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