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 November 30, 2001 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,121,295 shares of common
stock as of January 21, 2002.
BIOMERICA, INC.
INDEX
PART I
Item 1. Financial Statements:
Consolidated Statements of Operations and Comprehensive Loss
(unaudited) - Six Months and Three Months Ended November
30, 2001 and 2000................................................ 2 & 3
Consolidated Balance Sheet (unaudited) - November 30, 2001....... 4 & 5
Consolidated Statements of Cash Flows (unaudited) Six Months
Ended November 30, 2001 and 2000................................. 6 & 7
Consolidated Statement of Changes in Shareholders' Equity
(unaudited) Six Months Ended November 30, 2001................... 8
Notes to Consolidated Financial Statements....................... 9-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data...................................... 15-16
PART II Other Information................................................ 17
Signatures....................................................... 18
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Six Months Ended Three Months Ended
November 30, November 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Net sales ............................................ $ 4,167,026 $ 4,264,478 $ 2,224,444 $ 2,284,592
Cost of sales ................................... 2,864,686 2,578,530 1,408,423 1,261,882
------------ ------------ ------------ ------------
Gross profit .................................... 1,302,340 1,685,948 816,021 1,022,710
------------ ------------ ------------ ------------
Operating
Expenses:
Selling, general and administrative ............. 1,674,303 1,680,384 868,188 947,223
Research and development ........................ 88,650 180,646 30,815 79,663
------------ ------------ ------------ ------------
1,762,953 1,861,030 899,003 1,026,886
------------ ------------ ------------ ------------
Operating loss from continuing operations ............ (460,613) (175,082) (82,982) (4,176)
------------ ------------ ------------ ------------
Other Expense
(income):
Interest expense ................................ 15,253 9,860 9,043 4,653
Other (income) expense, net ..................... 12,116 (14,311) 17,757 (2,682)
------------ ------------ ------------ ------------
27,369 (4,451) 26,800 1,971
------------ ------------ ------------ ------------
Loss from continuing operations, before minority
interest in net loss of consolidated subsidiaries
and income taxes
(487,982) (170,631) (109,782) (6,147)
------------ ------------ ------------ ------------
Minority interest in net losses (profits)
of consolidated subsidiaries ......................... 38,880 118,716 (49,955) 47,560
------------ ------------ ------------ ------------
Loss (income) from continuing operations, before
income taxes ......................................... (449,102) (51,915) (159,737) 41,413
Income Tax Expense ................................... 1,600 1,600 1,600 800
------------ ------------ ------------ ------------
Net (loss) income from continuing operations ......... (450,702) (53,515) (161,337) 40,613
2
Six Months Ended Three Months Ended
November 30, November 30,
2001 2000 2001 2000
------------ ------------ ------------ ------------
Discontinued operations:
(Gain) loss from discontinued operations,net....... 4,704 (1,465,596) 19,337 (632,640)
------------ ------------ ------------ ------------
Net loss (445,998) (1,519,111) (142,000) (592,027)
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on available-for-
sale securities.................................... (5,186) 608 (1,484) 9,162
------------ ------------ ------------ ------------
Comprehensive loss.................................. $ (451,184) $(1,518,503) $ (143,484) $ (582,865)
============ ============ ============ ============
Basic net loss per common share:
Net income (loss) from continuing operations....... $ (.09) $ (.01) $ (.03) $ .01
Net gain (loss) from discontinued operations....... (.00) (.31) .00 (.13)
------------ ------------ ------------ ------------
Basic net loss per common share....................... $ (.09) $ (.32) $ (.03) $ (.12)
============ ============ ============ ============
Diluted net loss per common share:
Net gain (loss) from continuing operations......... $ (.09) $ (.01) $ (.03) $ .01
Net gain (loss) from discontinued operations....... (.00) (.31) .00 (.13)
------------ ------------ ------------ ------------
Diluted net loss per common share $ (.09) $ (.32) $ (.03) $ (.12)
============ ============ ============ ============
Weighted average number of common and common
equivalent shares:
Basic and diluted................................ 4,999,466 4,694,734 5,031,349 4,814,213
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
November 30,
2001
-----------
Assets
Current Assets
Cash and cash equivalents ........................................... $ 53,928
Available-for-sale securities ....................................... 13,340
Accounts receivable, less allowance for doubtful accounts of $192,198 1,486,192
Inventory, net ...................................................... 2,953,426
Notes receivable .................................................... 18,394
Prepaid expenses and other .......................................... 96,484
-----------
Total Current Assets .......................................... 4,621,764
Inventory, non-current .................................................. 15,000
Property and Equipment, net of accumulated depreciation and amortization 266,217
Intangible assets, net of accumulated amortization ...................... 262,060
Other Assets ............................................................ 36,318
-----------
$5,201,359
===========
The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED), CONTINUED
November 30,
2001
-------------
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit ............................................ $ 172,845
Accounts payable and accrued liabilities ................. 980,367
Accrued compensation ...................................... 304,034
Net liabilities from discontinued operations ............. 365,095
-------------
Total Current Liabilities ............................ 1,822,341
Shareholder loan ............................................... 260,000
Minority interest .............................................. 2,008,077
Shareholders' Equity
Common stock, $0.08 par value authorized 25,000,000 shares,
subscribed or issued and outstanding 5,121,295 .......... 409,703
Additional paid-in-capital ................................ 16,930,553
Accumulated other comprehensive loss ..................... (15,475)
Accumulated deficit ....................................... (16,213,840)
-------------
Total Shareholders' Equity ..................................... 1,110,941
-------------
Total Liabilities and Shareholders' Equity ..................... $ 5,201,359
=============
The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
2001 2000
---------- ----------
Cash flows from operating activities:
Net loss from continuing operations ....................... $(450,702) $ (53,515)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization ........................ 107,891 97,960
Realized gain on sale of available for-sale securities (3,626) (6,412)
Minority interest in net gain (loss) of consolidated
subsidiaries ....................................... (38,880) (118,716)
Common stock issued for services rendered ............ 42,625 248,489
Provision for losses on accounts receivable .......... (361) (16,829)
Warrants and options issued for services rendered .... 35,308 58,378
Changes in current assets and liabilities:
Accounts Receivable ................................ 39,424 88,025
Inventories ........................................ (87,470) (90,113)
Prepaid expenses and other current assets .......... (7,062) (4,319)
Accounts payable and other accrued liabilities ..... 49,402 29,055
Accrued compensation ............................... 40,757 (57,545)
---------- ----------
Net cash provided by (used in) operating activities ....... (253,876) 174,458
---------- ----------
Cash flows from investing activities:
Sale of available for-sale securities ................ 26,670 22,180
Increase in notes receivable ......................... - (9,385)
Purchases of property and equipment .................. (9,890) (26,230)
Other assets ......................................... 3,220 11,261
Purchases of intangible assets ....................... (10,591) (16,038)
---------- ----------
Net cash used in investing activities ..................... 9,409 (18,212)
---------- ----------
Cash flows from financing activities:
Private placement net of offering costs .............. 10,199 153,922
Exercise of stock options ............................ 1,128 6,018
Increase in line of credit ........................... 32,845 60,000
Increase in shareholder loan ......................... 165,000 -
---------- ----------
6
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
SIX MONTHS ENDED NOVEMBER 30, 2001 AND 2000
2001 2000
---------- ----------
Net cash provided by financing activities.................. 209,172 219,940
---------- ----------
Net cash provided by (used in) discontinued operations..... (47,076) (777,185)
Net decrease in cash and cash equivalents.................. (82,371) (400,999)
Cash at beginning of period................................ 136,299 615,057
---------- ----------
Cash at end of period...................................... $ 53,928 $ 214,058
========== ==========
The accompanying notes are an integral part of these statements.
7
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2001
Common Stock
Common Stock Subscribed
-------------------------- ---------------------------
Accumulated
Number Additional Other
of Paid-in Comprehensive Accumulated
Shares Amount Capital Shares Amount Loss (Deficit) Total
------------- ----------- ------------- ------------ ------------- ----------- ------------- -------------
Balance at
May 31, 2001 4,890,679 $ 391,254 $ 16,748,968 146,075 $ 110,774 $ (10,289) $(15,767,842) $ 1,472,865
------------- ----------- ------------- ------------ ------------- ----------- ------------- -------------
Compensation
expense in
connection with
options and
warrants granted 35,308 35,308
Change in unrealized
gain on available
for sale securities (5,186) (5,186)
Exercise of
stock options 1,625 130 998 1,128
Common stock
issued for
private placement 140,241 11,219 89,754 (126,075) (90,774) 10,199
Common stock
Issued for
consulting
services 68,750 5,500 37,125 42,625
Net loss $ (445,998) $ (445,998)
------------- ----------- ------------- ------------ ------------- ----------- ------------- -------------
Balance at
November 30,
2001 5,101,295 $ 408,103 $ 16,912,153 20,000 $ 20,000 $ (15,475) $(16,213,840) $ 1,110,941
============= =========== ============= ============ ============= =========== ============= =============
8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
November 30, 2001
(1) Reference is made to Note 2 of the Notes to Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 2001, 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 financial position,
results of operations, and cash flow in conformity with generally
accepted accounting principles.
(3) 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 Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 2001, for a description of the investments in
affiliates and consolidated subsidiaries.
(5) Reference is made to Notes 5 & 10 of the Notes to Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 2001, for information on commitments and
contingencies.
(6) Aggregate cost of available-for-sale securities exceeded aggregate
market value by approximately $15,475 at November 30, 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
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
For the Six Months Ended November 30, 2001
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss from continuing operations ... $ (450,702) $ (.09)
Gain from discontinued operations . 4,704 .00
------------ ------------ ------------
(445,998) 4,994,466 (.09)
Diluted EPS -
Loss attributable to common share -
holders plus assumed conversions . $ (445,998) 4,994,466 $ (.09)
============ ============ ============
For the Six Months Ended November 30, 2000
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss from continuing operations ... $ (53,515) $ (.01)
Loss from discontinued operations . (1,465,596) (.31)
------------ ------------ ------------
$(1,519,111) 4,694,734 (.32)
Diluted EPS -
Loss attributable to common share -
holders plus assumed conversions . $(1,519,111) 4,694,734 $ (.32)
============ ============ ============
For the Three Months Ended November 30, 2001
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss from continuing operations ... $ (161,337) $ (.03)
Gain from discontinued operations . 19,337 .00
------------ ------------ ------------
(142,000) 5,031,349 (.03)
Diluted EPS -
Loss attributable to common share -
holders plus assumed conversions . $ (142,000) 5,031,349 $ (.03)
============ ============ ============
For the Three Months Ended November 30, 2000
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Income from continuing operations . $ 40,613 $ .01
Loss from discontinued operations . (632,640) (.13)
------------ ------------ ------------
$ (592,027) 4,814,213 (.12)
Diluted EPS -
Loss attributable to common share -
holders plus assumed conversions . $ (592,027) 4,814,213 $ (.12)
============ ============ ============
10
(8) 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
material 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 was effective for the company's
fourth quarter of fiscal year 2001. Management believes that its
current revenue recognition policies comply with SAB No. 101.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 ("FIN 44"),"Accounting for Certain Transactions
Involving Stock Compensation." The adoption of this Interpretation did
not have a material impact on the consolidated results of operations or
financial position of the Company.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"),
"Business Combinations", which eliminates the pooling method of
accounting for business combinations initiated after June 30, 2001. In
addition, SFAS 141 addresses the accounting for intangible assets and
goodwill acquired in a business combination. This portion of SFAS 141
is effective for business combinations completed after June 30, 2001.
The Company does not expect SFAS 141 will have a material impact on the
Company's financial position or results of operations.
In July 2001, the FASB issued Statement of Financial Accounting
Standards No. 142 ("SFAS 142"), "Goodwill And Intangible Assets", which
revises the accounting for purchased goodwill and intangible assets.
Under SFAS 142, goodwill and intangible assets with indefinite lives
will no longer be amortized and will be tested for impairment annually.
SFAS 142 is effective for fiscal years beginning after December 15,
2001, with earlier adoption permitted. The Company does not expect that
SFAS 142 will 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
(9) Financial information about foreign and domestic operations and export
sales is as follows:
For the Six Months Ended
11/30/01 11/30/00
---------- ----------
Revenues from sales to unaffiliated customers:
United States $1,993,000 $2,356,000
Asia 115,000 109,000
Europe 1,151,000 1,026,000
South America 285,000 214,000
Oceania 183,000 152,000
Other 440,000 407,000
---------- ----------
$4,167,000 $4,264,000
========== ==========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
Operating profit (loss):
United States $(296,000) $ (93,000)
Asia (22,000) (14,000)
Europe (28,000) (26,000)
South America (26,000) (8,000)
Other (50,000) (12,000)
Oceania (39,000) (22,000)
---------- ----------
$(461,000) $(175,000)
========== ==========
(10) Biomerica received a NASDAQ Staff determination letter on January 15,
2002 indicating that the Company failed to comply with Market Place
rule 4310(c)(2)(b) requirements regarding net tangible assets or
stockholder equity. As a result NASDAQ notified the Company that its
common shares are subject to delisting. The Company has filed for an
appeal of this decision with the NASDAQ Listing Qualification Panel and
has requested a hearing. A hearing request will stay the delisting of
the Company's securities pending the Panel's decision. There can be no
assurances that the Panel will grant the Company's request for
continued listing.
(11) The Company has suffered substantial recurring losses from operations
over the last couple of years. The Company has funded its operations
through debt and equity financings, and may have to do so in the
future. ReadyScript operations were discontinued in May 2001.
ReadyScript was a primary contributor to the Company's losses. The
Company also 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.
13
(12) At November 30, 2001, Lancer had a $400,000 revolving line of credit
with a financial institution. Borrowings are made at prime plus 2.00%
(7.0% at November 30, 2001) and are limited to specified percentages of
eligible accounts receivable. The unused portion available under the
line of credit at November 30, 2001 was $42,588. 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, 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 are required. Lancer is
not required to maintain compensating balances in connection with this
lending agreement.
Biomerica, Inc. entered into a line of credit agreement on September
12, 2001 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, 2002. The unused
portion of the line of credit at November 30, 2001, was $250,000.
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.
14
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, 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 $4,167,026 for the six months
ended November 30, 2001 as compared to $4,264,478 for the same period in the
previous year. This represents a decrease of $97,452, or 2%. For the quarter
then ended sales were $2,224,444 as compared to $2,284,592 for the same period
in the prior fiscal year. This represents a decrease of $60,148, or 3%. The
decreases for the six and three months were primarily attributable to a decrease
in the diagnostic product sales.
Cost of sales for the six months increased as a percentage of sales from
60% to 69% and for the three months increased from 55% to 63%. Most of the
increase for the six months was due to lower sales in relation to some fixed
costs and lower sales of higher margin diagnostic products.
Selling, general and administrative costs decreased by $6,081, or 0% for
the six months and by $79,035, or 8% for the three months ended November 30,
2001. The decrease was primarily due to a decrease in commissions at Biomerica.
Lancer had increased selling, general and administrative costs of $16,703 for
the six months and $763 for the three months due to an increase in labor costs
and commissions.
Research and development decreased by $91,996, or 51% for the six months
and $48,848, or 61% for the three months. The decreases were primarily due to
overall decreases of $69,724 and $33,484 for the six and three months,
respectively at Lancer, as well as some decreases in wages and related costs at
Biomerica.
Interest expense increased by $5,393 for the six months and $4,390 for
the three months compared to the previous year due to borrowings on the line of
credit at Biomerica.
15
At November 30, 2001, the Company retained a 30.78% interest in Lancer
Orthodontics. The Company maintains a 51.19% indirect voting control over Lancer
Orthodontics via agreements with certain shareholders. The Company also retains
a 74.6% interest in Allergy Immuno Technologies and 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, 2001, for a
more in-depth discussion of subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2001, the Company had cash and available-for-sale
securities in the amount of $53,928 and working capital of $2,799,423. Cash and
working capital totaling $91,931 and $2,679,471, respectively, relates to the
Lancer subsidiary. Lancer's line of credit restricts Biomerica's ability to draw
on Lancer's resources and, as such, said cash, working capital and equity are
not available to Biomerica. Biomerica, Inc. and its subsidiaries, are expected
to fund their operations for at least the next twelve months through their
existing available financing, working capital, and its shareholder line of
credit.
The Company has suffered substantial recurring losses from operations
over the last couple of years. The Company has funded its operations through
debt and equity financings, and may have to do so in the future. ReadyScript
operations were discontinued in May 2001. ReadyScript was a primary contributor
to the Company's losses. The Company also 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 six months ended November 30, 2001, the Company used net cash
in operations of $253,876. This compares to net cash provided by operations of
$174,458 in the same period in the prior fiscal year.
Biomerica received a NASDAQ Staff determination letter on January 15, 2002
indicating that the Company failed to comply with Market Place rule
4310(c)(2)(b) requirements regarding net tangible assets or stockholder equity.
As a result NASDAQ notified the Company that its common shares are subject to
delisting. The Company has filed for an appeal of this decision with the NASDAQ
Listing Qualification Panel and has requested a hearing. A hearing request will
stay the delisting of the Company's securities pending the Panel's decision.
There can be no assurances that the Panel will grant the Company's request for
continued listing.
At November 30, 2001, Lancer had a $400,000 revolving line of credit with
a financial institution. Borrowings are made at prime plus 2.00% (7.0% at
November 30, 2001) and are limited to specified percentages of eligible accounts
receivable. The unused portion available under the line of credit at November
30, 2001 was $42,588. 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 are required. Lancer is not required to maintain compensating balances
in connection with this lending agreement.
Biomerica, Inc. entered into a line of credit agreement on September 12,
2001 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, 2002. The unused portion of the line of credit at November
30, 2001, was $250,000. 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.
WE MAY FACE INTERRUPTION OF PRODUCTION AND SERVICES DUE TO INCREASED
SECURITIES MEASURES IN RESPONSE TO TERRORISM:
Our business depends on the free flow of products and services through the
channels of commerce. Recently, in response to terrorists' activities and
threats aimed at the United States, transportation, mail, financial and other
services have been slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial or other services could have a material adverse
effect on our business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the activities and
potential activities. We may also experience delays in receiving payments from
payers that have been affected by the terrorist activities and potential
activities. The U.S. economy in general is being adversely affected by the
terrorist activities and potential activities and any economic downturn could
adversely impact our results of operations, impair our ability to raise capital
or otherwise adversely affect our ability to grow our business.
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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.
The Annual Meeting of the Company's stockholders was held on
November 13, 2001. The only matters voted on were the election of directors and
an amendment to the certificate of incorporation which would effect a reverse
split of the outstanding common stock at an exchange ratio of one-to-three, as
set forth in the proxy statement dated September 28, 2001, as filed with the
Securities and Exchange Commission pursuant to Rule 14 under the Securities
Exchange Act of 1934. All directors were elected and Proposal #2 was approved by
the shareholders. The following summarizes the voting:
Proposal #1, Election of Directors:
Name For Vote Withheld
---- --- -------------
Allen Barbieri 4,020,677 110,764
Dr. Carlos St. Aubyn Beharie 4,021,590 109,851
David Burrows 4,020,675 110,766
Dr. Francis Cano 4,021,702 109,739
Zackary Irani 4,016,802 114,639
Janet Moore 4,019,721 111,720
Dr. Robert Orlando 4,021,040 110,401
Proposal #2, Amendment to certificate of incorporation to effect a reverse stock
split in the ratio of one-to-three:
For 3,855,452 Against 283,072 Abstain 16,977
Item 5. OTHER INFORMATION. Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. None.
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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: January 21, 2002
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------------
Zackary Irani
Chief Executive Officer
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