------------- -------------- ----------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions $ (344,496) 5,224,867 $ (.07)
============== ============== ================
For the Nine Months Ended February 28, 2002
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Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ----------------
Basic EPS -
Loss from continuing operations $ (382,592) -- $ (.08)
Loss from discontinued operations (78,774) 5,065,534 (.01)
-------------- -------------- ----------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions $ (461,366) 5,065,534 $ (.09)
============== ============== ================
10
For the Three Months Ended February 28, 2003
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Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ----------------
Basic EPS -
Gain (loss) from continuing operations $ (24,644) $ (.00)
Gain from discontinued operations (1,491) 5,258,475 (.00)
-------------- -------------- ----------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions $ (26,135) 5,258,475 $ (.00)
============== ============== ================
For the Three Months Ended February 28, 2002
--------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- ----------------
Basic EPS -
Income from continuing operations $ 24,166 $ .00
Loss from discontinued operations (39,533) 5,120,654 (.00)
-------------- -------------- ----------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions $ (15,367) 5,120,654 $ (.00)
============== ============== ================
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 February 28, 2003, there was a total of 2,916,595 potentially
dilutive shares of common stock.
(8) Recent Accounting Pronouncements
--------------------------------
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 Company
adopted SFAS 142 on June 1, 2002. SFAS 142 did not have a material
impact on the Company's financial position or results of operations
as a result of the future adoption of SFAS 142.
11
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, 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 which 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"), "Recission of FASB Statements No. 4
and 64, Amendment of FASB Statement 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.
In December 2002, the FASB issued SFAS No. 148 "Accounting for
Stock-Based Compensation, Transition and Disclosure, an amendment of
FASB Statement No. 123." SFAS No. 148 provides alternative methods of
transition for an entity that voluntarily changes to the fair value
based method of accounting for stock-based employee compensation. It
also amends the disclosure provisions of SFAS No. 123 to require
prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based
employee compensation. Finally, this Statement amends APB Opinion No.
28, "Interim Financial Reporting," to require disclosure about those
effects in the interim financial information. The amendments to SFAS
No. 123 that provide alternative methods of transition for an entity
that voluntarily changes to the fair value based method of accounting
for stock-based employee compensation are effective for financial
statements for fiscal years ending after December 15, 2002. The
amendment to SFAS No. 123 relating to disclosure and the amendment to
Opinion 28 is effective for financial reports containing condensed
financial statements for interim periods beginning after December 15,
2002. Early application is encouraged. Management currently believes
that the adoption of SFAS No. 148 will not have a material impact on
the financial statements.
(9) Financial information about foreign and domestic operations and
export sales is as follows:
For the Nine Months Ended
2/28/03 2/28/02
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Revenues from sales to unaffiliated customers:
United States $3,453,000 $3,240,000
Asia 166,000 143,000
Europe 1,614,000 1,761,000
South America 283,000 372,000
Oceania 325,000 284,000
Other 676,000 669,000
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$6,517,000 $6,469,000
========== ==========
No other geographic concentrations exist where net sales exceed 10%
of total net sales.
(10) On January 15, 2002, the Company received a Nasdaq Staff
Determination indicating that the Company failed to comply with the
net tangible assets or shareholders' equity requirements for
continued listing set forth in Marketplace Rule 4310(c)(2)(B), and
that its securities were, therefore, subject to delisting from the
Nasdaq SmallCap Market effective January 23, 2002. The Company
requested a hearing before a Nasdaq Listing Qualifications Panel to
review the Staff Determination. The request for a hearing stayed the
delisting of the Company's securities pending the Panel's decision.
On February 21, 2002 the hearing took place. In response to the
hearing, on March 25, 2002, the Company received a Nasdaq Staff
Determination letter staying their decision with respect to the
continued listing of the Company's
12
securities. The Panel determined to continue the listing of the
Company's securities on the Nasdaq SmallCap Market via an exception
from the net tangible assets requirement. While the Company failed
to meet this requirement, the Company was granted a temporary
exception from the standard subject to the Company meeting certain
conditions by specified deadlines.
The Company was unable to satisfy the conditions within the
deadlines established by the Panel. 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.
On February 14, 2002, the Company received a Nasdaq Staff
Determination letter indicating that the Company failed to comply
with the minimum $1.00 per share requirement for continued
inclusion of its common stock under Marketplace Rule 4310(c)(4),
and therefore is subject to delisting from the Nasdaq SmallCap
Market. In accordance with Marketplace Rule 4310(c)(8)(D), the
Company would have been provided 180 calendar days, or until
August 13, 2002, to regain compliance. However, prior to that time,
the Company was delisted according to the above mentioned reasons.
Shares traded on the OTC Bulletin Board are not as liquid as those
traded on the Nasdaq National market or the Nasdaq SmallCap market.
The 1-for-3 reverse stock split approved by shareholders at the 2001
share- holders' meeting for the purpose of increasing the price per
share of the common stock will not be implemented.
(11) The Company has suffered substantial recurring losses from operations
over the past several years. The Company has funded its operations
through debt and equity financings, and may have to do so in the
future. Allergy Immuno Technologies operations were discontinued in
May 2002. The Company plans to reduce operating costs through certain
cost reduction efforts and concentrate on its core business in Lancer
and Biomerica to increase sales. There can be no assurances that the
Company will be able to become profitable, generate positive cash
flows from operations or obtain the necessary equity or debt
financing to fund operations in the future.
As of February 28, 2003, the Company had cash and available-for-sale
securities in the amount of $580,557 and working capital of
$2,732,836. Cash and working capital totaling $568,461 and
$2,897,745, 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 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.
During the nine months ended February 28, 2003, the Company
operations provided cash of $438,092. This compares to cash used in
operations of $130,352 in the same period in the prior fiscal year.
Cash used by financing activities was $68,961, which resulted from
the payment on the line of credit at Lancer of $65,191 and payment
of the shareholder loan at Biomerica of $46,750, which were offset
by proceeds from sale of common stock subscribed of $25,000.
(12) At February 28, 2003, Lancer had a $400,000 revolving line of credit
with GE Capital Healthcare Financial Services, which expires October
24, 2003. Borrowings are made at prime plus 2.00%, in no event less
than 8%,(8.0% at February 28, 2003) and are limited to 80% of
accounts receivable less than 90 days old with a liquidity factor
of 94%. The outstanding balance at February 28, 2003 was $478 and
the unused portion available under the line of credit at February
28, 2003 was approximately $310,000.
The line of credit is collateralized by substantially all the assets
of Lancer, including inventories, receivables and equipment. The
lending agreement requires, among other things, that Lancer maintain
a tangible net worth of $2,100,000 and that receivables payments be
sent to a controlled lockbox. In addition to interest, a management
fee of .0425% on the average monthly unused portion available is
required. Lancer is not required to maintain compensating balances
in connection with this lending agreement. 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.
(13) Biomerica, Inc. entered into a line of credit agreement on September
12, 2000 with Janet Moore, an officer and director whereby the 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
February 28, 2003, was $181,750. Additionally, the Company received
a $10,000 unsecured loan from a different shareholder. Such amount
is included in shareholder loan in the accompanying consolidated
financial statements.
13
(14) 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 nine months
ended February 28, 2003, 11,667 shares of Biomerica's restricted
common stock value at $5,250 were earned in payment to its Chief
Executive Officer for certain management services.
(15) On September 24, 2002, the Company agreed to issue 20,000 options at
the then fair market value of $.30 per share to employees. These
options will vest over four years. No compensation expense was
recorded for this transaction.
(16) 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.
The board will determine distribution percentages of profit from
diagnostics' continuing operations for any bonuses based on audited
financials as of May 31, 2003. All permanent employees, including
executive officers, will be included in the plan. As of February 28,
2003, there has been no accrual since the plan is based on profits
and year-to-date there has not been a profit in the diagnostics'
division.
(17) 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.
(18) In June 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. The Company has shipped $2,000 worth of product to
date. The balance of $33,000 is recorded in other liabilities.
(19) On September 24, 2002, the Board of Directors approved the grant of
a stock option for 7,000 shares of Biomerica common stock at an
exercise price of $.30 per share to an outside consultant. The
Company also entered into a one year consulting agree- ment with
this consultant whereby the consultant will help with business
development and other services during that period and upon
achievement of certain milestones has the opportunity to be granted
two additional 7,000 share options at a fifteen percent discount to
market.
(20) On November 12, 2002, the Board of Directors approved the issuance
of 98,182 shares of restricted common stock at the price of $.22
per share in lieu of $21,600 in accrued salary to two officers/
directors. These shares were issued in March 2003.
(21) During the nine months ended February 28, 2003, $48,546 was recorded
as amortization expense for previously issued warrants and options.
(22) Lancer Orthodontics, Inc. granted non-qualified options 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.
(23) For the nine months ended February 28, 2003, other income of $62,655
was realized from the insurance claim settlement of $144,413 for the
theft of inventory at the Lancer Orthodontics, Inc.'s Mexicali
facility, less $81,758 insurance claim receivable valued at cost.
(24) Lancer Orthodontics, Inc. issued non-qualified stock options to three
employees totaling 70,000 shares during the quarter ended November
30, 2002. The shares are at $.28 per share and expire in five years.
During the quarter ended February 28, 2003, non-qualified stock
options for 70,000 options were granted to various employees.
(25) During this quarter Lancer Orthodontics approved the issuance of
53,846 shares of restricted common stock to the chief executive
officer. The shares were in payment of accrued salary of $14,000.
(26) In October 2002 the Company signed an agreement with Medical Device
Safety Service GmgH ("MDDS") wherein MDSS will act as the Company's
Authorized Representative for the purpose of obtaining a CE-Mark in
Europe.
(27) During the quarter ended February 28, 2003, $25,000 was received for
the purchase of 100,000 shares of restricted common stock with
detachable warrants to purchase 100,000 shares of restricted common
stock at $.25 per share. This was recorded as common stock
subscribed since at the end of the quarter the shares had not yet
been issued.
14
(28) In November 2002 the Company signed a distribution agreement for
its EZ Detect product with a company in Spain.
(29) In January 2003 the Company signed a distribution agreement for its
Allerquant 90G IgG ELISA kit with a company in Spain.
(30) Reportable business segments for the nine months and quarter ended
February 28, 2003 and 2002 are as follows:
Nine Months Three Months
Ended February 28, Ended February 28,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Domestic sales:
Orthodontic products $ 2,323,000 $ 2,273,000 $ 756,000 $ 797,000
Medical diagnostic products 1,130,000 967,000 335,000 692,000
Foreign sales:
Orthodontic products $ 1,975,000 $ 2,232,000 $ 752,000 $ 644,000
Medical diagnostic products 1,089,000 997,000 448,000 173,000
Net sales:
Orthodontics products $ 4,298,000 $ 4,505,000 $ 1,508,000 $ 1,441,000
Medical diagnostic products $ 2,219,000 1,964,000 783,000 865,000
Total $ 6,517,000 $ 6,469,000 $ 2,291,000 $ 2,306,000
Operating profit (loss):
Orthodontic products $ 1,000 $ 39,000 $ 22,000 $ 67,000
Medical diagnostic products $ (297,000) $ (403,000) (24,000) (14,000)
Total $ (296,000) $ (364,000) $ (2,000) $ 53,000
Operating loss from discontinued Segment:
AIT $ -- $ (66,883) $ -- $ (22,936)
ReadyScript (40,022) $ (11,891) (1,491) (16,597)
Total (40,022) (78,774) (1,491) (39,533)
Depreciation and amortization
Expense:
Orthodontic products $ 64,210 $ 80,568 $ 15,976 $ 26,856
Medical diagnostic products 41,928 68,643 17,512 14,464
Total $ 106,138 $ 149,211 $ 33,488 $ 41,320
As of February 28,
2003 2002
----------- -----------
Domestic long-lived assets:
Orthodontic products $ 92,330 $ 24,056
Medical diagnostic products 156,248 193,501
Total $ 248,578 $ 217,557
Foreign long-lived assets:
Orthodontic products $ 15,668 28,946
Medical diagnostic products 3,571 0
Total $ 267,817 $ 246,503
Total assets:
Orthodontic products $3,568,000 $3,628,520
Medical diagnostic products 1,545,000 1,731,550
Total $5,113,000 $5,360,070
15
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 DUE TO ITS NEW BUSINESS MODEL AND EXPANSION
PLANS AND THE COMPETITIVE ENVIRONMENT IN WHICH THE COMPANY WILL BE DOING
BUSINESS. THESE RISKS AND UNCERTAINTIES ALSO INCLUDE THE SUCCESS OF THE
COMPANY IN RAISING NEEDED CAPITAL, THE CONTINUAL DEMAND FOR THE COMPANY'S
PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE MARKETPLACE, AVAILABILITY
OF RAW MATERIALS, THE EFFECTS OF TERRORISM, 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 $6,517,414 for the nine
months ended February 28, 2003 as compared to $6,468,779 for the same period
in the previous year. This represents an increase of $48,635, or .7% (this
includes a decrease at Lancer of $206,823 and an increase at Biomerica of
$255,458). Sales at Lancer decreased primarily due to a decrease in foreign
sales, particularly in Europe and South America. The increase in sales at
Biomerica was due to general overall increase in diagnostic sales as well as
a large colorectal screening program in the first quarter. For the quarter
then ended sales were $2,291,377 as compared to $2,306,135 for the same
period in the prior fiscal year. This represents a decrease of $14,758, or
..6% (this includes an increase of $66,894 at Lancer and a decrease at
Biomerica of $81,652.). The decrease at Biomerica was due to no colorectal
screening program in this fiscal quarter.
Cost of sales for the nine months increased as a percentage of sales
from 67.8% to 69.3%. Cost of sales for the three months then ended increased
from 64.5% to 68.2% primarily because of increased sales of lower margin
products at the diagnostics' division. For the nine months Lancer had a
decrease in cost of sales of $1,431, however, this resulted in an increase
from 68.0% to 71.2% of Lancer's sales and for the quarter an increase of
$115,770, or from 67.2% to 71.9% of Lancer's sales. Lancer had an increase
in the cost of goods due to increased production costs. Biomerica had an
increase of $132,102, or from 67.2% to 65.5% of sales for the nine months
due to the addition of manufacturing personnel and a decrease of $40,628 for
the three months, or from 67.2% to 65.5% of sales.
Selling, general and administrative costs decreased by $209,798, or
9.0% for the nine months. For the three months then ended these costs
decreased by $73,628, or 10.0%. Of these decreases, Lancer had a decrease for
the nine months of $233,732 and for the three months of $38,646. The decrease
at Lancer was attributable to decreased labor and travel costs of terminated
marketing support personnel, whose responsibilities were assumed by existing
general and administrative personnel. Biomerica had an increase of $23,934
for the nine months and a decrease of $34,980 for the three months. The
increase at Biomerica for the nine months was attributable to higher selling
and marketing expenses, primarily related to payroll. The decrease for the
quarter was due to lower commissions.
Research and development increased by $59,704, or 47.5% for the nine
months. For the three months these costs increased by $38,148, or 102.8%. The
increases were primarily due to hiring of additional personnel at Biomerica
and resumption of product development at Lancer. For the nine months Lancer
had an increase of 66,024 and for the three months an increase of $34,842.
For the nine months Biomerica had a decrease of $6,320 and for the three
months an increase of $3,306.
Interest expense decreased by $814 for the nine months and $3,261
for the three months compared to the previous year due to borrowings on the
line of credit at Biomerica and decreased borrowing at Lancer. For the nine
months Lancer had a decrease of $9,289 and for the three months a decrease
of $5,410. Biomerica had an increase of $8,475 for the nine months and an
increase of $2,149 for the three months.
At February 28, 2003, the Company retained a 31.1% interest in
Lancer Orthodontics. The Company maintains a 53.76% indirect voting control
over Lancer Orthodontics via agreements with certain shareholders. The
Company also retains an 88.9% interest in ReadyScript. 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.
16
Aside from general macroeconomic downturns, the additional material
factors that could affect future financial results include, but are not
limited to: terrorist attacks and the impact of such events; diminished
access to raw materials that directly enter into our manufacturing process;
shipping labor disruption or other major degradation of the ability to ship
out products to end users; inability to successfully control our margins
which are affected by many factors including competition and product mix;
protracted shutdown of the U.S. border due to escalation of terrorist or
counter terrorist activity; the operating and financial convenants contained
in our credit line and Lancer's which could limit our operating flexibility;
any changes in our business relationships with international distributors or
the economic climate they operate in; any event that has a material adverse
impact on our foreign manufacturing operations may adversely affect our
operations as a whole; failure to manage the future expansion of our
business could have a material adverse affect on our revenues and
profitability; possible costs in complying with government regulations and
the delays in receiving required regulatory approvals or the enactment of
new, adverse regulations or regulatory requirements; numerous competitors,
some of which have substantially greater financial and other resources than
we do; potential claims and litigation brought by patients or dental or
medical professionals alleging harm caused by the use of or exposure to our
products; quarterly variations in operating results caused by a number of
factors, including business and industry conditions and other factors beyond
our control. All these factors make it difficult to predict operating results
for any particular period.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 2003, the Company had cash and available-for-sale
securities in the amount of $580,557 and working capital of $2,732,836. Cash
and working capital totaling $568,461 and $2,897,745, 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 past several years. The Company has funded its operations through
debt and equity financings, and may have to do so in the future. Allergy
Immuno Technologies' operations, were discontinued May 2002. The Company plans
to reduce operating costs through certain cost reduction efforts and
concentrate on its core business in Lancer and Biomerica to increase sales.
There can be no assurances 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 nine months ended February 28, 2003, the Company's
operations provided cash of $438,092. This compares to net cash used by
operations of $130,352 in the same period in the prior fiscal year. Cash used
in investing activities was $115,966 as compared to cash provided by
investing activities in the prior year of $18,213. This resulted from the
purchases of property and equipment, other assets and intangible assets. Cash
used by financing activities was $68,961, which resulted from the payment on
the line of credit at Lancer of $65,192 and payment on the shareholder loans
at Biomerica of $46,750. The interest of 8% per annum due on the loans at
Biomerica is being accrued and has not been paid to date. As of February 28,
2003 there was $39,672 in accrued interest due.
On January 15, 2002, the Company received a Nasdaq Staff
Determination indicating that the Company failed to comply with the net
tangible assets or shareholders' equity requirements for continued listing
set forth in Marketplace Rule 4310(c)(2)(B), and that its securities are,
therefore, subject to delisting from the Nasdaq SmallCap Market effective
January 23, 2002. The Company requested a hearing before a Nasdaq Listing
Qualifications Panel to review the Staff Determination. The request for a
hearing stayed the delisting of the Company's securities pending the Panel's
decision. On February 21, 2002 the hearing took place. On March 25, 2002,
the Company received a Nasdaq Staff Determination letter stating their
decision with respect to the continued listing of the Company's securities.
The Panel determined to continue the listing of the Company's securities on
the Nasdaq SmallCap market via an exception from the net tangible assets
requirement. While the Company failed to meet this requirement, the Company
was granted a temporary exception from the standard subject to the Company
meeting certain conditions by specified deadlines.
The Company was unable to satisfy the conditions within the
deadlines established by the Panel. 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.
On February 14, 2002, the Company received a Nasdaq Staff
Determination letter indicating that the Company failed to comply with the
minimum $1.00 per share requirement for continued inclusion of its common
stock under Marketplace Rule 4310(c)(4), and therefore was subject to
delisting from the Nasdaq SmallCap Market. The Company would have been
provided 180 calendar days, or until August 13, 2002, to regain compliance.
However, prior to that time, the Company was delisted according to the
above mentioned reasons.
17
Shares traded on the OTC Bulletin Board are not as liquid as those
traded on the Nasdaq National market or the Nasdaq SmallCap market.
At February 28, 2003, Lancer had a $400,000 revolving line of credit
with GE Capital Healthcare Financial Services, expiring October 24, 2003.
Borrowings are made at prime plus 2.00% (8.0% at February 28, 2003) and are
limited to 80% of accounts receivable less than 90 days old with a liquidity
factor of 94%. The outstanding balance at February 28, 2003 was $478 and the
unused portion available under the line of credit at February 28, 2003 was
$310,000. The line of credit expires October 24, 2003. The line of credit is
collateralized by substantially all the assets of Lancer, including
inventories, receivables and equipment. The lending agreement requires that
receivables payments be sent to a controlled lockbox. In addition to interest,
a management fee of .0425% on the average monthly unused portion available is
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.
Biomerica, Inc. entered into a line of credit agreement on September
12, 2000 with Janet Moore, one of our a shareholders, who also serves as our
Chief Financial Officer and Secretary and as a director, whereby the
shareholder 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 February 28, 2003, was
$181,750. Additionally, the Company received a $10,000 unsecured loan from a
different shareholder. Such amount is included in shareholder loan in the
accompanying financial statements. The Company has no other line of
credit available to it.
THE COMPANY MAY FACE INTERRUPTION OF PRODUCTION AND SERVICES DUE TO
INCREASED SECURITIES MEASURES IN RESPONSE TO TERRORISM:
Biomerica's and Lancer's 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 the
Company's business, results of operations and financial condition.
Furthermore, the Company may experience an increase in operating costs,
such as costs for transportation, insurance and security as a result of the
activities and potential activities. The Company 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 the
ability to grow the Company's business.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
You should read the following factors in conjunction with the
factors discussed elsewhere in this and our other filing with the SEC and in
materials incorporated by reference in these filing. The following is
intended to highlight certain factors that may affect the financial condition
and results of operations of Biomerica and are not meant to be an exhaustive
discussion of risks that apply to companies such as Biomerica. Like other
businesses, Biomerica is susceptible to macroeconomic downturns in the United
States or abroad, as were experienced in fiscal year 2002, that may affect
the general economic climate and performance of Lancer or its customers.
Aside from general macroeconomic downturns, the additional material factors
that could affect future financial results include, but are not limited to:
Terrorist attacks and the impact of such events; diminished access to raw
materials that directly enter into our manufacturing process; shipping labor
disruption or other major degradation of the ability to ship our products to
end users; inability to successful control our margins which are affected by
many factors including competition and product mix; protracted shutdown of
the US border due to an escalation of terrorist or counter terrorist activity;
the operating and financial covenants contained in our credit line which
could limit our operating flexibility, any changes in our business
relationships with international distributors or the economic client they
operate in; any event that has a material adverse impact on our foreign
manufacturing operations may adversely affect our operations as a whole,
failure to manage the future expansion of our business could have a material
adverse impact on our foreign manufacturing
operations may adversely affect our operations as a whole, failure to manage
the future expansion of our business could have a material adverse affect on
our revenues and profitability; possible costs in complying with government
regulations and the delays in receiving required regulator y approvals or
the enactment of new adverse regulations or regulatory requirements; numerous
competitors, some of which have substantially greater financial and other
resources than we do; potential claims and litigation brought by patients or
dental professionals alleging harm caused by the use of or exposure to our
products; quarterly variations in operating results caused by a number of
factors, including business and industry conditions and other factors beyond
our control. All these factors make it difficult to predict operating results
for any particular period.
18
Item 4. PROCEDURES AND CONTROLS
-----------------------
Within the 90 days prior to the date of this report, Biomerica
carried out an evaluation, under the supervision and with the participation
of Biomerica's management, including the Company's Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation
of Biomerica'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 's disclosure controls and procedures
are effective. There were no significant changes in Biomerica's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of their evaluation.
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. The following shares
of restricted common stock were issued during the nine months
ended February 28, 2003:
Class or Persons Price
Date Title Amount Sold to Per Share Total
------- ----- ------ -------------------- --------- ------
9/02/02 common 87,778 insiders & qualified $.045 $39,500
investors
The exemption relied upon for the issuance of the unregistered
shares was that the shares were issued to accredited investors
within the meaning of Securities and Exchange Commission Rule 501,
Regulation D.
Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable.
Item 5. 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.
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.
19
SIGNATURES
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: July 23, 2003
BIOMERICA, INC.
By: /S/ Zackary S. Irani
Zackary S. Irani
Chief Executive Officer
20
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/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: July 23, 2003
/s/ Janet Moore
Chief Financial Officer
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 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 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: July 23, 2003
/s/ Zackary S. Irani
Chief Executive 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 February 28, 2003 (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 February 28, 2003 (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/ Zackary S. Irani
Zackary S. Irani
Chief Executive Officer