FORM 10-QSB
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, 2001 Commission File No. 0-8765
----------------- ------
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
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,851,112 shares of common
Stock as of April 20, 2001.
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and Comprehensive Loss -
Nine Months and Three Months Ended February 28, 2001 and
February 29, 2000.............................................2 & 3
Consolidated Balance Sheet - February 28, 2001....................4 & 5
Consolidated Statements of Cash Flows
Nine Months Ended February 28, 2001 and February 29, 2000........6 & 7
Consolidated Statement of Changes in Shareholders' Equity
Nine Months Ended February 28, 2001.................................8&9
Notes to Consolidated Financial Statements........................10-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data.......................................15-17
PART II Other Information....................................................18
Signatures...........................................................19
i
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 29, February 28, February 29,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales ......................................... $ 6,536,541 $ 5,615,304 $ 2,282,809 $ 1,844,976
Cost of sales ................................ 4,320,209 3,853,246 1,745,038 1,336,088
------------ ------------ ------------ ------------
Gross profit ................................. 2,216,332 1,762,058 537,771 508,888
------------ ------------ ------------ ------------
Operating
Expenses:
Selling, general and administrative .......... 3,382,024 4,286,551 825,919 1,385,779
Research and development ..................... 1,021,094 467,882 257,466 136,673
------------ ------------ ------------ ------------
4,403,118 4,754,433 1,083,385 1,522,452
------------ ------------ ------------ ------------
Operating Loss .................................... (2,186,786) (2,992,375) (545,614) (1,013,564)
Other Expense (income):
Interest expense ............................. 16,467 13,308 6,607 5,137
Other income, net ............................ (67,724) (258,939) (52,919) (28,086)
------------ ------------ ------------ ------------
Loss before minority interest in net losses of
consolidated subsidiaries and income taxes ... (2,135,529) (2,746,744) (499,302) (990,615)
Minority interest in net losses (profits) of
consolidated subsidiaries .................... 132,459 200,969 (13,743) 104,353
------------ ------------ ------------ ------------
Loss before taxes ................................. (2,003,070) (2,545,775) (513,045) (886,262)
Income Taxes ...................................... 2,400 2,400 800 0
------------ ------------ ------------ ------------
Net loss .......................................... (2,005,470) (2,548,175) (513,845) (886,262)
2
Nine Months Ended Three Months Ended
February 28, February 29, February 28, February 29,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Other comprehensive loss, net of tax
Unrealized loss on available-for- sale securities (972) (8,860) (1,608) (6,125)
------------ ------------ ------------ ------------
Comprehensive loss .............................. $(2,006,442) $(2,557,035) $ (515,433) $ (892,387)
============ ============ ============ ============
Per share data:
Net loss basic ............................... $ (.42) $ (.57) $ (.11) $ (.20)
Net loss diluted ............................. $ (.42) $ (.57) $ (.11) (.20)
============ ============ ============ ============
Weighted average number of common and common
equivalent shares:
Basic and diluted ............................ 4,745,003 4,513,607 4,851,112 4,537,795
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
February 28,
2001
-----------
Assets
Current Assets
Cash and cash equivalents ............................................ $ 234,351
Available for-sale securities ........................................ 54,802
Accounts receivable, less allowance for doubtful accounts of $180,018. 1,444,943
Inventory, net ....................................................... 3,077,493
Notes receivable ..................................................... 42,319
Prepaid expenses and other, net ...................................... 348,183
-----------
Total Current Assets ........................................... 5,202,091
Inventory, non-current ................................................... 21,405
Land held for sale ....................................................... 46,000
Property and Equipment, net of accumulated depreciation and amortization.. 497,263
Intangible assets, net of accumulated amortization ....................... 321,463
Other Assets ............................................................. 13,718
-----------
$ 6,102,940
===========
The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED), CONTINUED
February 28,
2001
-------------
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit .......................................................... $ 180,000
Line of credit, shareholder ............................................ 30,000
Accounts payable and accrued liabilities ............................... 1,150,455
Convertible promissory notes ........................................... 53,000
Accrued compensation .................................................... 606,477
-------------
Total Current Liabilities .......................................... 2,019,932
-------------
Minority interest ............................................................ 2,022,803
-------------
Shareholders' Equity
Preferred stock, $0.08 par value, 5,000,000 authorized, none outstanding
Common stock, $0.08 par value authorized 25,000,000 shares,
issued and outstanding 4,858,112 ..................................... 388,648
Additional paid-in-capital .............................................. 16,723,846
Accumulated other comprehensive loss ................................... (5,295)
Common stock subscribed ................................................ 53,000
Accumulated deficit ..................................................... (15,100,994)
-------------
Total Shareholders' Equity ................................................... 2,059,205
-------------
Total Liabilities and Shareholders' Equity ................................... $ 6,102,940
=============
The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
2001 2000
------------ ------------
Cash flows from operating activities:
Net loss .................................................. $(2,005,470) $(2,548,175)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 169,827 188,804
Realized gain on sale of available for-sale securities (30,408) (1,114)
Minority interest in net loss of consolidated
Subsidiaries ....................................... (158,351) (200,969)
Common stock issued for services rendered ............ 248,489 16,000
Provision for losses on accounts receivable .......... - (5,272)
Losses on disposal of fixed assets ................... - 1,703
Options issued for services rendered ................. 97,035 742,680
Changes in current assets and liabilities:
Accounts Receivable ................................ 256,992 157,703
Inventories ........................................ (217,209) (173,249)
Prepaid expenses and other current assets .......... 130,343 (209,972)
Accounts payable and other accrued liabilities ..... (163,592) 250,584
Accrued compensation ............................... 252,962 (133,113)
------------ ------------
Net cash used in operating activities ..................... (1,419,382) (1,914,390)
------------ ------------
Cash flows from investing activities:
Sale of available for-sale securities ................ 73,408 20,417
Increase in notes receivable ......................... (7,325) 9,491
Purchases of property and equipment .................. (135,251) (198,252)
Other assets ......................................... 8,199 124,073
Purchases of intangible assets ....................... (16,038) 0
------------ ------------
Net cash used in investing activities ..................... (77,007) (44,271)
------------ ------------
Cash flows from financing activities:
Private placement net of offering costs .............. 152,512 1,965,557
Repurchase by minority interests ..................... - (94,714)
Exercise of stock options ............................ 6,018 25,305
Increase in line of credit ........................... 20,000 40,000
Increase in line of credit, shareholder .............. 30,000 -
Shareholder loan payment ............................. - 1,000
Proceeds from common stock subscribed ................ 53,000 -
Proceeds from issuance of convertible promissory notes 835,000 -
------------ ------------
6
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
NINE MONTHS ENDED FEBRUARY 28, 2001 AND FEBRUARY 29, 2000
2001 2000
------------ ------------
Net cash provided by financing activities .....................$ 1,096,530 $ 1,937,148
Net decrease in cash and cash equivalents ..................... (399,859) (21,513)
Cash at beginning of period ................................... 634,210 1,669,205
------------ ------------
Cash at end of period .........................................$ 234,351 $ 1,647,692
============ ============
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, 2001
Common Stock Accumulated
-------------------------- Additional Other Com- Common
Number of Paid-In Prehensive Stock Accumulated
Shares Amount Capital Income (Loss) Subscribed (Deficit) Total
----------- ------------- ------------- ------------- ------------ ------------- -------------
Balances at 4,575,070 $ 366,005 $ 15,529,421 $ (4,323) $ - $(13,095,524) $ 2,795,579
May 31, 2000
Compensation expense in
connection with options
and warrants granted - - 97,035 - - - 97,035
Stock issued for
Consulting 159,091 12,727 232,898 - - - 245,625
Common stock subscribed - - - - 53,000 - 53,000
Change in unrealized
gain on available
for sale securities - - - (972) - - (972)
Exercise of stock
options 7,000 560 5,458 - - - 6,018
Stock issued in
satisfaction of payable 2,083 167 2,697 - - - 2,864
Private placement, net of 114,868 9,189 143,323 - - - 152,512
issuance costs of $1,140
Conversion of a
subsidiary debt into
common stock of the
subsidiary - - 713,014 - - - 713,014
Net loss - - - - - (2,005,470) (2,005,470)
----------- ------------- ------------- ------------- ------------ ------------- -------------
Balances at
February 28, 2001 4,858,112 $ 388,648 $ 16,723,846 $ (5,295) $ 53,000 $(15,100,994) $ 2,059,205
=========== ============= ============= ============= ============ ============= =============
8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
February 28, 2001
(1) Reference is made to Note 1 of the Notes to the Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended May 31, 2000, 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 results of operations of Biomerica, Inc.,
for the periods indicated. It does not include all information and
footnotes necessary for a fair presentation of the consolidated
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 the Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-KSB for
the fiscal year ended May 31, 2000, for a description of the
investments in affiliates and consolidated subsidiaries.
(5) Reference is made to Notes 5 & 10 of the Notes to the Consolidated
Financial Statements contained in the Company's Annual Report on Form
10-KSB for the fiscal year ended May 31, 2000, for information on
commitments and contingencies.
(6) Aggregate cost of available-for-sale securities exceeded aggregate
market value by approximately $5,295 at February 28, 2001.
(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. 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.
9
(8) Please refer to Note 11 to the Notes to Consolidated Financial Statements
for the Years Ended May 31, 2000 and 1999 as reported in the Form 10-KSB
filed with the Securities and Exchange Commission on September 13, 2000
for information on Convertible Promissory Notes totaling $835,000
($715,000 as of September 12, 2000) entered into by the ReadyScript
subsidiary during the nine months ended February 28, 2001, and raised an
additional $30,000 subsequent to that date. As of February 28, 2001,
$782,000 of that debt had been converted to 1,500,175 shares of
ReadyScript common stock. The Company recorded an increase to additional
paid-in-capital of $713,014 as a result of this conversion.
(9) The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
For the Nine Months Ended February 28, 2001
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -------------
Basic loss per share -
Loss attributable to common
Shareholders $(2,005,470) 4,745,003 $ (.42)
=============
Effect of dilutive securities - Options - -
------------ -------------
Diluted loss per share -
Loss attributable to common share-
Holders plus assumed conversions $(2,005,470) 4,745,003 $ (.42)
============ ============= =============
For the Nine Months Ended February 29, 2000
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -------------
Basic loss per share -
Loss attributable to common
Shareholders..........................$(2,548,175) 4,513,607 $ (.57)
=============
Effect of dilutive securities - Options.....
------------ -------------
Diluted loss per share -
Loss attributable to common share-
Holders plus assumed conversions......$(2,548,175) 4,513,607 $ (.57)
============ ============= =============
10
For the Three Months Ended February 28, 2001
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -------------
Basic EPS -
Loss attributable to common
Shareholders..........................$ (513,845) 4,851,112 $ (.11)
=============
Effect of dilutive securities - Options.....
------------ -------------
Diluted EPS -
Loss attributable to common share-
Holders plus assumed conversions......$ (513,845) 4,851,112 $ (.11)
============ ============= =============
For the Three Months Ended February 29, 2000
-------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- -------------
Basic EPS -
Loss attributable to common
Shareholders..........................$ (886,262) 4,537,795 $ (.20)
=============
Effect of dilutive securities - Options.....
------------ -------------
Diluted EPS -
Loss attributable to common share-
Holders plus assumed conversions......$ (886,262) 4,537,795 $ (.20)
============ ============= =============
11
(10) Financial information about foreign and domestic operations and export
sales is as follows:
For the Nine Months Ended
2/28/01 2/29/00
------------ ------------
Revenues from sales to unaffiliated customers:
United States $ 3,609,000 $ 3,160,000
Asia 129,000 258,000
Europe 1,620,000 1,220,000
South America 322,000 260,000
Other 857,000 717,000
------------ ------------
$ 6,537,000 $ 5,615,000
No other geographic concentrations exist
where net sales exceed 10% of total net sales
Operating profit (loss):
United States $(2,167,000) $(2,628,000)
Asia (24,000) (59,000)
Europe 34,000 (163,000)
South America 4,000 (30,000)
Other (34,000) (112,000)
------------ ------------
$(2,187,000) $(2,992,000)
(11) The Company must maintain a minimum bid price and certain capitalization
levels as required by the NASD Marketplace Rule 4310(c). NASDAQ advised
the Company on January 3, 2001, that it was not in compliance with the
minimum bid price and that the Company was being afforded a ninety-day
grace period, until April 3, 2001, to remedy this deficiency. On April 4,
2001, NASDAQ advised the Company that the Company's common stock had
maintained a minimum $1.00 bid price for at least 10 consecutive trading
days and therefore complies with the Rule. Accordingly, the matter is now
closed.
(12) During the nine months ended February 28, 2001, the subsidiary, Lancer
Orthodontics, Inc., granted options to purchase 157,000 shares of its
common stock at an exercise price of $.875 to certain employees of it,
with one half vested immediately and the other half vesting one year from
the date of grant. The options have a term of five years.
(13) During the nine months ended February 28, 2001, the subsidiary,
ReadyScript, Inc., granted options to purchase 1,574,287 shares of its
common stock at an exercise price of $.25 per share to certain employees
and directors. The options vest at different times over a three year
period with all options expiring five years from date of grant.
12
(14) During the nine months ended February 28, 2001, the Company sold 114,868
shares of its common stock at a price of $1.34 per share to various
employees and outside investors. For total proceeds of $152,512 net of
offering costs of $1,140, each investor also received one warrant for
each two shares purchased. The warrants have an exercise price of $2.00
per share with one-half vesting immediately and the other half vesting
one year from date of grant. The warrants expire five years from date of
grant.
(15) During the nine months ended February 28, 2001, the Company issued
159,091 shares of its common stock for consulting services related to a
subsidiary.
(16) During the nine months ended February, 2001, the Company issued 2,083
shares of its restricted common stock in lieu of cash for a payable.
(17) During the three months ended February 28, 2001, stock options for
103,000 shares of common stock were granted at an exercise price of $.50
per share, with one-quarter vesting immediately and the remainder vesting
one quarter per year. The options have a five-year expiration.
Additionally, 20,000 shares were granted at an exercise price of $.75 per
share with one quarter vesting one year from date of grant and the
remainder vesting one quarter per year. The options have a five-year
expiration. Also, 50,000 shares were granted at an exercise price of $.63
per share. The options shall have a five-year expiration and are
exercisable in full on the first anniversary of the date of grant.
(18) As of February 28, 2001, the Company had cash and available-for-sale
securities in the amount of $289,153 and working capital of $3,182,159.
Cash and working capital totaling $237,351 and $2,644,017, respectively,
relates to the Lancer subsidiary. Of the Company's $2,059,205 net worth,
43.7%, or $899,478, 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. The Company's nine-month losses were substantially the result
of its investment in ReadyScript. The ReadyScript subsidiary was a
development-stage enterprise. During the first quarter the Board of
Directors of the Company decided that the ReadyScript subsidiary would no
longer be funded by Biomerica, Inc. or its other subsidiaries. However,
subsequent to such decision an immaterial advance was forwarded to
ReadyScript as the Company decided it was in the best interest of the
Company to advance further funds in order to protect the investment while
outside funding or a business combination is being sought. During the
third quarter and subsequent to that the ReadyScript division was in
negotiations with a company to have some of its assets acquired. On March
30, 2001, ReadyScript received notice from the other party that they were
terminating the proposed deal with ReadyScript. On April 4, 2001,
Readyscript filed a lawsuit against the company for fraud, breach of
contract, unfair competition and misappropriation of trade secrets. Due
to lack of funding, further development efforts at ReadyScript have been
ceased.
Biomerica, Inc. and its subsidiaries, with the exception of ReadyScript,
are expected to fund their operations for at least the next twelve months
through their existing available financing, working capital, and its
shareholder $500,000 line of credit of which $30,000 was drawn at
February 28, 2001.
13
(19) In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". The statement will
require recognition of all derivatives as either assets or liabilities on
the balance sheet at fair value. The statement is effective for the
Company's fiscal year 2002, as deferred by SFAS No. 137, but early
adoption is permitted. Management has completed an evaluation of the
effects of this statement and does not believe that it will have a
materials effect on the Company's financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The effective date of the bulletin was delayed according to
SAB No. 101A and SAB No. 101B and will be effective for the Company's
fourth quarter of fiscal year 2001. Management has completed an
evaluation of the effects of this bulletin and does not believe that it
will have a materials effect on the Company's financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS. 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
COMPETING. 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, YEAR 2000 ISSUES, 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 $6,536,541 for the nine months
ended February 28, 2001 as compared to $5,615,304 for the same period in the
previous year. This represents an increase of $921,237, or 16.4%. For the
quarter then ended sales were $2,282,809 as compared to $1,844,976 for the same
period in the prior fiscal year. This represents an increase of $437,833, or
23.7%. The increases for the nine and three months were primarily attributable
to sales increases at Biomerica of the EZ Detect product and to other diagnostic
products, although Lancer Orthodontics also realized an increase in sales for
these periods.
14
Cost of sales for the nine months decreased as a percentage of sales from
68.6% to 66.1% and for the three months increased from 72.4% to 76.4%. Most of
the decrease in the nine months was due to higher sales in relation to some
fixed costs and operational efficiencies. For the three months the increase was
primarily attributable to the write-off of $213,088 of a prepaid which related
to one of the subsidiaries.
Selling, general and administrative costs decreased by $904,527, or 21.1%
for the nine months and by $559,860, or 40.4% for the three months ended
February 28, 2001. Lancer had decreased selling, general and administrative
costs of $86,781 for the nine months and $21,024 for the three months due to a
decrease in labor costs and commissions. The remainder of the decrease was
attributable to lower expenses at the ReadyScript division.
Research and development increased by $553,212, or 118% for the nine
months and $120,723, or 88.4% for the three months. Most of the increase was due
to the research and development of the handheld point-of-care-technology at
ReadyScript.
Interest expense increased by $3,159 for the nine months and $1,470 for
the three months compared to the previous year due to the borrowings at Lancer
and an increase in prime rate. Other income decreased as a result of a prior
year insurance claim settlement of $279,672 for the theft of inventory at
Lancer's Mexicali facility, less $110,000 insurance claim receivable valued at
cost.
The following is a breakdown of the income or losses for the nine and three
month periods by company:
Nine Months Three Months
------------ ------------
Biomerica diagnostics $ (96,191) $ (126,943)
Lancer Orthodontics (46,710) 6,111
Allergy Immuno Technologies (48,316) (16,939)
ReadyScript (1,814,253) (376,074)
------------ ------------
Total loss $(2,005,470) $ (513,845)
At February 28, 2001, the Company retained a 30.78% interest in Lancer
Orthodontics, a 100% interest in the losses of Allergy Immuno Technologies and a
100% interest in the losses of 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, 2000, for a more in-depth discussion of subsidiaries.
15
LIQUIDITY AND CAPITAL RESOURCES
As of February, 2001, the Company had cash and available-for-sale
securities in the amount of $289,153 and working capital of $3,182,159. Cash and
working capital totaling $237,351 and $2,644,017, respectively, relates to the
Lancer subsidiary. Of the Company's $2,059,205 net worth, 43.7%, or $899,478
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. The Company's nine-month losses were
substantially the result of its investment in ReadyScript. The ReadyScript
subsidiary is a development-stage enterprise. During the first quarter the Board
of Directors of the Company decided that the ReadyScript subsidiary would no
longer be funded by Biomerica, Inc. or its other subsidiaries. However,
subsequent to such decision an immaterial advance was forwarded to ReadyScript
as the Company decided it was in the best interest of the Company to advance
further limited funds in order to protect the investment while outside funding
or a business combination is being sought. During the third quarter and
subsequent to that the ReadyScript division was in negotiations with a company
to have some of its assets acquired. On March 30, 2001, ReadyScript received
notice from the other party that they were terminating the proposed deal with
ReadyScript. Due to lack of funding, further development efforts at ReadyScript
have been ceased. Biomerica, Inc. and its subsidiaries, with the exception of
ReadyScript, 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 of which $30,000 was drawn at February 28, 2001.
During the nine months ended February 28, 2001, the Company used cash in
operations of $1,419,382, primarily as a result of losses at the ReadyScript
subsidiary. This compares to cash used in operations of $1,914,390 in the same
period in the prior fiscal year. The Company generated cash flow from financing
activities of $1,096,530 during the nine months, primarily due to $835,000 in
convertible promissory notes entered into by the ReadyScript subsidiary. The
Company recorded an increase to additional paid-in capital of $713,014 as a
result of this conversion as described in the accompanying financial statements.
During the nine months ended February 29, 2000, the Company generated cash flow
from financing activities of $1,937,148 as a result of the sale of common stock,
net of offering costs.
During the nine months ended February 28, 2001, the Company sold 114,868
shares of its common stock at a price of $1.34 per share to various employees
and outside investors for total proceeds of $152,512, net of offering costs of
$1,140. Each investor also received one warrant for each two shares purchased.
The warrants have an exercise price of $2.00 per share with one-half vesting
immediately and the other half vesting one year from date of grant. The warrants
expire five years from date of grant.
During the nine months ended February 28, 2001, the Company issued
159,091 shares of its common stock valued at $245,625 for consulting services
related to a subsidiary.
During the nine months ended February 28, 2001, the Company issued 2,083
shares of its restricted common stock in lieu of cash for a payable.
During the three months ended February 28, 2001, stock options for
103,000 shares of common stock were granted at an exercise price of $.50 per
share, with one-quarter vesting immediately and the remainder vesting one
quarter per year. The options have a five-year expiration. Additionally, 20,000
shares were granted at an exercise price of $.75 per share with one quarter
vesting one year from date of grant and the remainder vesting one quarter per
year. The options have a five-year expiration. Also, 50,000 shares were granted
at an exercise price of $.63 per share. The options shall have a five-year
expiration and are exercisable in full on the first anniversary of the date of
grant.
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During the quarter $53,000 was raised in a private placement of the
Company's common stock at the price of $.72 per share with a 50% warrant
attached which is exercisable at $1.50 per share. Subsequent to that an
additional $52,700 was raised with the same terms.
At February 28, 2001, Lancer had a $300,000 line of credit with a bank.
Borrowings are made at prime plus 1.25% (9.75% at February 28, 2001) and are
limited to specified percentages of eligible accounts receivable. The unused
portion available under the line of credit at February 28, 2001 was $120,000.
The line of credit expires on September 10, 2001. The line of credit is
collateralized by substantially all the assets of the Lancer, including
inventories, receivables, and equipment. The lending agreement for the line of
credit requires, among other things, that the Lancer maintain a tangible net
worth of $2,800,000 and a debt to tangible net worth ratio of no more than 1 to
1. Lancer is not required to maintain compensating balances in connection with
this borrowing arrangement. Lancer was in violation of certain of its debt
covenants at February 28, 2001. A waiver has been requested but not yet received
as of the date of filing.
Biomerica, Inc. entered into an agreement, in substance, for a line of
credit on September 12, 2000 with a shareholder whereby the shareholder 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, 2001. Biomerica and the shareholder are
in the process of formalizing this line of credit. As of February, 2001, $30,000
had been drawn on that line of credit.
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. None.
Exhibit No. Description
----------- -----------
3.1 First Amended and Restated Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware
on August 1, 2000 (incorporated by reference to Exhibit 3.8
filed with Registrant's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 2000.
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: April 20, 2001
BIOMERICA, INC.
By: /S/ Zackary S. Irani
------------------------
Zackary Irani
Chief Executive Officer
18