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, 2002 Commission File No. 0-8765
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BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
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(Not applicable)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,123,616 shares of common
stock as of April 9, 2002.
BIOMERICA, INC.
INDEX
PART I
Item 1. Financial Statements:
Consolidated Statements of Operations and Comprehensive Loss
(unaudited) - Nine Months and Three Months Ended
February 28, 2002 and 2001......................................2 & 3
Consolidated Balance Sheet (unaudited) - February 28, 2002.......4 & 5
Consolidated Statements of Cash Flows (unaudited)
Nine Months Ended February 28, 2002 and 2001.....................6 & 7
Consolidated Statement of Changes in Shareholders' Equity (unaudited)
Nine Months Ended February 28, 2002..................................8
Notes to Consolidated Financial Statements........................9-14
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data......................................15-17
PART II Other Information...................................................18
Signatures..........................................................19
1
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Nine Months Ended Three Months Ended
February 28, February 28,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Net sales ......................................... $ 6,510,232 $ 6,537,392 $ 2,318,817 $ 2,282,809
Cost of sales ................................ 4,441,984 4,313,694 1,506,665 1,493,387
------------ ------------ ------------ ------------
Gross profit ................................. 2,068,248 2,223,698 812,152 789,422
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative .......... 2,372,740 2,315,944 744,474 887,231
Research and development ..................... 125,755 254,324 37,105 73,748
------------ ------------ ------------ ------------
2,498,495 2,570,268 781,579 960,979
------------ ------------ ------------ ------------
Operating (loss) income from continuing operations (430,247) (346,570) 30,573 (171,557)
------------ ------------ ------------ ------------
Other Expense (income):
Interest expense ............................. 26,087 16,467 10,834 6,607
Other (income) expense, net .................. (5,248) (40,961) (17,158) (26,650)
------------ ------------ ------------ ------------
20,839 (24,494) (6,324) (20,043)
------------ ------------ ------------ ------------
Loss from continuing operations, before
minority interest in net loss of
consolidated subsidiaries ....................
and income taxes ............................. (451,086) (322,076) 36,897 (151,514)
Minority interest in net losses (profits) of
consolidated subsidiaries .................... 4,012 132,459 (34,867) (13,743)
------------ ------------ ------------ ------------
(Loss) income from continuing operations, before
income taxes ...................................... (447,074) (189,617) 2,030 (165,257)
Income Tax Expense ................................ 2,400 1600 800 800
------------ ------------ ------------ ------------
Net (loss) income from continuing operations ...... (449,474) (191,217) 1,230 (166,057)
2
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Nine Months Ended Three Months Ended
February 28, February 28,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Discontinued operations:
Loss from discontinued operations, net ......... (11,892) (1,814,253) (16,597) (347,768)
------------ ------------ ------------ ------------
Net loss .......................................... (461,366) (2,005,470) (15,367) (513,825)
Other comprehensive gain (loss), net of tax
Unrealized loss on available-for-sale securities (11,001) (972) (5,815) (1,608)
------------ ------------ ------------ ------------
Comprehensive loss .............................. $ (472,367) $(2,006,442) $ (21,182) $ (515,433)
============ ============ ============ ============
Basic net loss per common share:
Net income (loss) from continuing operations ... $ (.09) $ (.04) $ .00 $ (.03)
Net loss from discontinued operations .......... (.00) (.38) (.00) (.08)
------------ ------------ ------------ ------------
Basic net loss per common share ................... $ (.09) $ (.42) $ (.00) $ (.11)
============ ============ ============ ============
Diluted net loss per common share:
Net gain (loss) from continuing operations ..... $ (.09) $ (.04) $ .00 $ (.03)
Net gain (loss) from discontinued operations ... (.00) (.38) (.00) (.08)
------------ ------------ ------------ ------------
Diluted net loss per common share ................. $ (.09) $ (.42) $ (.00) $ (.11)
============ ============ ============ ============
Weighted average number of common and
common equivalent shares:
Basic and diluted ............................ 5,065,534 4,745,003 5,120,654 4,537,795
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
February 28,
2002
-----------
Assets
Current Assets
Cash and cash equivalents ........................................... $ 118,872
Available-for-sale securities ....................................... 1,479
Accounts receivable, less allowance for doubtful accounts of $187,654 1,642,541
Inventory, net ...................................................... 2,924,536
Notes receivable .................................................... 18,394
Prepaid expenses and other .......................................... 112,631
-----------
Total Current Assets .......................................... 4,818,453
Inventory, non-current .................................................. 15,000
Property and Equipment, net of accumulated depreciation and amortization 246,503
Intangible assets, net of accumulated amortization ...................... 238,905
Other Assets ............................................................ 41,509
-----------
$5,360,370
===========
The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED), CONTINUED
February 28,
2002
-------------
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit ............................................ $ 117,185
Accounts payable and accrued liabilities .................. 1,069,179
Accrued compensation ...................................... 314,759
Net liabilities from discontinued operations .............. 373,831
-------------
Total Current Liabilities ............................ 1,874,954
Shareholder loan ............................................... 310,000
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Total Liabilities .............................................. 2,184,954
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Minority interest .............................................. 2,042,944
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Shareholders' Equity
Common stock, $0.08 par value authorized 25,000,000 shares,
subscribed or issued and outstanding 5,160,616 .......... 409,889
Additional paid-in-capital ................................ 16,973,081
Accumulated other comprehensive loss ...................... (21,290)
Accumulated deficit ....................................... (16,229,208)
-------------
Total Shareholders' Equity ..................................... 1,132,472
-------------
Total Liabilities and Shareholders' Equity ..................... $ 5,360,370
=============
The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
2002 2001
---------- ----------
Cash flows from operating activities:
Net loss from continuing operations ........................ $(449,474) $(191,217)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization ......................... 149,211 169,827
Realized gain on sale of available for-sale securities (10,026) (30,408)
Minority interest in net income (loss) of consolidated
subsidiaries ........................................ (4,012) (158,351)
Common stock issued for services rendered ............. 61,886 248,489
Provision for losses on accounts receivable ........... (4,905) -
Warrants and options issued for services rendered ..... 64,560 97,035
Changes in current assets and liabilities:
Accounts Receivable ................................. (112,381) 256,992
Inventories ......................................... (58,580) (217,209)
Prepaid expenses and other current assets ........... (23,209) 130,343
Accounts payable and other accrued liabilities ...... 138,214 (163,592)
Accrued compensation ................................ 51,482 252,962
---------- ----------
Net cash (used in) provided by operating activities ........ (197,234) 394,871
---------- ----------
Cash flows from investing activities:
Sale of available for-sale securities ................. 39,116 73,408
Increase in notes receivable .......................... - (7,325)
Purchases of property and equipment ................... (8,341) (135,251)
Other assets .......................................... (1,971) 8,199
Purchases of intangible assets ........................ (10,591) (16,038)
---------- ----------
Net cash provided by (used in) investing activities ........ 18,213 (77,007)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock subscribed ........ - 53,000
Proceeds from issuance of convertible promissory notes - 835,000
Private placement net of offering costs .............. 4,400 152,512
Exercise of stock options ............................ 1,128 6,018
(Decrease) increase in line of credit ................ (22,815) 20,000
Increase in shareholder loan ......................... 215,000 30,000
---------- ----------
6
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
NINE MONTHS ENDED FEBRUARY 28, 2002 AND 2001
2002 2001
------------ ------------
Net cash provided by financing activities .. 197,713 1,096,530
------------ ------------
Net cash (used in) discontinued operations .. (36,119) (1,814,253)
------------ ------------
Net decrease in cash and cash equivalents .. (17,427) (399,859)
Cash at beginning of period ................ 136,299 634,210
------------ ------------
Cash at end of period ...................... $ 118,872 $ 234,351
============ ============
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, 2002
Common Stock
Common Stock Subscribed
--------------------- ------------------
Accumulated
Number Additional Other
of Paid-in Comprehensive Accumulated
Shares Amount Capital Shares Amount Loss (Deficit) Total
----------- --------- ----------- --------- --------- -------------- ------------- ------------
Balances 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 64,560 64,560
Change in unrealized
gain on available
for sale securities (11,001) (11,001)
Exercise of
stock options 1,625 130 998 1,128
Common stock issued
for private
placement 140,241 11,219 83,955 (126,075) (90,774) 4,400
Common stock
Issued for consulting 91,071 7,286 46,100 53,386
services
Common stock
In lieu of wages 17,000 8,500 8,500
Net loss (461,366) (461,366)
----------- --------- ----------- --------- --------- -------------- ------------- ------------
Balances at
February 28,
2002 5,123,616 $409,889 $16,944,581 37,000 $28,500 $ (21,290) $(16,229,208) $ 1,132,472
============ ========= =========== ======== ======== ============== ============= ============
8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
February 28, 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, 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 Consolidated 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 Consolidated
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 $21,290 at February 28, 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. For all periods presented, no common stock equivalents have
been included in the computation of diluted earnings per share as they
were determined to be anti-dilutive.
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
9
For the Nine Months Ended February 28, 2002
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Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------- ------------------- --------------------
Basic EPS -
(Loss) gain from continuing operations $ (449,474) $ (.09)
(Loss) gain from discontinued operations (11,892) 5,065,534 (.00)
---------------------- ------------------- --------------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions.............. $ (461,366) 5,065,534 $ (.09)
====================== =================== ====================
For the Nine Months Ended February 28, 2001
---------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------- ------------------- --------------------
Basic EPS -
Loss from continuing operations $ (191,217) $ (.04)
Loss from discontinued operations (1,814,253) 4,745,003 (.38)
---------------------- ------------------- --------------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions.............. $ (2,005,470) 4,745,003 $ (.42)
====================== =================== ====================
10
For the Three Months Ended February 28, 2002
---------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------- ------------------- --------------------
Basic EPS -
Gain (loss) from continuing operations $ 1,230 $ .00
Gain from discontinued operations (16,597) 5,120,654 (.00)
---------------------- ------------------- --------------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions.............. $ (15,367) 5,120,654 $ (.00)
====================== =================== ====================
For the Three Months Ended February 28, 2001
---------------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
---------------------- ------------------- --------------------
Basic EPS -
Income from continuing operations $ (166,057) $ (.03)
Loss from discontinued operations (347,788) 4,537,795 (.08)
---------------------- ------------------- --------------------
Diluted EPS -
Loss attributable to common share-
holders plus assumed conversions.............. $ (513,845) 4,537,795 $ (.11)
====================== =================== ====================
(8) Recent Accounting Pronouncements
--------------------------------
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
In August 2001, FASB issued SFAS No. 144, Impairment or Disposal of
Long-Lived Assets, which addresses accounting and financial reporting
for the impairment or disposal of long-lived assets. This standard is
effective for the Company's financial statements beginning December 1,
2002. The Company is currently evaluating the impact, if any, the
implementation of this Statement will have on the Company's financial
position and results of operations.
(9) Financial information about foreign and domestic operations and export
sales is as follows:
For the Nine Months Ended
2/28/02 2/28/01
------- -------
Revenues from sales to unaffiliated customers:
United States $3,281,000 $3,609,000
Asia 143,000 129,000
Europe 1,761,000 1,620,000
South America 372,000 322,000
Oceania 284,000 220,000
Other 669,000 637,000
----------- -----------
$6,510,000 $6,537,000
=========== ===========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
Operating profit (loss):
United States $ (215,000) $ (327,000)
Asia (22,000) (24,000)
Europe (86,000) 34,000
South America (21,000) 4,000
Oceania (58,000) (9,000)
Other (28,000) (25,000)
----------- -----------
$ (430,000) $ (347,000)
=========== ===========
(10) On January 15, 2002, the Company received a Nasdaq Staff Determination
indicating that the Company failed to comply with the net tangible
assets or shareholders' equity requirements for continued listing set
forth in Marketplace Rule 4310(c)(2)(B), and that its securities are,
therefore, subject to delisting from the Nasdaq SmallCap Market
effective January 23, 2002. The Company requested a hearing before a
Nasdaq Listing Qualifications Panel to review the Staff Determination.
The request for a hearing stayed the delisting of the Company's
securities pending the Panel's decision. On February 21, 2002 the
hearing took place. In response to the hearing, on March 25, 2002, the
Company received a Nasdaq Staff Determination letter stating their
decision with respect to the continued listing of the Company's
12
securities. The Panel determined to continue the listing of the
Company's securities on the Nasdaq SmallCap Market via an exception
from the net tangible assets requirement. While the Company failed to
meet this requirement, the Company was granted a temporary exception
from the standard subject to the Company meeting certain conditions by
specified deadlines. For the duration of the exception, the Company's
symbol will be BMRAC. There can be no assurance the Company will be
able to meet these conditions by the specified deadlines. Should the
Company's securities be delisted, they will be eligible to trade on the
OTC Bulletin Board.
On February 14, 2002, the Company received a Nasdaq Staff Determination
letter indicating that the Company failed to comply with the minimum
$1.00 per share requirement for continued inclusion of its common stock
under Marketplace Rule 4310(c)(4), and therefore is subject to
delisting from the Nasdaq SmallCap Market. In accordance with
Marketplace Rule 4310(c)(8)(D), the Company will be provided 180
calendar days, or until August 13, 2002, to regain compliance.
(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.
(12) At February 28, 2002, Lancer had a $400,000 revolving line of credit
with a financial institution. Borrowings are made at prime plus 2.00%
(6.75% at February 28, 2002) and are limited to specified percentages
of eligible accounts receivable. The unused portion available under the
line of credit at February 28, 2002 was $229,000. The line of credit
expires October 24, 2003.
The line of credit is collateralized by substantially all the assets of
Lancer, including inventories, receivables and equipment. The lending
agreement requires, 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. 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. 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 February 28, 2002, was $200,000.
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.
13
(13) On February 25, 2002, Biomerica and Lancer Orthodontics, Inc. signed an
"Asset Purchase Agreement by and between Lancer Orthodontics, Inc., and
Biomerica, Inc." Under this asset purchase agreement, Biomerica has
agreed to purchase all of the assets and most of the liabilities of
Lancer for $610,250. The purchase is to be consummated through the
exchange of 488,200 to 984,274 shares of Biomerica common stock. The
number of shares issued will be determined by the price of Biomerica
stock in the five trading days before the closing of the transaction.
(14) On March 15, 2002, the laboratory business of the subsidiary, Allergy
Immuno Technologies, Inc., was discontinued due to continued operating
losses and lack of capital to sustain those losses. AIT is currently
exploring other business options. AIT intends to keep current with its
SEC filings as required.
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
DOING BUSINESS. THESE RISKS AND UNCERTAINTIES ALSO INCLUDE THE SUCCESS OF THE
COMPANY IN RAISING NEEDED CAPITAL, THE CONTINUAL DEMAND FOR THE COMPANY'S
PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE MARKETPLACE, AVAILABILITY OF
RAW MATERIALS, THE EFFECTS OF TERRORISM, HEALTH CARE REGULATIONS AND THE STATE
OF THE ECONOMY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF, AND THE
COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
Consolidated net sales for Biomerica were $6,510,232 for the nine
months ended February 28, 2002 as compared to $6,537,392 for the same period in
the previous year. This represents a decrease of $27,160, or .4%. For the
quarter then ended sales were $2,318,817 as compared to $2,282,809 for the same
period in the prior fiscal year. This represents an increase of $36,008, or
1.6%. The decreases for the nine months were primarily attributable to a
decrease in the diagnostic product sales which were slow in the first fiscal
quarter.
Cost of sales for the nine months increased as a percentage of sales
from 66.0% to 68.2%, primarily because of increased production costs at Lancer.
Cost of sales for the three months then ended decreased from 65.4% to 65.0%
primarily because of increased sales of higher margin products at the
diagnostics' division.
Selling, general and administrative costs increased by $56,796, or 2.5%
for the nine months. For the three months then ended these costs decreased by
$142,757, or 16.1%. The decreases were primarily due to decreased marketing
labor and travel costs at Lancer.
Research and development decreased by $128,569, or 50.6% for the nine
months. For the three months these costs decreased by $36,643, or 49.7%. The
decreases were primarily due to overall decreases of $79,373 and $9,649 for the
nine and three months, respectively at Lancer. Biomerica also had decreases in
wages and related costs.
Interest expense increased by $9,620 for the nine months and $4,227 for
the three months compared to the previous year due to borrowings on the line of
credit at Biomerica.
At February 28, 2002, 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.
15
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 2002, the Company had cash and available-for-sale
securities in the amount of $120,351 and working capital of $2,943,500. Cash and
working capital totaling $120,184 and $2,751,508, 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. Allergy Immuno Technologies' operations, which also has
been contributing to the companies losses, were discontinued March 15, 2002. 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 nine months ended February 28, 2002, the Company used net
cash in operations of $197,234. This compares to net cash provided by operations
of $394,871 in the same period in the prior fiscal year.
On January 15, 2002, the Company received a Nasdaq Staff Determination
indicating that the Company failed to comply with the net tangible assets or
shareholders' equity requirements for continued listing set forth in Marketplace
Rule 4310(c)(2)(B), and that its securities are, therefore, subject to delisting
from the Nasdaq SmallCap Market effective January 23, 2002. The Company
requested a hearing before a Nasdaq Listing Qualifications Panel to review the
Staff Determination. The request for a hearing stayed the delisting of the
Company's securities pending the Panel's decision. On February 21, 2002 the
hearing took place. On March 25, 2002, the Company received a Nasdaq Staff
Determination letter stating their decision with respect to the continued
listing of the Company's securities. The Panel determined to continue the
listing of the Company's securities on the Nasdaq SmallCap market via an
exception from the net tangible assets requirement. While the Company failed to
meet this requirement, the Company was granted a temporary exception from the
standard subject to the Company meeting certain conditions by specified
deadlines. For the duration of the exception, the Company's symbol will be
BMRAC. There can be no assurance the Company will be able to meet the conditions
by the specified deadlines. Should the Company's securities be delisted, they
will be eligible to trade on the OTC Bulletin Board.
On February 14, 2002, the Company received a Nasdaq Staff Determination
letter indicating that the Company failed to comply with the minimum $1.00 per
share requirement for continued inclusion of its common stock under Marketplace
Rule 4310(c)(4), and therefore is subject to delisting from the Nasdaq SmallCap
Market. In accordance with Marketplace Rule 4310(c)(8)(D), the Company will be
provided 180 calendar days, or until August 13, 2002, to regain compliance.
At February 28, 2002, Lancer had a $400,000 revolving line of credit
with a financial institution. Borrowings are made at prime plus 2.00% (6.75% at
February 28, 2002) and are limited to specified percentages of eligible accounts
receivable. The unused portion available under the line of credit at February
28, 2002 was $229,000. The line of credit expires October 24, 2003. The line of
credit is collateralized by substantially all the assets of Lancer, including
inventories, receivables and equipment. The lending agreement requires that
receivables payments be sent to a controlled lockbox. In addition to interest, a
management fee of .0425% on the average monthly unused portion available are
required. Lancer is not required to maintain compensating balances in connection
with this lending agreement.
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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 February
28, 2002, was $200,000. 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.
On February 25, 2002, Biomerica and Lancer Orthodontics, Inc. signed an
"Asset Purchase Agreement by and between Lancer Orthodontics, Inc., and
Biomerica, Inc." Under this asset purchase agreement, Biomerica has agreed to
purchase all of the assets and most of the liabilities of Lancer for $610,250.
The purchase is to be consummated through the exchange of 488,200 to 984,274
shares of Biomerica common stock. The number of shares issued will be determined
by the price of Biomerica stock in the five trading days before the closing of
the transaction.
THE COMPANY MAY FACE INTERRUPTION OF PRODUCTION AND SERVICES DUE TO
INCREASED SECURITIES MEASURES IN RESPONSE TO TERRORISM:
Biomerica's and Lancer's business depends on the free flow of products
and services through the channels of commerce. Recently, in response to
terrorists' activities and threats aimed at the United States, transportation,
mail, financial and other services have been slowed or stopped altogether.
Further delays or stoppages in transportation, mail, financial or other services
could have a material adverse effect on the Company's business, results of
operations and financial condition. Furthermore, the Company may experience an
increase in operating costs, such as costs for transportation, insurance and
security as a result of the activities and potential activities. The Company may
also experience delays in receiving payments from payers that have been affected
by the terrorist activities and potential activities. The U.S. economy in
general is being adversely affected by the terrorist activities and potential
activities and any economic downturn could adversely impact our results of
operations, impair our ability to raise capital or otherwise adversely affect
the ability to grow the Company's business.
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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. Inapplicable.
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: April 9, 2002
BIOMERICA, INC.
By: /S/ Zackary S. Irani
------------------------
Zackary Irani
Chief Executive Officer
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