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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
ALLERGY IMMUNO TECHNOLOGIES, INC.
(Name of small business issuer in its charter)
DELAWARE 95-3937129
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1531 Monrovia Avenue
Newport Beach, California 92663
949-645-3703
(Address and telephone number of principal executive offices)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
To be so registered each class is to be registered
None N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001
(Title of class)
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BUSINESS
GENERAL
Allergy Immuno Technologies, Inc. ("AIT" or "The Company") provides
clinical testing services to doctors, clinics and pharmaceutical firms in
specialized areas of allergy and immunology determinations. Test samples are
sent to the Company's laboratory for evaluation and the results of the tests are
reported to the customer (doctors, clinics or other). All of the Company's
current revenues are derived from providing these testing services. AIT also is
engaged in the development and commercialization of novel bio-pharmaceutical
products for the treatment of allergies. The Company's research in the allergy
field has created opportunities for new therapeutic approaches and inventions
that include the possible development of oral type and/or an inhalant
anti-allergy treatments as an alternative to allergy shots. The Company is
currently searching for a potential partner for its patented allergy treatment
technologies (for which it holds four U.S. patents).
AIT's strategy is to use its patent protected technologies to create a
portfolio of unique and highly efficient allergy therapeutic treatment products.
The Company's planned allergy treatment products are expected to become the
treatment of choice for patients who wish to avoid the expensive, sometimes
unreliable and painful series of injections currently used by allergists
("current immunotherapy"). Patients undergoing the type of immunotherapy
treatment that is currently available usually must visit the physician once a
week for injections and continue these visits every week for four to five years.
As an alternative to repetitive injections and the lengthy regime now
used in current allergy immunotherapy, the Company's new anti-allergy drugs are
being designed to expand the market for allergy treatment by increasing patient
acceptance and improving compliance. It could provide efficient allergy control
at decreased costs by dramatically reducing both the length of therapy and the
required number of visits to physicians. This would benefit both the patient and
the health care provider, increasing patient acceptance and compliance and
providing effective allergy treatment at lower costs.
The Company's predecessor was originally incorporated in Utah in 1981
under the name Investor's Wealth. In 1985 that company changed its name to
Advanced Allergy Research Center, Inc. In June of 1986 NMS Pharmaceuticals, Inc.
(now Biomerica, Inc.) invested $350,000 and certain assets pursuant to an
Agreement for Purchase of Stock and Transfer of Assets dated May 15, 1986 in
exchange for 6,559,064 shares of common stock. Allergy Immuno Technologies, Inc.
was incorporated in Delaware in 1986. It was qualified as a foreign corporation
in California in January 1987. In January 1987 the predecessor Utah corporation
merged with and into the Delaware corporation pursuant to an Agreement and Plan
of Merger filed on January 20, 1987, with the Secretary of State of Delaware and
with the Secretary of State of Utah. The Company's common stock is traded on
NASDAQ's OTC Bulletin Board under the stock symbol ALIM.
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LABORATORY SERVICES
AIT currently operates a clinical reference laboratory in Newport
Beach, California, for allergy and other esoteric diagnostic testing services.
Being a credited clinical laboratory, AIT provides specialized testing services
to large organizations such as Laboratory Corporation of America, American Homes
Products, as well as other clinics and physicians. The laboratory accepts
samples from the physicians, laboratories, clinics or pharmaceutical companies,
performs the requested test and sends a written report of the test results to
the customer. Most of the tests performed relate to allergy or immunology.
Examples of some of the commonly performed tests are those for:
CANDIDA RELATED CONDITIONS
An elevation of certain antibodies specific to CANDIDA ALBICANS
(pathogenic fungus) antigens is an indication of either an infection (systemic
or topical) by C. ALBICANS, or the overgrowth of the fungus in the intestine.
The overgrowth in the intestine can cause C. ALBICANS antigens to enter the
circulation causing systemic Candidiasis. The use of antibiotics,
immunosuppressive agents, or birth control pills creates favorable conditions
for Candidiasis. Systemic Candidiasis is a serious condition in immunosuppressed
patients.
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FOOD ALLERGIES
Incompletely digested food antigens may gain access to the systemic
circulation either through the microvilli by endocytosis or through the
intercellular spaces of the gut mucosa in conditions such as the inflammatory
bowel disease, coeliac disease, gastroenteritis or the immature mucosa of the
infant. Certain antibodies may be produced against these food antigens and may
form complexes with newly absorbed antigens and can lead to tissue damage when
deposited in various organs. AIT has various panels that can test for as many as
ninety different food allergies.
BASOPHIL HISTAMINE RELEASE (BHR)
The BHR test can be used to assess the allergic response using human
blood in a test tube rather than on humans directly. Since most allergic
reactions end up with histamine release, the measurement of histamine is
essential in evaluating the effects of allergy. The test can be used on human
blood in a test tube rather than on humans directly. As a surrogate for humans,
the BHR test can be used initially to evaluate the response for a new
anti-allergy drug IN VITRO rather than directly in humans.
OTHER ALLERGIES
AIT also performs other tests for various allergies such as inhalants,
molds, weeds, insects, and animals, among others.
TECHNOLOGY AND PATENTS
AIT has succeeded in obtaining four patents pertaining to its
discoveries for allergy treatment. These are:
(1) Immunotherapy agents for treatment of IgE mediated allergies:
U.S. Patent #5,116,612 (issued May 6, 1992).
(2) Liposome containing immunotherapy agents for treatment of IgE
mediated allergies: U.S. Patent #5,049,390 (issued September
17, 1991).
(3) Immunotherapy agents for treatment of IgE mediated allergies:
U.S. Patent #4,946,945 (issued August 7, 1990).
(4) Allergen-thymic hormone conjugates for treatment of IgE
mediated allergies: U.S. Patent #5,275,814 (issued January 4,
1994).
There can be no assurance or guarantee that the Company can adequately
protect its patents or proprietary technology.
AIT is focused on the discovery and commercialization of novel
bio-pharmaceutical drugs for the treatment of allergies. The Company's research
has led to new therapeutic approaches and inventions which are covered by the
above patents. AIT's strategy is to utilize its proprietary technologies to
create unique drugs for the treatment of allergies, especially those that can be
taken orally avoiding the present injection therapy which is tedious, expensive
and unpredictable. With financial assistance from Biomerica, AIT has begun
preclinical animal studies utilizing the technology covered in some of these
patents. In connection with these efforts, the Company has also received certain
technical expertise and assistance from Biomerica.
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The objective of AIT is to tap the estimated $6 billion allergy market
in the U.S. by developing drugs for allergy treatment based on
Liposome-Encapsulated Allergens (LEA). The Company plans to find a strategic
partner to finance the cost of these efforts.
Liposomes are minute fatty particles in which allergens may be enclosed
(encapsulated). LEA favorably alters the immunological response to allergens
compared to the response elicited by native allergens presently used in
desensitizing immunotherapy. The results of pre-clinical studies conducted on
rodents (administering liposome encapsulated house dust mite by both injection
and mouth) indicate a dramatic increase in the desensitization process. If
successful, this new type of therapy may revolutionize allergy treatment for
reasons indicated below:
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FEATURES BENEFIT
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Oral delivery possible Increased patient compliance, no injections
necessary
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Complete treatment blockers Treats the disease and not the symptoms as in
histamine blockers
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Reduced patient visits Convenient to patient and less costly to
managed care
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AIT is currently looking for a collaborative partner to continue this
effort to develop and test this technology.
As mentioned above, the Company has developed a Histamine Basophil
Release (BHR) test that is a surrogate to humans wherein sensitivities to
allergens may be determined in a test tube. Food sensitivity studies for large
pharmaceutical and nutritional firms such as Mead Johnson and Carnation were
conducted utilizing the BHR test. AIT intends to use the same BHR test in the
development of the new encapsulated liposome allergen therapy.
RESEARCH AND DEVELOPMENT
During fiscal 1998 the Company spent $39 on research and development as
compared to $12,933 in fiscal 1997. The research that lead to the Company's
patent positions occurred in prior years. The Company does not expect to engage
in further research and development until the Company obtains additional
financing or until the Company enters into a strategic alliance with a partner
that would conduct the research needed to bring the products to market.
The Company is exploring strategic alliances, acquisition and/or
partnering with companies whose technologies will have potential synergistic
benefits for AIT's products and technologies. Such alliances are expected to
include companies in the liposome manufacturing field, vertical integration of
companies in the allergy field, and distribution and marketing firms.
Further, AIT will actively seek collaborative pharmaceutical partners
to help commercialize its products. AIT has been supporting both the research
and the initial pre-clinical work but it anticipates that any developed products
would be jointly commercialized through a marketing partner. The Company
believes its partnering strategy will enable it to reduce its cash requirements
while developing a portfolio of potential products marketed through
existing/proven distribution channels. (See "Government Regulation and
Licenses".)
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MANUFACTURING
After the procedures for manufacturing the encapsulated liposome
allergens and related technologies are established, AIT's strategy is to
collaborate with national and international pharmaceutical companies to produce
and market its products.
For certain procedures of its production process AIT shall enter into
manufacturing agreements with FDA approved companies capable of manufacturing
commercial scale quantities of products to meet AIT's forecasted requirements.
Such manufacturing contracts shall provide for creating and maintaining
regulatory approvals, suitable shelf-life, stability and ease of use.
Additional considerations of scaling up production methods, developing
quality control systems, establishing batch to batch reproducibility, testing
sterilization methods, establishing reliable sources of raw materials will be
instituted and complied with. Generally, the equipment used in the Company's
process technologies is commercially available in industrial sizes and is
currently used in pharmaceutical industry operations.
THE MARKET
Allergies affect 41 million people in the U.S. (20% of the population).
It is also estimated that in the U.S. alone there are 3.5 million lost workdays
every year due to allergic episodes. The incidence of allergies is at least the
same in other industrialized countries with some estimates reaching 35-50% of
the population. The total U.S. allergy market, at present, exceeds $5 billion
dollars annually.
The immunotherapeutic process involves weekly injections of allergenic
extract. Each dose gradually increases until the allergic response diminishes
significantly, usually between six months to a year after the shots were
started. Treatment is usually recommended to last for three to five years.
Immunotherapy can be very effective, but the risk of inducing
potentially life-threatening response is high. For this reason, the National
Institutes of Health (NIH) recommends immunotherapy be used only when other
therapies are not successful.
Despite potential complications, immunotherapy continues to be commonly
used in the prevention of allergies. Of the more than 40 million people in the
United States who suffer from allergies, approximately 1.5 million to 2.5
million are administered immunotherapy shots by their allergists as often as
twice weekly. The allergies for some patients are nearly completely eliminated
by this therapy. However, for others the therapy is not effective enough and
must be augmented with other allergy therapeutics.
Allergy shots prove time-consuming, costly, and risky for patients
because the allergen is injected into the body. Because such injections are
potentially harmful, patients must be monitored for at least twenty minutes
after receiving a shot. The yearly cost to patients includes the cost of the
extracts, weekly (or semiweekly) physician visits and injections that require
patient monitoring following administration.
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In the U.S. there are currently approximately thirteen competitors in
the immunotherapy market, with four holding substantial market shares. These
four are led by Bayer Allergy Products, which gained strength in the market
after it merged with Miles Laboratories. Other top competitors include Center
Laboratories, ALK and Greer Laboratories.
In Europe there are more companies which deal in the immunotherapy
market, but they primarily sell within the borders of their own countries.
EMPLOYEES
The Company currently employs two employees who work in the laboratory
performing clinical testing. It contracts with Biomerica for a variety of
services including the advancement of certain technology.
RISK FACTORS
NO ASSURANCE OF SUCCESSFUL PRODUCT DEVELOPMENT
The Company's sales of laboratory testing services are minimal and
therefore the Company has been incurring losses. There can be no assurance that
the Company will be able to increase business to a degree where the Company will
become profitable. In order to develop saleable products from the Company's
patent positions, the Company will need to raise additional capital or form a
strategic alliance with another company. The Company will need funds to conduct
preclinical and clinical trials to determine the efficacy of any products it may
develop. There can be no assurance that the Company will be able to raise the
capital needed to bring products based on its patent positions to market or that
it will be able to form a strategic alliance with a company that will enable it
to proceed with developing its products. If capital is raised and products
developed there can be no assurance that the products will meet FDA standards.
There can be no assurance that the Company's therapeutic products will be proven
effective therapy for allergy treatment. There can be no assurance that
unforeseen problems will not develop with the Company's technology or product
and there can be no assurance that the products will be a success commercially
and that the Company will have the funds to market them competitively. There can
be no assurance that research and discoveries by other companies or individuals
will cause AIT's potential products to be useless or obsolete and that the
Company will be able to keep up with other companies once a product is
developed.
It will take at least several years before the Company could possibly
develop saleable products once the Company raises additional capital. The timing
of development of a saleable product is long and uncertain at this point.
Results of studies and clinical trials performed to date on the Company's
products may not be indicative of final results. Significant research,
development, preclinical and clinical testing, regulatory approval and other
such functions must occur before a potentially successful product could be
developed. There can be no assurance that the products will be safe and
efficacious in clinical trials or that the products could be produced in
commercial quantities at acceptable costs or be successfully or profitably
marketed. There can be no assurance that the products will gain commercial
acceptance among health care providers, third-party payors or patients.
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Even if the Company is able to raise additional capital, it still
expects to continue to incur losses in order to develop potential products. The
Company's future capital requirements could depend on and increase as a result
of many factors, including progress in its research and development programs,
the progress of preclinical and clinical testing, the time and costs involved in
obtaining regulatory approvals, the costs involved in preparing, filing,
prosecuting, maintaining, enforcing and defending patent claims, competing
technological and market developments, the terms of any collaborative
arrangements that the Company may enter into, the ability of the Company to
establish research, development and commercialization arrangements pertaining to
the Company's products, the cost of establishing manufacturing facilities, the
cost of commercialization activities, and the demand for the Company's products
if and when approved.
HAZARDOUS MATERIALS
The Company's research and development involves the controlled use of
hazardous materials and chemicals. Although the Company believes that safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and Federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
The Company may incur substantial costs to comply with environmental
regulations.
LIMITED MARKET FOR COMPANY'S STOCK AND STOCK PRICE VOLATILITY
Although the Company trades on the Over the Counter (OTC) Bulletin
Board system under the symbol ALIM, it is thinly traded and the stock prices are
volatile. There can be no assurance that there ever will be a substantial market
for the stock or of the ability of stockholders to sell their securities at the
price they ask. Many factors can affect the price of the stock including
earnings of the Company, success of the research and development, the success of
securing additional funding, changes in government regulations, the general
market conditions and many other such factors. The market value of the Company's
Common Stock is subject to significant fluctuations and holders of the Company's
shares are likely to find it difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Common Stock.
In addition, the Company's Common Stock currently is subject to certain
requirements under the Securities Exchange Act of 1934 (Exchange Act) that are
applicable to securities defined as "penny stock". Any broker engaging in a
transaction in the Common Stock is required to provide any customer with a risk
disclosure document, disclosure of market quotations, if any, disclosure of the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market values of the Common Stock held in
the customer's accounts. The bid and offer quotation and compensation
information must be provided prior to effecting the transaction and must be
contained on the customer's confirmation. Since brokers are subject to the
"penny stock" rules when engaging in transactions in the Company's Common Stock,
they may be less willing to engage in such transactions, thereby making it more
difficult for purchasers in this offering to dispose of their shares.
Pursuant to new rules adopted by the National Association of Securities
Dealers (NASD), the Company's Common Stock must be registered under Section
12(g) of the Exchange Act to remain qualified for trading on the OTC Bulletin
Board. If the Company does not have an effective registration statement covering
its Common Stock or has not obtained final clearance from the Securities and
Exchange Commission (SEC) on or before August 1, 1999, the Company's Common
Stock may no longer be qualified for trading on the OTC Bulletin Board. There
is no guarantee that the Company will be able to meet the NASD's deadline for
continued trading of its Common Stock on the OTC Bulletin Board. If the Company
is unable to meet these requirements, its Common Stock may continue to be traded
on the OTC market on what are called "pink sheets". As a result, holders of the
Company's shares may find it even more difficult to dispose of, or to obtain
accurate quotations as to the price of the Company's Common Stock.
DILUTION
If the Company succeeds in raising the additional capital that it needs
to proceed with further research, substantial dilution of the current
shareholder base may occur. This may effect the sale price of the Company's
common stock.
NO ASSURANCE OF FDA APPROVAL
The FDA and other agencies require lengthy laboratory and clinical
testing before such therapeutic remedies may be approved for marketing. These
are both time-consuming and costly. Approvals are not guaranteed and there could
be changes in government policies and regulations. The Company's experience with
such procedures is minimal.
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If a product were approved, then manufacturing facilities would need to
be established. These facilities are also subject to oversight by regulatory
agencies. Approvals may be withdrawn or limited if facilities do not meet
government standards or unforeseen problems occur after marketing.
Government regulation may delay or prevent the marketing of any product
AIT develops. There can be no assurance that approvals will be given for any
product on a timely basis or at all. It cannot be determined how this would
impact AIT financially, but it could have a material adverse affect on the
Company. There is also no way to foresee the extent or impact of future
government regulations.
ABILITY TO PROTECT INTELLECTUAL PROPERTY
AIT currently holds four U.S. patents. If AIT is not successful in
protecting its intellectual property it could affect AIT's ability to compete
successfully in the future.
YEAR 2000
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. These systems and
software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies may need to be upgraded to comply with such year
2000 requirements or risk system failure or miscalculations, potentially causing
disruptions of normal business activities. The Company relies on computers,
systems and applications to operate and monitor certain aspects of its business.
Certain of the Company's computers and computing systems have not been upgraded
to year 2000 compliant equipment. In addition, failure of the Company's third
party service providers and vendors to adequately address the problems relating
to the year 2000 could materially disrupt the Company's operations. Accordingly,
the change to the year 2000, could have a material adverse effect on the
Company's business, results of operations and financial condition.
CONCENTRATED CONTROL
Biomerica, Inc. owns approximately 74.5% of AIT common stock.
Therefore, Biomerica has the ability to control the outcome on all matters
requiring stockholder approval, including the election and removal of directors,
or any potential collaboration with other investors, among other things.
SUBSTANTIAL COMPETITION
There are many large companies which have much greater resources than
AIT that the Company would have to compete against. Although there are no
companies utilizing the exact technology AIT proposes to use, there are other
technologies which the Company would have to compete with, as well as other
companies. These companies have much greater experience in all areas of the
business than AIT. These companies have well-established research and
development, manufacturing, marketing and sales capabilities
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ABSENCE OF SALES AND MARKETING ORGANIZATION
The Company has no experience in sales, marketing and distribution of
its proposed products. Although the Company currently has sales and has
performed marketing functions for sales of laboratory testing services, the
sales and marketing of the proposed products is substantially different from
that already experienced by the Company. If the Company develops any products
with commercial potential AIT may need to develop other means to market these
products than is currently available to them. This may involve hiring suitable
personnel or forming alliances with distributors who could perform those
functions. There can be no assurance that the Company will be successful in
establishing these networks or that if they are established, that they will be
successful.
ASSISTANCE FROM BIOMERICA
The Company has received substantial help from Biomerica in the form of
loans of capital and personnel services in order to function. It is estimated
that such services would cost more than is being charged by Biomerica (since
Biomerica already has such systems and personnel in place) if the Company were
to have to take care of these functions itself. There is no assurance that
Biomerica will be able to continue this help indefinitely into the future.
ATTRACTION OF NEW EMPLOYEES
The Company will also need to attract additional personnel in order to
proceed with the development of any new products and there can be no assurance
that the Company will be able to do so. The Company's ability to hire additional
personnel will be dependent upon the raising of additional capital or the
formation of an alliance with another company.
COMPETITION
The immunotherapy market in the United States is dominated by four
companies, all of which have substantially greater resources and business
experience than the Company.
The independent clinical laboratory industry in the U.S. and in
California is highly competitive and fragmented. According to one industry
source, there are approximately 4,500 independent clinical laboratories in the
U.S. These independent clinical laboratories fall into two separate categories:
(1) smaller, local laboratories that generally offer fewer tests and services
and (2) larger laboratories. The Company is a small laboratory.
GOVERNMENT REGULATION AND LICENSES
GENERAL
Numerous aspects of AIT's operations, including its testing processes,
its business practices and in some instances, the amount and methods by which it
is paid, are subject to governmental regulation at the Federal, state and/or
local levels.
In order to bring oral or inhalant type products to market, the Company
would have to obtain or license other technology as well as file for other FDA
clearances. Such filing would require a substantial amount of resources.
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FEDERAL AND STATE CLINICAL LABORATORY LICENSING
All clinical laboratories operating in the United States, with limited
exceptions, are required to obtain Federal certification pursuant to the
Clinical Laboratory Improvement Act (CLIA) and its implementing regulations. The
law and its implementing regulations impose, as conditions for such
certification, requirements relating to test processes, personnel
qualifications, facilities and equipment, record keeping, quality control,
quality assurance and participation in proficiency testing. The same regulatory
requirements also apply as conditions for participation in the Medicare and
Medicaid programs. CLIA regulations vary depending on the complexity of the
methodologies performed by the laboratory. Compliance is verified by periodic
on-site inspections. Sanctions for failure to meet CLIA/Medicare certification
requirements include suspension or revocation of certification, criminal
penalties, injunctive actions to close the laboratory, civil penalties or
imposition of specific plans of correction to remedy alleged deficiencies.
Licensing requirements similar to those imposed pursuant to CLIA also apply at
the state level, with similar sanctions for noncompliance. Effective January 1,
1996, California Senate Bill 113 ("SB 113") became law and amended the
California laws governing clinical laboratories to make them at least as
stringent as CLIA was as of January 1, 1994.
The Company currently holds an annually renewed clinical laboratory
license with the Department of Health Services, State of California. The current
license expires December 31, 1999. The Company also holds a clinical laboratory
license from the state of Florida. This current license expires November 11,
2000 and is renewed every two years. The Company holds a CLIA Certificate of
Compliance, which is a requirement of the Federal government for clinical
laboratories. This certificate expires in February 2001 and is renewed every two
years. Although the Company has never failed to obtain renewals, its business
operations would be materially and adversely affected if it were unable to do
so.
FEDERAL AND STATE BILLING AND FRAUD AND ABUSE LAWS
The Federal Medicare laws impose specific billing requirements on
clinical laboratories. Generally, laboratories are required to bill the Medicare
program directly rather than billing physicians or beneficiaries. Exceptions to
this "direct billing" requirement permit a referring laboratory to bill Medicare
for testing performed by another laboratory if at least 70% of the tests for
which the referring laboratory receives requisitions are performed on-site.
SPECIMEN TRANSPORTATION
Regulations of the Department of Transportation, the Public Health
Service, and the Postal Service apply to the transportation of clinical
laboratory specimens.
REGULATIONS FOR PRODUCTS FOR HUMAN THERAPEUTIC USE
Regulation by governmental authorities in the United States and other
countries is a significant factor for the Company's ongoing research and
development activities. In order to test clinically, to produce and to market
products for human therapeutic use, mandatory procedures and safety standards
established by the FDA and comparable agencies in foreign countries must be
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followed. The standard process required by the FDA before a pharmaceutical agent
may be marketed in the United States includes (i) preclinical tests, (ii)
submission to the FDA of an application for an Investigational New Drug ("IND"),
which must become effective before human clinical trials may commence, (iii)
adequate and well-controlled human clinical trials to establish the safety and
efficacy of the drug in its intended application, (iv) submission to and
acceptance by, the FDA of an NDA with respect to drugs or a Product License
Application("PLA") with respect to biologics, and (v) FDA approval of the NDA or
PLA prior to any commercial sale or shipment of the drug or biologic.
In addition to obtaining FDA approval for each product, each domestic
drug manufacturing establishment must be registered or licensed by the FDA.
Domestic manufacturing establishments are subject to inspections by the FDA and
by other federal, state and local agencies and must comply with Good
Manufacturing Practices as appropriate for production.
Clinical trials are typically conducted in three sequential phases, but
the phases may overlap. In Phase I, the initial introduction of the drug to
humans, the drug is tested for dosage and tolerance. Phase II involves detailed
evaluation of safety and efficacy. Phase III trials consist of larger scale
evaluation of safety and efficacy and may require larger patient numbers,
depending on the clinical indication for which marketing approval is sought. The
process of completing clinical testing and obtaining FDA approval for a new
product is likely to take a number of years and require the expenditure of
substantial resources. The FDA may also require post marketing testing and
surveillance programs to monitor the drug's efficacy and possible side effects.
Results of these post marketing programs may prevent, or limit, the further
marketing of the products.
Sales of pharmaceutical products outside of the United States are
subject to regulatory requirements that vary widely from country to country. In
the European Union ("EU"), the general trend has been toward coordination of
common standards for clinical testing of new drugs. Generally, the level of
regulation in the EU and other foreign jurisdictions is somewhat less
comprehensive and burdensome than regulation in the United States, but there are
differences and, in a few instances, foreign regulations may be more burdensome
than FDA requirements. The time required to obtain regulatory approval from the
comparable regulatory agencies in each foreign country may be longer or shorter
than that required for FDA approval.
In addition, the Company is and may be subject to regulation under
state and federal law regarding occupational safety, laboratory practices, the
use and handling of radioisotopes, environmental protection and hazardous
substance control and to other present and possible future local, state, federal
and foreign regulation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO, COMPETITION, WHICH HAS AND WILL CONTINUE TO PUT
PRICE PRESSURE ON THE COMPANY'S THIRD PARTY COLLECTION BUSINESS, THE COST AND
AVAILABILITY OF CAPITAL TO FINANCE ITS PORTFOLIO RECEIVABLES, AND OVERALL
MACRO-ECONOMIC CONDITIONS.
GENERAL
The Company currently generates revenue by providing clinical testing
services to doctors, clinics and drug firms in specialized areas of allergy and
sensitivity determinations. Test samples are sent to the Company's laboratory
for evaluation and the results of the tests are reported to the customer
(doctors, clinics, or other).
The Company is also engaged in the development and commercialization of
novel bio- pharmaceutical products for the treatment of allergies. The Company
has obtained four patents on technology relating to the treatment of allergies.
Additional financing will be required for the Company to complete the
development of its technology. The Company is not expected to engage in further
research or development until it obtains such additional financing. In
connection with these efforts, the Company may enter into a strategic alliance
or joint venture to finance the cost of such further research and development.
The Company's laboratory facilities are located next to its office in
Newport Beach, California. At the same facilities ancillary support services
such as accounting and office support are provided by Biomerica. AIT pays
Biomerica a monthly fee of approximately $1,350 for these services.
RESULTS OF OPERATIONS
NINE MONTHS ENDED FEBRUARY 28, 1999, COMPARED TO NINE MONTHS ENDED
FEBRUARY 29, 1998
Revenues for the nine months ended February 28, 1999 were $53,619 as
compared to $69,425 in the prior nine-month period. This represents a decrease
of $15,806 or 23% from the period. The decrease of sales was due to the loss of
several accounts. These accounts were comprised primarily of the accounts of
large pharmaceutical companies that had retained the Company's services in
connection with specific research projects. The accounts were discontinued after
project completion. Cost of sales as a percentage of sales increased from 114%
to 120% due to higher material costs.
13
<PAGE>
General and administrative expenses decreased from $103,210 to $47,982
during the nine month period ended February 28, 1998, as compared to the nine
month period ended February 28, 1999. The decrease was $55,228 or 54%.
The decrease was due to lower payroll costs resulting from the termination of
employment of the Company's former president. For the first nine months of
fiscal 1999 research and development expenses were $300 compared to $0 for the
same period in fiscal 1998.
FISCAL YEAR ENDED MAY 31, 1998, COMPARED TO FISCAL YEAR ENDED
MAY 31, 1997
Revenues for the year ended May 31, 1998 were $99,071 as compared to
$151,162. This represents a decrease of $52,091 (34%). The decrease in sales was
attributable to the loss of several accounts. These accounts were comprised
primarily of the accounts of large pharmaceutical companies that had retained
the Company's services in connection with specific research projects. The
accounts were discontinued after project completion. Cost of sales as a
percentage of sales increased from 85% to 107% due to the decrease in sales,
while some costs remained fixed.
General and administrative expenses increased from $95,192 in fiscal
1997 to $125,708 in fiscal 1998 (32%). The increase was due to higher wages in
fiscal 1998 because the Company had hired a president for part of that fiscal
year. Research and development decreased from $12,933 in fiscal 1997 to $39 in
fiscal 1998 (99%). In fiscal 1997 Biomerica charged AIT approximately $6,000 for
research services rendered. In fiscal 1998 AIT cut back on research due to lack
of funds.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 1999, the Company had a cash deficit of $690
compared to $980 for the previous year. Its current working capital deficit was
$167,313 as compared to $163,670 for the previous year.
The Company has been experiencing losses and has had to rely on
borrowings from Biomerica, Inc., which owns approximately 74.5% of the
outstanding stock of AIT. Management believes that losses will continue during
fiscal 1999. Biomerica has agreed to provided continued financial and
management support, if necessary, through the end of the Company's 2000 fiscal
year.
YEAR 2000 COMPLIANCE; YEAR 2000 READINESS DISCLOSURE
TO THE FULLEST EXTENT PERMITTED BY LAW, THE FOLLOWING DISCUSSION IS A
"YEAR 2000 READINESS DISCLOSURE" WITHIN THE MEANING OF THE YEAR 2000 INFORMATION
AND READINESS DISCLOSURE ACT 105 P.L. 271.
BACKGROUND
Many of the world's computer systems and programs currently record
years in a two-digit format. Such computer systems or programs that have
date-sensitive software or hardware may recognize a date using "00" as the year
1900 rather than the year 2000, and therefore, may be unable to recognize,
interpret or use dates in and beyond the year 1999 correctly. Because the
activities of many businesses are affected by dates or are date-related, the
inability of these systems or programs to use such date information correctly
could result in system failures or disruptions and lead to disruptions of
business operations in the United States and internationally (the "Year 2000
Problem"). In the case of the Company, such disruptions may include, among other
things, an inability to maintain accurate records, send invoices, or engage in
similar routine business activities.
14
<PAGE>
ASSESSING THE IMPACT OF THE YEAR 2000 PROBLEM ON THE COMPANY'S
OPERATIONS
The Company currently operates a Novell-based LAN system put in place
in November 1994. Most of the Company's computers have been upgraded to year
2000 compliant equipment. The Company upgraded its software and most hardware in
March of 1999. The cost of these upgrades was not material. The accounting and
record-keeping software that is employed at AIT is actively supported by the
developer/vendor and is in wide currency in varied commercial milieus.
The Company does not place orders electronically nor does it make
disbursements to vendors or employees in that medium. The Company has a broad
base of customers and suppliers and therefore is not heavily reliant on any one
outside of the Company. However, the Company has no way of completely knowing
how the year 2000 may effect its various vendors or customers if such
conversions are not completed on a timely basis by them, and thus it cannot
estimate with certainty the impact the year 2000 may have on the Company.
CONTINGENCY PLANNING
The Company has not developed any plan to address contingencies arising
from the Year 2000 problem. Consequently, no assurance can be given that any
potential failure of in-house or third-party systems will not increase the
Company's operating costs or create uncertainties that may have an adverse
effect on the Company's operating results or financial condition.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE
INCOME, and SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION. SFAS No. 130 requires that an enterprise report by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprises operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. SFAS No. 130 is
applicable to interim financial statements. However, the Company has no elements
of other comprehensive income.
DESCRIPTION OF PROPERTY
The Company currently leases 1,600 square feet of office and laboratory
space in Newport Beach, California, on a month-to-month basis, at a rate of
$1,400 per month, plus taxes and insurance. The property is in good condition
and sufficient to meet the needs of the Company at this time. The Company does
not plan to obtain additional space in the foreseeable future. However, if the
Company obtains a research and marketing partner or raises additional funds the
need would arise for acquiring additional space. The facilities are leased from
Mrs. Ilse Sultanian and JSJ Management (one of the partners of which, Janet
Moore, is an officer, director and stockholder of the Company). (See Item 7,
"Certain Relationships and Related Transactions").
15
<PAGE>
At the same facilities ancillary support services such as accounting
and office support are provided by Biomerica. AIT pays Biomerica a monthly fee
of approximately $1,350 for these services.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
Except as otherwise indicated, the following table sets forth certain
information regarding the beneficial ownership of the Company's capital stock as
of February 28, 1999, by: (i) each of the Company's directors and officers, (ii)
each person or entity who beneficially owned more than five percent of the
Company's capital stock, and (iii) all directors and executive officers of the
Company as a group. Unless otherwise indicated, the address of each named
beneficial owner is the same as that of the Company's principal office located
at 1531 Monrovia Avenue, Newport Beach, California 92663.
Name and Address Shares Beneficially Percentage Beneficially
Of Beneficial Owner Owned Owned (1)
- ------------------- ------------------- -----------------------
Common Stock
Zackary Irani (2) 12,952,108 75.4%
Dr. Robert Orlando 162,000 *
Janet Moore (3) 865,350 5.0%
Officers and Directors
as a group (3 individuals) 13,979,458 81.4%
- ----------
*Less than one percent
(1) Beneficial ownership is determined in accordance with the applicable rules
under the 1934 Act. In computing the number of shares beneficially owned by
a person and the percentage ownership of that person, shares of Common
Stock subject to options held by that person that are currently
exercisable, or become exercisable within 60 days from the date hereof, are
deemed outstanding. However, such shares are not deemed outstanding for
purposes of computing the percentage ownership of any other person.
Percentage ownership is based on 17,170,390 shares of Common Stock
outstanding.
(2) Includes 12,797,108 shares of Common Stock issued to Biomerica, Inc., with
respect to which Mr. Irani has investment and voting power by virtue of his
position as President and Chairman of the Board of Biomerica, Inc.
(3) Includes 20,000 shares of Common Stock owned by Ms. Moore's minor children.
16
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The officers, directors and significant employees of Allergy Immuno Technologies
are as follows:
Term of
Director
Name Age Position Expires
- ---- --- -------- --------
Zackary Irani 32 Chairman 1999
Dr. Robert Orlando 59 Director 1999
Janet Moore 48 Director, 1999
Secretary
The Company currently does not have any officers other than its
Chairman of the Board and secretary, who are responsible for the Company's daily
operations.
Zackary S. Irani is Director and Chairman of the Board of AIT. He is
currently President and Chairman of Biomerica, Inc., which owns 74.5% of AIT. He
has been with Biomerica over twelve years and holds a B.S. degree from Chapman
University and an MBA from the University of California, Irvine. Mr. Irani
serves as a director of Lancer Orthodontics and Biomerica and has been a
director of AIT since 1992.
Dr. Robert Orlando serves as the Medical Director of AIT and has been a
member of the board since 1986. Dr. Orlando is a pathologist as well as a
biophysicist and immunologist. Dr. Orlando, a graduate of the New Jersey
University of Medicine and the University of Chicago, is the Chief Pathologist
at Beverly Hospital. Dr. Orlando is a director of Biomerica and Lancer
Orthodontics. Dr. Orlando has been a director of AIT since 1986.
Janet Moore serves as director and secretary of AIT. She has for
Biomerica for over twenty-two years and holds a B.S. degree in business from
Pepperdine University. She is a director of Lancer Orthodontics and Biomerica.
Janet Moore has been a director of AIT since April 1997.
17
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for the fiscal years ended May 31, 1998, 1997 and 1996 for services
rendered to the Company in all capacities by the Company's Chairman of the
Board.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------- -------------------------------------
AWARDS PAYOUTS
------------------------ -------
NAME AND PRINCIPAL SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER
POSITION YEAR ($) ($) COMPENSATION STOCK UNDERLYING PAYOUTS COMPENSATION
($) AWARD(S) OPTIONS/ ($) ($)
($) SARS (#)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Zachary Irani(1), 1998 -0- -0- -0- -0- -0- -0- -0-
Chairman of the 1997 -0- -0- -0- 50,000 -0- -0- -0-
Board 1996 -0- -0- -0- -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All other compensation in the form of perquisites and other personal
benefits has been omitted because the aggregate amount of such perquisites
and other personal benefits constituted the lesser of $50,000 or 10% of the
total annual salary and bonus of the named executive for such year.
18
<PAGE>
STOCK OPTION GRANTS
During fiscal 1998, the Company agreed to grant options to purchase
1,135,000 shares of Common Stock to the directors and an employee of AIT, and
Biomerica, the Company's parent. The stock options will be granted at an
exercise price equal to the fair market value of the Common Stock as determined
(i) upon the completion of an offering of securities yielding proceeds to the
Company of $3,000,000 or more, or (ii) upon the completion of a merger with or
an acquisition of a company having assets of more than $6,000,000. The options
will be exercisable over the five-year period beginning on the grant date.
The Company has not entered into any employment agreements with its
officers or employees. Directors do not receive cash compensation for their
services, but may be reimbursed for reasonable expenses and may receive stock
options in consideration of their services.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases on a month-to-month basis 1,600 square feet of
laboratory and office space for $1,400 per month, plus insurance and taxes. The
space is leased from Mrs. Ilse Sultanian and JSJ Management. Ms. Janet Moore, an
officer, director and shareholder of the Company, is a partner at JSJ
Management.
The Company currently contracts with Biomerica for certain accounting
and general administrative services. The Company pays Biomerica an aggregate
monthly fee of approximately $1,350 for these services. In addition, the Company
has received certain financial and technical assistance from Biomerica in
connection with the development of its technology. The Company's Chairman of the
Board and Secretary are officers, directors and significant shareholders of
Biomerica.
DESCRIPTION OF SECURITIES
The Company's authorized equity capitalization consists of 50,000,000
shares of voting Common Stock, par value $.001 and 100,000 shares of preferred
stock, par value $1.00 per share. As of May 1, 1999, there were 17,170,390
shares of Common Stock issued and outstanding. No shares of preferred stock have
been issued as of the date of this Registration Statement.
19
<PAGE>
COMMON STOCK
Holders of common stock are entitled to receive dividends when, as and
if declared by the board of directors, out of funds legally available therefor.
There have been no dividends declared and management does not anticipate any
dividends in the near future due to lack of funds. Dividends on any outstanding
shares of preferred stock may be required to be paid in full before payment of
any dividends on the common stock. Upon liquidation, dissolution or winding up
of the Company, holders of common stock are entitled to share ratably in assets
available for distribution after payment of all debts and other liabilities and
subject to the prior rights of any holders of any preferred stock then
outstanding.
Holders of common stock are entitled to one vote per share with respect
to all matters submitted to a vote of shareholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the common stock entitled
to vote in any election of directors may elect all of the directors standing for
election, subject to the voting rights (if any) of any preferred stock that may
be outstanding. The Company's Articles of Incorporation and Bylaws contain no
restrictions on the repurchase by the company of shares of the common stock or
preferred stock. All the outstanding shares of common stock are, and additional
shares of common stock will be, when, issued, validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue up to 100,000 shares of Preferred
Stock, par value $1.00 per share, the rights, preference and privileges of which
may be determined from time to time by the Board of Directors. The Board of
directors is authorized to designate with respect to each series of preferred
stock the number of shares in each such series, the dividend rates and dates of
payment, voluntary and involuntary liquidation preferences, redemption prices,
if any, whether or not dividends shall be cumulative and, if cumulative, the
date or dates from which the same shall be cumulative, the sinking fund
provisions if any, and the terms and conditions on which shares can be converted
into or exchanged for shares of another class or series, and the voting rights,
if any. As of the date hereof, there were no shares of Preferred Stock issued
and outstanding. Any preferred stock issued will rank prior to the common stock
as to dividends and as to distributions in the event of liquidation, dissolution
or winding up of the Company. The ability of the Board of Directors to issue
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting powers of holders of Common Stock, and could delay, deter or
prevent a change in control of the Company. The Preferred Stock will, when
issued, be fully paid and nonassessable.
20
<PAGE>
PART II
ITEM. 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON STOCK AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock is traded on the NASDAQ's OTC Bulletin Board
under the symbol "ALIM". The high and low closing bid information for the
Company's Common Stock during the years ended May 31, 1997 and 1998, as well as
the interim nine-month period ended February 28, 1999, is based on information
received from Bloomberg, L.P.
High Low
---- ---
Year Ended May 31, 1997: .0001 .0001
Quarter ended May 31, 1997....................... * *
Quarter ended February 28, 1997.................. .0001 .0001
Quarter ended November 30, 1996.................. * *
Quarter ended August 31, 1996.................... * *
Year Ended May 31, 1998: * *
Quarter ended May 31, 1998....................... * *
Quarter ended February 28, 1998.................. * *
Quarter ended November 30, 1997.................. * *
Quarter ended August 31, 1997.................... * *
Nine Months ended February 28, 1999: .13 1/32
Quarter ended February 28, 1999.................. .13 1/32
Quarter ended November 28, 1998.................. * *
Quarter ended August 31, 1998.................... * *
* Indicates a period in which no trades took place and for which no
bid prices were posted.
II-1
<PAGE>
The quotations reflect inter-dealer price, without mark-up, mark-down
or commission and may not represent actual transactions. The stock is thinly
traded and transactions in the stock are sporadic and infrequent.
As of March 31, 1999, there were 773 shareholders of record of the
Company's common stock and 0 holders of the Company's preferred stock.
The Company has not declared or paid any cash dividends on its common
stock and does not intend to declare or pay any cash dividends in the
foreseeable future. The payment of dividends, if any, is within the discretion
of the Board of Directors and will depend on the Company's earnings, if any, its
capital requirements, and financial condition and other such factors as the
Board of Directors may consider.
ITEM 2. LEGAL PROCEEDINGS.
None
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Effective April 13, 1999 the Company's Board of Directors approved the
engagement of BDO Seidman, LLP to serve as the Company's independent public
accountants and to conduct the audit of the Company's financial statements for
the ensuing fiscal year end. In connection with the engagement of BDO Seidman,
LLP, the Company dismissed Corbin & Wertz, who had been engaged to audit the
Company's financial statements for the prior fiscal years. The audit reports
provided by Corbin & Wertz for the fiscal years ended May 31, 1998 and 1997 did
not contain any adverse opinion or disclaimer of opinion nor was any report
modified as to uncertainty, audit scope or accounting principles. There have
been no past disagreements between the Company and Corbin & Wertz on any matter
of accounting principles or practices, financial statement disclosure or
auditing, scope or procedure.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During fiscal 1999 the Company issued 1,916,429 shares of common stock
to Biomerica in exchange for debt of $134,150. The shares were issued in private
transactions pursuant to the exemption available under Section 4(2) of the
Securities Act of 1933, as amended, and other applicable exemptions from
registration and qualification under federal and state securities laws.
During fiscal 1998 the Company issued 30,000 shares of common stock to
the then president of the Company for services rendered and 5,000 to an employee
for services rendered. The shares were issued in private transactions pursuant
to the exemption from registration available under Section 4(2) of the
Securities Act of 1933, as amended, and other applicable exemptions from
registration and qualification under federal and state securities laws.
During fiscal 1997 the Company issued 400,000 shares of common stock to
directors of the Company for services rendered. The shares were issued in
private transactions pursuant to the exemption from registration available under
Section 4(2) of the Securities Act of 1933, as amended, and other applicable
exemptions from registration and qualification under federal and state
securities laws.
II-2
<PAGE>
ITEM 5. INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS
The Certificate of Incorporation limits the liability of directors and
officers to the fullest extent permitted under Delaware General Corporation Law.
As allowed by Delaware Revised Statutes, the Certificate of Incorporation and
Bylaws of the Company provide that the liability of the directors of the Company
for monetary damages shall be eliminated to the fullest extent permissible under
Delaware law. This is intended to eliminate the personal liability of a director
for monetary damages in an action brought by or in the right of the Company for
breach of a director's duties to the Company or its shareholders except for
liability for acts or omissions that involve intentional misconduct or knowing
and culpable violation of law, for acts or omissions that a director believes to
be contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, for any
transaction from which a director derived an improper personal benefit, for acts
or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of serious injury to the Company or its shareholders, for acts
or omissions that constitute an unexcused pattern of inattention that amounts to
an abdication of the director's duty to the Company or its shareholders, with
respect to certain contracts in which a director has a material financial
interest and for approval of certain improper distributions to shareholders or
certain loans or guarantees. This provision does not limit or eliminate the
rights of the Company or any shareholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
II-3
<PAGE>
PART F/S
FINANCIAL STATEMENTS
See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements filed with this Form 10-SB.
II-4
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
AS OF FEBRUARY 28, 1999 (UNAUDITED) AND MAY 31, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
AND 1998 (UNAUDITED) AND EACH OF
THE YEARS ENDED MAY 31, 1998 AND 1997
WITH
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT THEREON
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Allergy Immuno Technologies, Inc.
We have audited the accompanying balance sheets of Allergy Immuno Technologies,
Inc. (the "Company") as of May 31, 1998 and 1997, and the related statements of
operations, shareholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Allergy Immuno Technologies,
Inc. as of May 31, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
CORBIN & WERTZ
Irvine, California
June 29, 1998
3
<PAGE>
<TABLE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
BALANCE SHEET
=================================================================================================================
<CAPTION>
FEBRUARY 28,
1999 May 31, May 31,
(UNAUDITED) 1998 1997
----------------- ----------------- -----------------
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ - $ 3,562 $ 3,385
Accounts receivable, less allowance
for doubtful accounts of $11,185 at
February 28, 1999 (unaudited), $11,482
and $19,833, at May 31, 1998 and 1997,
respectively, 13,410 24,542 21,319
Inventory 7,029 7,011 8,607
Prepaid and other current assets 1,907 3,471 5,066
----------------- ----------------- -----------------
TOTAL CURRENT ASSETS 22,346 38,586 38,377
----------------- ----------------- -----------------
Fixed assets, net of accumulated
depreciation of $43,720 at February 28,
1999 (unaudited), and $42,304 and $41,640
at May 31, 1998 and 1997, respectively 220 1,636 1,764
Land held for investment 46,000 46,000 46,000
Patents, net of accumulated amortization of $4,466 at February 28, 1999
(unaudited), $3,746 and $2,800 at May 31, 1998 and
1997, respectively 12,804 13,524 11,009
----------------- ----------------- -----------------
$ 81,370 $ 99,746 $ 97,150
================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
BALANCE SHEET
=================================================================================================================
<CAPTION>
FEBRUARY 28,
1999 May 31, May 31,
(UNAUDITED) 1998 1997
----------------- ----------------- -----------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
<S> <C> <C> <C>
CURRENT LIABILITIES
Bank overdraft $ 690 $ - $ -
Accounts payable and accrued expenses 5,603 5,581 15,340
Due to affiliate 183,366 143,605 134,816
----------------- ----------------- -----------------
TOTAL LIABILITIES 189,659 149,186 150,156
----------------- ----------------- -----------------
SHAREHOLDERS' DEFICIT
Preferred stock, par value $1.00 per share;
100,000 shares authorized; no shares
issued and outstanding - - -
Common stock, par value $.001 per share;
50,000,000 shares authorized; 17,170,390, 15,253,961 and 15,218,961 shares
issued and outstanding at February 28, 1999 (unaudited),
May 31, 1998 and 1997, respectively 17,170 15,254 15,219
Common stock subscribed, 1,916,429 shares
subscribed at May 31, 1998 - 1,916 -
Additional paid-in capital 1,777,388 1,777,388 1,642,739
Accumulated deficit (1,902,847) (1,843,998) (1,710,964)
----------------- ----------------- -----------------
Total shareholders' deficit (108,289) (49,440) (53,006)
----------------- ----------------- -----------------
$ 81,370 $ 99,746 $ 97,150
================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
STATEMENT OF OPERATIONS
====================================================================================================================
<CAPTION>
FOR THE NINE MONTHS ENDED For the Years Ended
FEBRUARY 28, May 31,
----------------------------------- -----------------------------------
1999 1998
(UNAUDITED) (UNAUDITED) 1998 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES $ 53,619 $ 69,425 $ 99,071 $ 151,162
COST OF SALES 64,465 79,344 106,051 127,858
----------------- ----------------- ----------------- -----------------
GROSS PROFIT (LOSS) (10,846) (9,919) (6,980) 23,304
----------------- ----------------- ----------------- -----------------
OPERATING EXPENSES:
General and administrative 47,982 103,210 125,708 95,192
Research and development 300 - 39 12,933
----------------- ----------------- ----------------- -----------------
TOTAL OPERATING EXPENSES 48,282 103,210 125,747 108,125
----------------- ----------------- ----------------- -----------------
OPERATING LOSS (59,128) (113,129) (132,727) (84,821)
OTHER INCOME, NET 279 15 493 7,785
----------------- ----------------- ----------------- -----------------
LOSS BEFORE INCOME TAXES (58,849) (113,114) (132,234) (77,036)
INCOME TAX EXPENSE - - 800 800
----------------- ----------------- ----------------- -----------------
NET LOSS $ (58,849) $ (113,114) $ (133,034) $ (77,836)
================= ================= ================= =================
PER SHARE DATA:
NET LOSS $ (.00) $ (.01) $ (.01) $ (.01)
================= ================= ================= =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 17,170,390 15,220,419 15,389,080 14,885,628
================= ================= ================= =================
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
<TABLE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
====================================================================================================================================
<CAPTION>
COMMON STOCK COMMON STOCK SUBSCRIBED
-------------------------- -------------------------- ADDITIONAL TOTAL
PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY(DEFICIT)
------------- ------------ -------------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 1, 1996 14,818,961 $ 14,819 - $ - $ 1,639,139 $ (1,633,128) $ 20,830
Issuance of stock for services 400,000 400 - - 3,600 - 4,000
Net loss - - - - - (77,836) (77,836)
------------- ------------ -------------- ------------- ------------- ------------- ---------------
Balances at May 31, 1997 15,218,961 15,219 - - 1,642,739 (1,710,964) (53,006)
Issuance of stock for services 35,000 35 - - 2,415 - 2,450
Common stock subscribed
in exchange for debt - - 1,916,429 1,916 132,234 - 134,150
Net loss - - - - - (133,034) (133,034)
------------- ------------ -------------- ------------- ------------- ------------- ---------------
Balances at May 31, 1998 15,253,961 15,254 1,916,429 1,916 1,777,388 (1,843,998) (49,440)
Issuance of stock (unaudited) 1,916,429 1,916 (1,916,429) (1,916) - - -
Net loss (unaudited) (58,849) (58,849)
------------- ------------ -------------- ------------- ------------- ------------- ---------------
Balances at February 28,
1999 (unaudited) 17,170,390 $ 17,170 - $ - $ 1,777,388 $ (1,902,847) $ (108,289)
============= ============ ============== ============= ============= ============= ===============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
<TABLE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
============================================================================================================================
<CAPTION>
For the Nine Months Ended For the Years Ended
February 28, May 31,
---------------------------------- ----------------------------------
1999 1998
(Unaudited) (Unaudited) 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (58,849) $ (113,114) $ (133,034) $ (77,836)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 2,136 2,188 1,609 2,835
Stock issued for services - 2,450 2,450 4,000
Provision for allowance for
doubtful accounts (297) 1,000 (8,351) -
Changes in operating assets
and liabilities:
Accounts receivable 11,429 (9,218) 5,128 2,374
Inventory (18) - 1,596 (2,163)
Prepaid and other current assets 1,564 (938) 1,595 (28)
Accounts payable and accrued
Expenses 22 (7,604) (9,759) 3,732
--------------- --------------- --------------- ---------------
Net cash used in operating activities (44,013) (125,236) (138,766) (67,086)
--------------- --------------- --------------- ---------------
Cash flows from investing activities:
Purchase of property - (535) (535) -
Increase in patents - (3,461) (3,461) -
--------------- --------------- --------------- ---------------
Net cash used in investing activities - (3,996) (3,996) -
--------------- --------------- --------------- ---------------
Cash flows from by financing activities:
Bank overdraft 690 - - -
Advances from affiliate 39,761 126,827 142,939 45,404
--------------- --------------- --------------- ---------------
Net cash provided by financing activities 40,451 126,827 142,939 45,404
--------------- --------------- --------------- ---------------
Net change in cash (3,562) (2,405) 177 (21,682)
Cash at beginning of period 3,562 3,385 3,385 25,067
--------------- --------------- --------------- ---------------
Cash at end of period $ - $ 980 $ 3,562 $ 3,385
=============== =============== =============== ===============
Supplemental disclosure of cash Information : Cash paid during the period for:
Interest $ - $ - $ - $ -
=============== =============== =============== ===============
Income taxes $ - $ - $ 800 $ 800
=============== =============== =============== ===============
</TABLE>
Supplemental schedule of non-cash financing activities:
During 1998, the Company agreed to issue 1,916,429 common shares as partial
repayment of amounts owed to Biomerica totaling $134,150. Such shares were
issued during the nine month period ended February 28, 1999 (unaudited).
See accompanying notes to financial statements
7
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Organization
- ------------
Allergy Immuno Technologies, Inc. (the "Company") provides specialized
diagnostic testing services to physicians and clinics located throughout the
United States. The Company is a majority-owned subsidiary of Biomerica and has
historically received support for operations and management from Biomerica.
Biomerica has agreed to provided continued financial and management support, if
necessary, through the end of the Company's 2000 fiscal year.
Accounts Receivable
- -------------------
Accounts receivable consists of fees due the Company for testing provided to
various physicians, clinics and unrelated companies. The Company extends credit
to its customers and generally performs ongoing credit evaluations of such
customers. The Company does not require collateral to secure its accounts
receivable. The Company maintains reserves for potential credit losses based on
the Company's historical experience related to credit losses.
Inventory
- ---------
Inventory, comprised principally of various chemicals and testing kits, is
stated at the lower of cost (first-in, first-out method) or market. Market is
determined by comparison with recent purchases or net realizable value.
Fixed Assets
- ------------
Fixed assets, which are primarily comprised of furniture and fixtures, are
recorded at cost and depreciated using the straight-line method over the
estimated useful lives of the assets, which are generally from three to five
years. Depreciation expense included in the accompanying statements of
operations totaled $1,416 and $1,482, for the nine months ended February 28,1999
(unaudited) and 1998 (unaudited), respectively, and $663 and $2,235 for the
years ended May 31, 1998 and 1997, respectively. Expenditures for additions and
major improvements are capitalized. Repairs and maintenance costs are charged to
operations as incurred.
8
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Patents
- -------
The Company holds certain patents which are amortized on a straight-line basis
over 17 years. Amortization expense included in the accompanying statements of
operations amounted to $720 and $706, for the nine months ended February 28,
1999 (unaudited) and 1998 (unaudited) respectively, and $946 and $600 for the
years ended May 31, 1998 and 1997, respectively.
Revenue Recognition
- -------------------
Revenue is recognized upon completion of the diagnostic testing services.
Advertising Costs
- -----------------
The Company reports the costs of all advertising as expense in the period in
which those costs are incurred. Advertising costs were $0 for the nine months
ended February 28, 1999 (unaudited) and 1998 (unaudited), and $63 and $0 for the
years ended May 31, 1998 and 1997, respectively.
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "ACCOUNTING FOR INCOME TAXES." Under the asset and
liability method of Statement No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. Under
Statement No. 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date. A valuation allowance is provided for certain deferred tax assets if it is
more likely than not that the Company will not realize tax assets through future
operations.
9
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Accounting Estimates
- --------------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
results could materially differ from those estimates.
Stock-based Compensation
- ------------------------
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "ACCOUNTING FOR STOCK-BASED
COMPENSATION", which defines a fair value based method of accounting for
stock-based compensation. However, SFAS 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES".
Entities electing to remain with the accounting method of APB 25 must make pro
forma disclosures of net income and earnings per share, as if the fair value
method of accounting defined in SFAS 123 had been applied. The Company has
elected to account for its stock-based compensation to employees under APB 25.
Fair Value of Financial Instruments
- -----------------------------------
The Company has financial instruments whereby the fair market value of the
financial instruments could be different than that recorded on a historical
basis on the accompanying balance sheets. The Company's financial instruments
consist of cash, accounts receivable and accounts payable. The carrying amounts
of the Company's financial instruments approximate their fair values at May 31,
1998.
10
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Interim Accounting Policy
- -------------------------
In the opinion of the Company's management, the accompanying unaudited financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair presentation of the balance sheet of the
Company and the statement of operations and cash flows as of and for the nine
months ended February 28, 1999 and 1998, respectively. The statement of
operations for the nine months ended February 28, 1999 are not necessarily
indicative of results of operations to be expected for the year ended May 31,
1999.
Accounting for the Impairment of Long-lived Assets
- --------------------------------------------------
The Company follows the guidance under Statement of Financial Accounting
Standards 121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF", ("SFAS 121"). SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. SFAS 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. Management has determined that there is no impairment of long-lived assets
as of May 31, 1998, and February 28, 1999.
Concentration of Credit Risk
- ----------------------------
The Company provides credit in the normal course of business to customers
throughout the United States and foreign markets. The Company performs ongoing
credit evaluations of its customers. The Company does not obtain collateral with
which to secure its accounts receivable. The Company maintains reserves for
potential credit losses based upon the Company's historical experience related
to credit losses.
11
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
During the nine months ended February 28, 1999, the Company had one major
customer that accounted for approximately 29% of net sales (unaudited). During
the nine months ended February 28, 1998, the Company had one major customer that
accounted for approximately 20% of net sales (unaudited). During the year ended
May 31, 1998, the Company had two major customers which accounted for
approximately 33% and 20% of net sales, respectively. During the year ended May
31, 1997, the Company had three major customers which accounted for
approximately 11%, 11% and 23% of net sales, respectively.
At February 28, 1999, the Company was owed $4,235 and $2,814 or 32% and 21%,
respectively of net accounts receivable from two customers (unaudited). At May
31, 1998, the Company was owed $13,427 or 55% of net accounts receivable from
one customer. At May 31, 1997, the Company was owed $11,510 or 54% of net
accounts receivable from one customer.
Loss Per Share
- --------------
Loss per share is computed using the weighted average number of common and
common equivalent shares, if any, outstanding during each year.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "EARNINGS PER SHARE" ("SFAS 128"). SFAS 128 is
primarily a disclosure standard which requires public companies to present basic
earnings per share (EPS) and, if applicable, diluted earnings per share, instead
of primary and fully diluted earnings per share. Basic EPS is computed by
dividing net income for the year by the weighted average number of shares of
common stock outstanding during the year. The weighted average number of shares
of common stock outstanding for the nine months ended February 28, 1999 totaled
17,170,390 (unaudited) and the weighted average number of shares of common stock
outstanding and subscribed for the nine months ended February 28, 1998 totaled
15,220,419 (unaudited). The weighted average number of shares of common stock
outstanding and subscribed for fiscal 1998 totaled 15,389,080 and the weighted
average number of shares of common stock outstanding for fiscal 1997 totaled
14,885,628. Diluted EPS is computed by dividing net income for the year by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. The diluted EPS for fiscal 1998 and 1997 are equal
to the basic EPS for these periods.
12
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
Limitations On Dividends
- ------------------------
Pursuant to state laws, the Company is currently restricted, and may be
restricted for the foreseeable future, from making dividends to its stockholders
as a result of its accumulated deficit as of May 31, 1998.
Hazardous Materials
- -------------------
The Company's research and development involves the controlled use of hazardous
materials and chemicals. Although the Company believes that safety procedures
for handling and disposing of such materials comply with the standards
prescribed by state and Federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated. In
the event of such an accident, the Company could be held liable for any damages
that result and any such liability could exceed the resources of the Company.
The Company may incur substantial costs to comply with environmental
regulations.
13
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
- --------------------------------------------------------------
New Accounting Pronouncements
- -----------------------------
In June 1997, the FASB issued SFAS No. 130,"REPORTING COMPREHENSIVE INCOME", and
SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION". SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS No. 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial position, results of
operations or cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal years beginning
after December 15, 1997, with earlier application permitted. SFAS No. 130 is
applicable to interim financial statements. However, the Company has no elements
of other comprehensive income.
NOTE 2 - LAND HELD FOR INVESTMENT
- ---------------------------------
Land held for investment consists of a parcel of land located in the state of
Utah, and is stated at the lower of cost or market.
NOTE 3 - SHAREHOLDERS' EQUITY
- -----------------------------
The Company's authorized equity capitalization consists of 50,000,000 shares of
voting Common Stock, par value $.001 and 100,000 shares of preferred stock, par
value $1.00 per share. As of May 1, 1999, there were 17,170,390 shares of Common
Stock issued and outstanding.
Holders of common stock are entitled to receive dividends when, as and if
declared by the board of directors, out of funds legally available therefor.
There have been no dividends declared and management does not anticipate any
dividends in the near future due to lack of funds. Dividends on any outstanding
shares of preferred stock may be required to be paid in full before payment of
any dividends on the common stock. Upon liquidation, dissolution or winding up
of the Company, holders of common stock are entitled to share ratably in assets
available for distribution after payment of all debts and other liabilities and
subject to the prior rights of any holders of any preferred stock then
outstanding.
Holders of common stock are entitled to one vote per share with respect to all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the common stock entitled to vote
in any election of directors may elect all of the directors standing for
election, subject to the voting rights (if any) of any preferred stock that may
be outstanding. The Company's Articles of Incorporation and Bylaws contain no
restrictions on the repurchase by the company of shares of the common stock or
preferred stock. All the outstanding shares of common stock are, and additional
shares of common stock will be, when, issued, validly issued, fully paid and
nonassessable.
The Company is authorized to issue up to 100,000 shares of Preferred Stock, par
value $1.00 per share, the rights, preference and privileges of which may be
determined from time to time by the Board of Directors. The Board of directors
is authorized to designate with respect to each series of preferred stock the
number of shares in each such series, the dividend rates and dates of payment,
voluntary and involuntary liquidation preferences, redemption prices, if any,
whether or not dividends shall be cumulative and, if cumulative, the date or
dates from which the same shall be cumulative, the sinking fund provisions if
any, and the terms and conditions on which shares can be converted into or
14
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 3 - SHAREHOLDERS' EQUITY, continued
- ----------------------------------------
exchanged for shares of another class or series, and the voting rights, if any.
As of the date hereof, there were no shares of Preferred Stock issued and
outstanding. Any preferred stock issued will rank prior to the common stock as
to dividends and as to distributions in the event of liquidation, dissolution or
winding up of the Company. The ability of the Board of Directors to issue
preferred stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things, adversely
affect the voting powers of holders of Common Stock. The Preferred Stock will,
when issued, be fully paid and nonassessable.
Stock Option Plan
- -----------------
The Company has an incentive stock option plan under which the Company may grant
options to employees, directors, technical advisors and consultants to purchase
up to an aggregate of 1,500,000 shares of the Company's common stock at prices
not less than the fair market value of the common stock at the date of grant.
The plan expired in fiscal 1996.
Stock Issuances
- ---------------
During fiscal 1997, the Company issued 400,000 shares of common stock for
services. The services were valued at $4,000.
During fiscal 1998, the Company issued 35,000 shares of common stock for
services. The services were valued at $2,450.
During fiscal 1998, 1,916,429 shares of the Company's previously unissued common
stock were issued to Biomerica, Inc., the Company's parent, as partial repayment
of amounts loaned to the Company (see Note 5).
Stock Options
- -------------
During fiscal 1998, the Company agreed to grant options to purchase
1,135,000 shares of common stock to various employees and directors of AIT,
including an option to purchase 250,000 shares granted to Biomerica, Inc., the
parent company. The exercise price will be the fair value of AIT's common stock
on the date granted when certain conditions are met, as defined. The options
will be exercisable over five years beginning on the grant date.
NOTE 4 - INCOME TAXES
- ---------------------
The tax effect of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:
15
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 4 - INCOME TAXES, continued
- --------------------------------
<TABLE>
<CAPTION>
FEBRUARY 28, 1999 MAY 31, MAY 31,
(unaudited) 1998 1997
------------------ ------------------ -------------------
<S> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally
Due to allowance for doubtful
accounts $ 4,492 $ 4,574 $ 7,961
State net operating loss
carryforwards 34,515 32,922 20,089
Federal net operating loss
carryforwards 610,589 590,480 547,864
Research and development tax
credit carryforwards 29,395 29,395 28,655
------------------ ------------------ -------------------
Total gross deferred tax assets 679,531 657,371 604,569
Less valuation allowance (679,531) (657,371) (604,569)
------------------ ------------------ -------------------
Net deferred tax asset $ - $ - $ -
================== ================== ===================
</TABLE>
Income tax expense attributable to loss from operations consists of the
following current provisions:
<TABLE>
<CAPTION>
For the Nine Months Ended For the Years Ended
February 28, May 31,
1999 1998
(unaudited) (unaudited) 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
U.S. Federal $ - $ - $ - $ -
State and Local - - 800 800
-------------- -------------- -------------- --------------
$ - $ - $ 800 $ 800
============== ============== ============== ==============
</TABLE>
Income tax expense attributable to income from operations was $800 for each of
the years ended May 31, 1998 and 1997, and differs from the amounts computed by
applying the U.S. Federal income tax rate of 34 percent to pretax income from
operations as a result of the following: <TABLE> <CAPTION>
For the Nine Months Ended For the Years Ended
February 28, May 31,
1999 1998
(unaudited) (unaudited) 1998 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Computed "expected" tax benefit $ (20,009) $ (38,458) $ (44,960) $ (26,192)
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the year balance
of the valuation allowance for deferred tax
assets allocated to income tax expense 20,009 38,458 44,960 26,192
State and local income taxes - - 800 800
-------------- -------------- -------------- --------------
$ - $ - $ 800 $ 800
============== ============== ============== ==============
</TABLE>
16
<PAGE>
ALLERGY IMMUNO TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS-CONTINUED
FOR THE NINE MONTHS ENDED FEBRUARY 28, 1999 (UNAUDITED) AND 1998 (UNAUDITED)
AND EACH OF THE YEARS ENDED MAY 31, 1998 AND 1997
NOTE 4 - INCOME TAXES, Continued
- --------------------------------
As of February 28, 1999, the Company has available Federal and state net
operating loss carryforwards for tax purposes of approximately $1,796,000 and
$384,000, respectively (unaudited), and research and development tax credit
carryforwards of approximately $29,000. The aforementioned carryforwards expire
in various years throughout 2018.
The Tax Reform Act of 1986 includes provisions which limit the Federal net
operating loss carryforwards available for use in any given year if certain
events, including a significant change in stock ownership, occur.
NOTE 5 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Biomerica, Inc. paid expenses on behalf of the Company of approximately $39,761
and $126,827 for the nine month period ended February 28, 1999 and 1998,
respectively, and $142,939 and $45,404 during fiscal 1998 and 1997,
respectively. The due to affiliate represents the related unpaid amounts due to
Biomerica. The advances are non-interest bearing and have no stated due date.
Biomerica does not intend to require repayment of such advances in fiscal 2000.
During fiscal 1998, the Company issued 1,916,429 shares of its common stock to
Biomerica, Inc. as partial repayment of amounts due. The shares were valued at
$0.07 per common share or $134,150 (see Note 3).
The Company facilities are leased on a month-to-month basis at $1,400 per month
and are owned by a shareholder's of the Company. Rent expenses was $12,600 for
each of the nine months period ending February 28, 1999 and 1998 (unaudited).
Rent expense was $16,800 for each of the years ended May 31, 1998 and 1997.
NOTE 6 - RETIREMENT SAVINGS PLAN
- --------------------------------
Effective September 1, 1986, the Company established a 401(k) plan for the
benefit of its employees. The plan permits eligible employees to contribute to
the plan up to the maximum percentage of total annual compensation allowable
under the limits of Internal Revenue Code Sections 415, 401(k) and 404. The
Company, at the discretion of its Board of Directors, may make contributions to
the plan in amounts determined by the Board each year. No contributions by the
Company have been made since the plan's inception.
17
<PAGE>
PART III
ITEM 2. DESCRIPTION OF EXHIBITS
See "Exhibit Index".
III-1
<PAGE>
<TABLE>
EXHIBIT INDEX
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED
- ------ ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger by and between
Advanced Allergy Research Center Inc., and
Allergy Immuno Technologies, Inc., as filed
with the Secretaries of State of Delaware
and Utah on January 20, 1987.*
3.1 Certificate of Incorporation.*
3.1.1 Certificate of Amendment to Certificate of
Incorporation filed on February 10, 1995.*
3.2 Bylaws of the registrant.*
16.1 Letter on changes in certifying accountants.*
23.1 Consent of Corbin & Wertz**
27.1 Financial Data Schedule**
99.1 Press Release dated September 4, 1997.*
99.1.1 Press Release dated January 6, 1999.*
</TABLE>
- ----------
* To be filed with an amendment to this Registration Statement.
** Being filed herewith.
III-2
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this Form-10SB to be signed on behalf by the undersigned,
thereunto duly authorized.
ALLERGY IMMUNO TECHNOLOGIES, INC.
(Registrant)
Date: May 25, 1999
By /s/ Zackary S. Irani
---------------------------------------
Zackary S. Irani, Chairman of the Board
III-3
CONSENT TO INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Allergy Immuno Technology, Inc.
We agree to the inclusion of our audit report on the May 31, 1998 and 1997
financial statements of Allergy Immuno Technology, Inc. in the Form 10-SB filing
to be filed on or about May 25, 1999.
CORBIN & WERTZ
Irvine, California
May 25, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR YEAR
<FISCAL-YEAR-END> MAY-31-1999 MAY-31-1998 MAY-31-1997
<PERIOD-START> JUN-01-1998 JUN-01-1997 JUN-01-1996
<PERIOD-END> FEB-28-1999 MAY-31-1998 MAY-31-1997
<CASH> 0 3562 3385
<SECURITIES> 0 0 0
<RECEIVABLES> 13410 24542 21319
<ALLOWANCES> 0 0 0
<INVENTORY> 7029 7011 8607
<CURRENT-ASSETS> 22346 38586 38377
<PP&E> 220 1636 1764
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 81370 99746 97150
<CURRENT-LIABILITIES> 189659 149186 150156
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 17170 15254 15219
<OTHER-SE> (125459) (66610) (68225)
<TOTAL-LIABILITY-AND-EQUITY> 81370 99746 97150
<SALES> 53619 99071 151162
<TOTAL-REVENUES> 53619 99071 151162
<CGS> 64465 106051 127858
<TOTAL-COSTS> 64465 106051 127858
<OTHER-EXPENSES> 48282 125747 108125
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 0 0 0
<INCOME-PRETAX> (58849) (132234) (77036)
<INCOME-TAX> 0 800 800
<INCOME-CONTINUING> (58849) (133034) (77836)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (58849) (133034) (77836)
<EPS-BASIC> (.00) (.01) (.01)
<EPS-DILUTED> (.00) (.01) (.01)
</TABLE>
