FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 30, 1997 Commission File No. 0-8765
----------------- ------
BIOMERICA, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2645573
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (714) 645-2111
- ------------------------------------------------------------------------------
(Not applicable)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 3,979,802 shares of common
Stock as of January 14, 1998.
<PAGE>
BIOMERICA, INC.
INDEX
PART I Financial Statements:
Statements of Operations - Three Months and Six Months
Ended November 30, 1997 and 1996 .................................2
Balance Sheet - November 30, 1997 ...........................3 & 4
Statements of Cash Flows
Six Months Ended November 30, 1997 and 1996 ......................5
Statements of Changes in Shareholders' Equity -
Six Months Ended November 30, 1997 ...............................6
Notes to Financial Statements ....................................7
Management's Discussion and Analysis of Financial Condition
and Selected Financial Data ..................................8 & 9
PART II Other Information ...............................................10
Signatures ......................................................10
<PAGE>
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended Three Months Ended
November 30, November 30,
1997 1996 1997 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net Sales............................. $ 4,856,966 $ 4,553,025 $ 2,552,939 $ 2,279,638
Cost of sales ....................... 2,870,085 2,595,976 1,520,384 1,281,588
-------------- ------------- ------------- ------------
Gross profit ........................ 1,986,881 1,957,049 1,032,555 998,050
-------------- ------------- ------------- ------------
Operating Expenses:
Selling, general and administrative . 1,583,714 1,551,104 847,306 804,714
Research and development ............ 275,166 124,995 171,794 62,421
-------------- ------------- -------------- -------------
1,858,880 1,676,099 1,019,100 867,135
-------------- ------------- ------------- -------------
Other Expense (income):
Interest expense .................... 17,074 31,879 7,601 15,076
Other (income), net ................. (91,826) (25,579) (43,501) (13,403)
-------------- ------------- ------------- -------------
Gain before minority interest in
net profits of consolidated
subsidiaries and income taxes ....... 202,753 274,650 49,355 129,242
Minority interest in net (profits)
of consolidated subsidiaries ........ (20,642) (25,918) (18,908) (21,579)
-------------- ------------ ------------ ------------
Income before taxes ................. 182,111 248,732 30,447 107,663
Income taxes ........................ 16,390 17,847 2,012 3,982
-------------- ------------- -------------- -------------
NET INCOME ......................... $ 165,721 $ 230,885 $ 28,435 $ 103,681
============== ============= ============== =============
Net income per share.................. $ .04 $ .07 $.01 $ .03
============== ============= ============== =============
Weighted average
shares outstanding .................. 3,922,969 3,526,469 3,951,469 3,538,602
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
November 30,
1997
---------------
<S> <C>
Assets
Current Assets
Cash and cash equivalents ................................................... $ 1,809,140
Available for-sale securities ............................................... 389,064
Accounts receivable, less allowance for doubtful accounts ................... 1,838,956
Inventory ................................................................... 2,469,968
Notes receivable ............................................................ 18,685
Prepaid expenses and other .................................................. 143,332
---------------
Total Current Assets .................................................... 6,669,145
Inventory, non-current........................................................ 27,000
Land held for investment...................................................... 46,000
Property and Equipment, less accumulated depreciation and amortization........ 504,806
Intangible assets, net of accumulated amortization............................ 450,380
Other Assets.................................................................. 4,596
---------------
$ 7,701,927
===============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
<CAPTION>
November 30,
1997
---------------
<S> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Current portion of note payable to bank ............................ $ 60,000
Accounts payable and accrued liabilities ........................... 924,470
Long-term debt and capital lease obligations (current portion) ..... 4,074
Accrued compensation ............................................... 519,807
Line of credit ..................................................... 200,000
---------------
Total Current Liabilities ....................................... 1,708,351
Minority interest..................................................... 2,285,830
Shareholders' Equity
Common stock ....................................................... 318,544
Additional paid-in-capital ......................................... 12,500,012
Shareholder receivable ............................................. (71,000)
Unrealized holding gain on available for sale securities ........... 68,028
Accumulated deficit ................................................ (9,107,838)
---------------
Total Shareholders' Equity............................................ 3,707,746
---------------
Total Liabilities and Equity.......................................... $ 7,701,927
===============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................. $ 165,721 $ 230,885
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................................... 162,386 124,571
Realized gain on sale of available-for-sale securities............ (47,792) 0
Minority interest in net profits of consolidated subsidiaries..... 21,802 25,918
Non employee stock options........................................ 3,120 0
Changes in current assets and liabilities:
Accounts Receivable............................................. (383,309) 113,175
Inventories..................................................... (29,919) (236,068)
Prepaid expenses and other current assets....................... (23,273) 6,443
Accounts payable and other accrued liabilities.................. 258,277 23,649
Accrued compensation............................................ 52,019 73,012
-------------- -------------
Net cash provided by operating activities.............................. 179,032 361,585
-------------- -------------
Cash flows from investing activities:
Sale of available-for-sale securities............................. 143,209 0
Purchases of property and equipment............................... (81,375) (63,727)
Other assets...................................................... 11,178 10,272
Purchase of intangible assets..................................... (860) 0
-------------- -------------
Net cash used in investing activities.................................. 72,152 (53,455)
-------------- -------------
Cash flows from financing activities:
Issuance of stock................................................. 0 55,000
Offering costs.................................................... (4,675) 0
Principal payments on note payable to bank........................ (140,000) (120,000)
Payments of long-term debt and capital lease obligations.......... (11,774) (10,519)
Exercise of stock options......................................... 8,254 55,980
Net cash used in financing activities.................................. (148,195) (19,539)
-------------- --------------
Net increase (decrease) in cash and cash equivalents................... 102,989 288,591
-------------- -------------
Cash at beginning of year.............................................. 1,706,151 622,828
-------------- -------------
Cash at end of six months.............................................. 1,809,140 $ 911,419
============== ===========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
<TABLE>
BIOMERICA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1997
<CAPTION>
Unrealized
Gain on
Common Stock Additional Available- Retained
-----------------------
Number of Paid-In For-Sale Shareholder Earnings
Shares Amount Capital Securities Loan (Deficit) Total
----------- ---------- ---------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
May 31, 1997 3,889,802 $ 311,184 $12,429,673 $ 97,924 $(9,273,559) $3,565,222
Non-employee stock
Options (SFAS 123) 3,120 3,120
Change in unrealized
gain on available
for sale securities (29,896) (29,896)
Offering costs (4,675) (4,675)
Exercise of employee
stock options 90,000 7,360 71,894 79,254
Shareholder loan (71,000) (71,000)
Net income 165,721 165,721
--------- ---------- ----------- ---------- ------------ ----------- -----------
Balance at
November 30, 1997 3,979,802 $ 318,544 $12,500,012 $ 68,028 $ (71,000) $(9,107,838) $3,707,746
========= ========== =========== ========== =========== ============ ===========
<FN>
Note: The authorized capital stock consists of 10,000,000 shares of common stock, par
value $.08 per share.
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1997
(1) Reference is made to Note 1 of the Notes to Financial Statements contained
in the Company's Annual Report on Form 10-KSB for the fiscal year ended May
31, 1997, for a summary of significant accounting policies utilized by the
Company.
(2) The information set forth in these statements is unaudited and may be
subject to normal year-end adjustments. The information reflects all
adjustments which, in the opinion of management, are necessary to present a
fair statement of results of operations of Biomerica, Inc., for the periods
indicated. It does not include all information and footnotes necessary for
a fair presentation of financial position, results of operations, and cash
flow in conformity with generally accepted accounting principles.
(3) Results of operations for the interim periods covered by this Report may not
necessarily be indicative of results of operations for the full fiscal year.
(4) Reference is made to Note 3 of the Notes to Financial Statements contained
in the Company's Annual Report on Form 10-KSB for the fiscal year ended May
31, 1997, for a description of the investments in affiliates and
consolidated subsidiaries.
(5) Reference is made to Notes 6, 7 and 12 of the Notes to Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended May 31, 1997, for information on commitments and litigation.
(6) Aggregate market value of available-for-sale securities exceeded aggregate
cost by approximately $68,028 at November 30, 1997.
(7) New Disclosure Standards
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128 (SFAS 128"), "Earnings per Share" was issued which establishes new
standards for computing and presenting earnings per share ("EPS").
Specifically, SFAS 128: (a) eliminates the presentation of primary EPS and
replaces it with basic EPS, (b) eliminates the modified treasury stock
method and the three percent materiality provision, and (c) revised the
contingent share provision and the supplemental EPS data requirements. SFAS
128 also makes a number of changes to existing disclosure requirements. SFAS
128 is effective for financial statements issued for periods ending after
December 15, 1997; early implementation is not permitted The effect of
adopting SFAS l28 has not yet been determined by management of the Company.
<PAGE>
In February 1997, the Financial Accounting Standards Board issued SFAS No.
129 ("SFAS 129"), "Disclosure of Information about Capital Structure." SFAS
129 requires companies to disclose descriptive information about securities
that is not necessarily related to the computation of earnings per share. It
also requires disclosure of information about the liquidation preference of
preferred stock and redeemable stock. SFAS 129 is effective for financial
statements for periods ending after December 15, 1997. The Company does not
expect that the implementation of SFAS 129 will require significant revision
of prior disclosures. The effect of adopting SFAS 129 has not yet been
determined by management of the Company.
In June 1997, SFAS No.130 ("SFAS 130"), "Comprehensive Income" was issued
which becomes effective in 1998 and requires reclassification of earlier
financial statements for comparative purposes. SFAS 130 requires that
changes in the amounts of certain items, including foreign currency
translation adjustments and gains and losses on certain securities, be shown
in the financial statements. SFAS 130 does not require a specific format for
the financial statement in which comprehensive income is reported, but does
require that an amount representing total comprehensive income be reported
in that statement. The Company does not expect that the implementation of
SFAS 130 will have a material effect upon the Company's financial
statements. The effect of adopting SFAS 130 has not yet been determined by
management of the Company.
In June 1997, SFAS No 131 ("SFAS 131"), "Disclosures about Segments of an
Enterprise and Related Information" was issued. This statement will change
the way public companies report information about segments of their business
in their annual financial statements and requires them to report selected
segment information in their quarterly reports issued to shareholders. It
also requires entity-wide disclosures about the products, services an entity
provides, the material countries in which it holds assets and reports
revenues, and its major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company does not expect that the
implementation of SFAS 131 will have a material effect upon the Company's
financial statements. The effect of adopting SFAS 131 has not yet been
determined by management of the Company.
(8) During the quarter ended November 30, 1997, a stock option for 85,000 shares
of common stock was exercised by the estate of Joseph H. Irani. These
shares have not been sold.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA
The statements in this Report on Form 10-QSB and other statements made by
Biomerica, Inc. that relate to future plans, events or performance are forward-
looking statements which involve risks and uncertainties. Actual results,
events or performance may differ materially from those anticipated in any
forward-looking statements as a result of a variety of factors, including those
set forth in this Report on Form 10-QSB.
RESULTS OF OPERATIONS
Consolidated net sales for Biomerica were $4,856,966 for the six months ended
November 30, 1997 as compared to $4,553,025 for the same period in the previous
fiscal year. This represents an increase of $303,941 (7%). For the quarter
then ended November 30, 1997, sales were $2,552,939 as compared to $2,279,638.
This represents an increase of $273,301 (12%). The increase in sales was
attributable to increases in sales at Biomerica. Lancer had a net sales
decrease of $73,988. The decrease at Lancer was attributable to competition
pressures and lower prices in the industry. Lancer is continuing to search for
and add new distributors, private label customers and sales representatives.
Lancer remains active in investigating new products to add to its product line.
Cost of sales increased from $2,595,976 to $2,870,085 for the six months and
from $1,281,588 to $1,520,384 for the three months. These represent increases
of $274,109 (11%) and $238,796 (19%). Lancer's cost of sales as a percentage of
sales for the six months and three months was slightly higher than the previous
year. Biomerica had higher cost of sales due to higher sales, higher wages
and related costs, repairs and maintenance and shipping costs.
Selling, general and administrative expenses increased from $1,551,104 to
$1,583,714, or $32,610 (2%), for the six months and from $804,714 to $847,306,
or $42,592 (5%) for the three months. Lancer had a decrease of $71,076 for the
six months and $60,511 for the three months due to decreases in travel, postage,
salaries and commissions. Biomerica had increased sales and administrative
costs due to higher marketing expenses, such as payroll and trade show costs. In
addition, Allergy Immuno Technologies (AIT) had substantially higher general and
administrative costs. AIT's administrative costs have increased from $33,699 to
$70,499, or $36,800 (109%) for the six months and from $14,168 to $34,778, or
$20,610 (145%) for the three months.
Research and development increased for the six months from $124,995 to
$275,166, or $150,171 (120%), and for the three months from $62,421 to $171,794,
or $109,373 (175%). Lancer had increased research and development of $35,677
for the six months and $21,269 for the three months. The balances of the
increases were due to increases at Biomerica in wages and related costs as well
as other expenses incurred in the effort to complete development of several new
products.
The Company has also incurred additional costs for enhancing its one step in-
office prostate specific antigen product (PSA).
Interest expense was lower compared to the prior year due to reduced debt and
interest rates for Lancer's loans.
Please refer to Note 3 in the Notes to the Consolidated Financial Statements
in the report on Form 10-KSB for the year ended May 31, 1997, for a more
in-depth discussion on affiliates and subsidiaries.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 1997, the Company had cash and available-for-sale
securities in the amount of $2,198,204. Biomerica is currently able to meet its
costs of operations through both collection of trade accounts receivable and its
working capital position. Lancer is currently able to meet its costs of
operations through collection of trade accounts receivable, its working capital
position and its line of credit. Biomerica alone has no material capital
commitments.
At November 30, 1997, Lancer had a $500,000 line of credit with a bank.
Borrowings are made at prime plus 1% (9.5% at November 30, 1997) and are limited
to specified percentages of eligible accounts receivable. The unused portion
available under the line of credit at November 30, 1997 was $140,232. The line
of credit expires on March 1, 1998. The Company is not required to maintain
compensating balances in connection with this borrowing arrangement.
At November 30, 1997, Lancer had a note payable to a bank requiring monthly
principal payments of $18,889, plus interest at prime plus 1% (9.5% at November
30, 1997). The note expires on May 1, 1998, at which time all unpaid principal
and accrued interest is due and payable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. Inapplicable.
Item 2. CHANGES IN SECURITIES. Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The annual meeting
of the Company's stockholders was held on November 10, 1997. The
matters voted upon were the election of the directors and a proposal to
ratify and approve the amendment to the 1995 Stock Option and Restricted
Stock Plan. These matters were set forth in the proxy statement dated
October 1, 1997, as filed with the Securities and Exchange Commission
pursuant to Regulation 14 under the Securities Act of 1934. All
directors for election indicated in the proxy were elected. The number
of votes cast were as follows:
Name For Against
---- --- -------
Zackary S. Irani 3,158,473 41,637
Dr. Philip B. Kaplan 3,158,766 41,344
Dr. Robert A. Orlando 3,159,766 40,344
Janet Moore 3,158,566 41,544
The proposal to amend the 1995 Stock Option and Restricted Stock Plan
was approved with 2,574,993 votes in favor of the proposal and 151,407
votes against the proposal.
Item 5. OTHER INFORMATION. Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 12, 1998
BIOMERICA, INC.
By: /S/ZACKARY S. IRANI
-------------------
Zackary S. Irani, President
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 1,809,140
<SECURITIES> 389,064
<RECEIVABLES> 1,969,093
<ALLOWANCES> 130,137
<INVENTORY> 2,469,968
<CURRENT-ASSETS> 6,669,145
<PP&E> 3,189,912
<DEPRECIATION> 2,685,106
<TOTAL-ASSETS> 7,701,927
<CURRENT-LIABILITIES> 1,708,351
<BONDS> 0
0
0
<COMMON> 318,544
<OTHER-SE> 3,389,202
<TOTAL-LIABILITY-AND-EQUITY> 7,701,927
<SALES> 4,856,966
<TOTAL-REVENUES> 4,856,966
<CGS> 2,870,085
<TOTAL-COSTS> 2,870,085
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,074
<INCOME-PRETAX> 182,111
<INCOME-TAX> 16,390
<INCOME-CONTINUING> 165,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 165,721
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
