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, 1998 Commission File No. 0-8765
----------------- ------
BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (714) 645-2111
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(Not applicable)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 3,964,052 shares of common
Stock as of January 10, 1999.
<PAGE>
BIOMERICA, INC.
INDEX
Part I Financial Statements:
Statement of Operations - Six Months and Three Months
Ended November 30, 1998 and 1997...................................2
Balance Sheets - November 30, 1998 ............................3 & 4
Statements of Cash Flows
Six Months Ended November 30, 1998 and 1997........................5
Statement of Changes in Shareholders' Equity -
Six Months Ended November 30, 1998.................................6
Notes to Financial Statements.................................7 - 10
Management's Discussion and Analysis of Financial Condition
and Selected Financial Data..................................10 & 11
Part II Other Information.................................................12
Signatures........................................................12
<PAGE>
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
Six Months Ended Three Months Ended
November 30 November 30
1998 1997 1998 1997
-------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net Sales.................................. $ 4,356,323 $ 4,856,966 $ 2,200,318 $ 2,552,939
Cost of sales .......................... 2,741,175 2,870,085 1,429,700 1,520,384
-------------- --------------- --------------- ---------------
Gross profit ........................... 1,615,148 1,986,881 770,618 1,032,555
-------------- --------------- --------------- ---------------
Operating Expenses:
Selling, general and administrative ...... 1,585,395 1,583,714 809,360 847,306
Research and development 229,634 275,166 114,182 171,794
-------------- ------------- ------------- ---------------
1,815,029 1,858,880 923,542 1,019,100
-------------- ------------- ------------- ---------------
Other Expense (income):
Interest expense ......................... 4,608 17,074 2,629 7,601
Other (income), net ...................... (155,405) (91,826) (94,161) (43,501)
------------- --------------- ------------- ---------------
Income (loss) before minority
interest in net profits (loss) of consoli-
dated subsidiaries and income taxes ...... (49,084) 202,753 (61,392) 49,355
Minority interest in net (profits) losses
Of consolidated subsidiaries ............. 27,855 (20,642) 56,052 (18,908)
-------------- --------------- ------------- ---------------
Income before taxes ...................... (21,229) 182,111 (5,340) 30,447
Income taxes ............................. 1,600 16,390 800 2,012
-------------- ------------- ------------- ---------------
NET INCOME .............................. $ (22,829) $ 165,721 $ (6,140) $ 28,435
============== ============= ============= ===============
per share data:
Net income (basic) ....................... $ (.01) $ .04 $ .00 $ .01
Net income (diluted) ..................... $ (.01) $ .04 $ .00 $ .01
============== ============= ============= ===============
Weighted average number of
Shares outstanding:
Basic ................................. $ 3,969,513 $ 3,922,969 $ 3,971,552 $ 3,951,469
============== ============= ============= ===============
Diluted ............................... $ 3,969,513 $ 4,037,586 $ 3,971,552 $ 4,049,554
============== ============= ============= ===============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
November 30,
1998
-------------
Assets
Current Assets
Cash and cash equivalents .................................. $1,751,578
Available for-sale securities .............................. 152,186
Accounts receivable, less allowance for doubtful accounts .. 1,517,022
Inventory .................................................. 2,936,458
Notes receivable ........................................... 41,135
Prepaid expenses and other ................................. 103,293
------------
Total Current Assets ................................... 6,501,672
Inventory, non-current....................................... 24,000
Land held for investment..................................... 46,000
Property and Equipment, less accumulated depreciation and
amortization................................................. 445,058
Intangible assets, net of accumulated amortization........... 491,907
Other Assets................................................. 6,756
------------
$7,515,393
============
The accompanying notes are an integral part of these statements.
<PAGE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
November 30,
1998
-------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities .................. $ 863,774
Accrued compensation ...................................... 384,113
Line of credit ............................................ 200,000
-------------
Total Current Liabilities .............................. 1,447,887
Minority interest............................................ 2,425,822
Shareholders' Equity
Shareholder loan .......................................... (36,000)
Common stock .............................................. 317,124
Additional paid-in-capital ................................ 12,497,858
Unrealized holding gain on available for sale securities .. 17,658
Accumulated deficit ....................................... (9,154,956)
-------------
Total Shareholders' Equity................................... 3,641,684
-------------
Total Liabilities and Equity................................. $ 7,515,393
=============
The accompanying notes are an integral part of these statements.
<PAGE>
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended November 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ (22,829) $ 165,721
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................. 117,805 162,386
Realized (gain) loss on sale of marketable securities ......... (111,885) (47,792)
Minority interest in net profits of consolidated subsidiaries . (27,855) 21,802
Common Stock options issued for services rendered ............. 3,274 3,120
Changes in current assets and liabilities:
Accounts Receivable ......................................... 89,666 (383,309)
Inventories ................................................. (401,906) (29,919)
Prepaid expenses and other current assets ................... 21,204 (23,273)
Accounts payable and other accrued liabilities .............. 57,290 258,277
Accrued compensation ........................................ (60,933) 52,019
------------- --------------
Net cash provided by operating activities........................ (336,169) 179,032
------------- --------------
Net cash flows provided by (used in) investing activities:
Disposal of fixed assets ...................................... 2,309 0
Purchases of property and equipment ........................... (48,977) (81,375)
Sale of available-for-sale securities ......................... 254,314 143,209
Other assets .................................................. 17,158 11,178
Purchases of intangible assets ................................ (76,675) (860)
Note receivable ............................................... (12,650) 0
------------- --------------
Net cash used in investing activities............................ 135,479 72,152
------------- --------------
Cash flows from financing activities:
Shareholder loan repayment..................................... 35,000 0
Stock repurchase .............................................. (25,064) 0
(Costs incurred) proceeds from sale of stock .................. 0 (4,675)
Net borrowings on line of credit agreement .................... 100,000 0
Principal payments on note payable to bank .................... 0 (140,000)
Payments of long-term debt and capital lease obligations ...... 0 (11,774)
Exercise of stock options ..................................... 1,020 8,254
Investments by minority interest............................... 737 0
------------- --------------
Net cash (used in) provided by financing activities.............. 111,693 (148,195)
------------- --------------
Net increase (decrease) in cash and cash equivalents............. (88,997) 102,989
------------- --------------
Cash at beginning of year........................................ 1,840,575 1,706,151
------------- --------------
Cash at end of six months........................................ $ 1,751,578 $ 1,809,14
=============== ==============
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE>
BIOMERICA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1998
<TABLE>
<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, 1998 3,978,302 $ 318,264 $12,513,000 $ 57,902 (71,000) $(9,132,127) $3,686,039
Stock repurchase (15,450) (1,236) (19,340) (20,576)
Change in unrealized
gain on available
for sale securities (40,244) (40,244)
Compensation expense 3,274 3,274
Exercise of employee
Stock options 1,200 96 924 1,020
Shareholder loan 35,000 35,000
Net loss (22,829) (22,829)
----------- ------------ ------------- ------------ ----------- ------------ ------------
Balance at
November 30, 1998 3,964,052 $ 317,124 $12,497,858 $ 17,658 $ (36,000) $(9,154,956) $ 3,641,684
========== ============ ============= ============ =========== ============= ============
<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, 1998
(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, 1998, 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, 1998, for a description of the investments in affiliates and
consolidated subsidiaries.
(5) Reference is made to Note 5 & 10 of the Notes to Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal year
ended May 31, 1998, for information on commitments and litigation.
(6) Aggregate market value of available-for-sale securities exceeded aggregate
cost by approximately $17,658 at November 30, 1998.
(7) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share ("EPS"). SFAS No. 128 requires dual presentation of basic EPS and
diluted EPS on the face of all income statements issued after December 15,
1997 for all entities with complex capital structures. Basic EPS is computed
as net income divided by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur from common shares issuable through stock options, warrants
and other convertible securities. All periods presented have been restated
to adopt the provisions of SFAS No. 128.
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and diluted
EPS computations.
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended November 30, 1998
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ------------------ -----------------
<S> <C> <C> <C>
Basic EPS -
Income available to common
Shareholders ......................... $ (22,829) 3,969,513 $ (.01)
=================
Effect of dilutive securities - Options.. $ 0
----------------- ------------------
Diluted EPS -
Income available to common share-
Holders plus assumed conversions...... $ (22,829) 3,969,513 $ (.01)
================= ================== =================
<CAPTION>
For the Six Months Ended November 30, 1997
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ------------------ -----------------
<S> <C> <C> <C>
Basic EPS -
Income available to common
Shareholders ......................... $ 165,721 3,922,969 $ .04
=================
Effect of dilutive securities - Options.. 114,617
----------------- ------------------
Diluted EPS -
Income available to common share-
Holders plus assumed conversions ..... $ 165,721 4,037,586 $ .04
================= ================== =================
<CAPTION>
For the Three Months Ended November 30, 1998
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ------------------ -----------------
<S> <C> <C> <C>
Basic EPS -
Income available to common
Shareholders ......................... $ (6,140) 3,971,552 $ (.00)
=================
Effect of dilutive securities - Options.. 0
----------------- ------------------
Diluted EPS -
Income available to common share-
Holders plus assumed conversions......... $ (6,140) 3,971,552 $ (.00)
================= ================== =================
<PAGE>
<CAPTION>
For the Three Months Ended November 30, 1997
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ------------------- -----------------
<S> <C> <C> <C>
Basic EPS -
Income available to common
Shareholders ......................... $ 28,435 3,951,469 $ .01
=================
Effect of dilutive securities - Options.. 98,085
----------------- ------------------
Diluted EPS -
Income available to common share-
holders plus assumed conversions ..... $ 28,435 4,049,554 $ .01
================= ================== =================
</TABLE>
(8) New Disclosure Standards
In June 1997, SFAS No. 130 ("SFAS 130"), "Comprehensive Income" was issued
which is effective for fiscal years beginning after December 15, 1997 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.
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 product, 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.
(9) Biomerica and AIT currently operate 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 will be upgrading the remaining
systems as well as the software within the second calendar quarter of 1999.
The cost of these upgrades will not be material. The accounting and record-
keeping software that is employed at Biomerica and AIT is actively supported
by the developer/vendor and is in wide currency in varied commercial
milieus. Lancer uses a Hewlett-Packard multi-user mainframe computer with
manufacturing software from a large software vendor. The software for
this system is year 2000 compliant.
<PAGE>
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 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA
Except for historical information contained herein, the statements in this
discussion and analysis are forward-looking statements that are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform act of
1995. Forward-looking statements involve known and unknown risks and
uncertainties which may cause the Company's actual results in future periods to
differ materially from forecasted results. These risks and uncertainties
include, among other things, the continued demand for the Company's products,
the ability of the Company to develop and market new products, availability of
raw materials, year 2000 issues and the state of the economy. These and other
risks are described in the Company's Annual Report on From 10-KSB and in the
Company's other filings with the Securities and Exchange Commission.
Results of Operations
Consolidated net sales for Biomerica were $4,356,323 for the six months ended
November 30, 1998 as compared to $4,856,966 for the same period in the previous
year. This represents an decrease of $500,643 (10.3%). For the quarter then
ended, sales were $2,200,318 as compared to $2,552,939 in the previous year.
This represents a decrease of $352,621 (13.8%). Lancer Orthodontics (Lancer)
had increased sales of $63,230 for the six months and a decrease of $29,289 for
the quarter compared to the previous year. Lancer continues to search for and
add new distributors, private label customers, and sales representatives.
Lancer remains very active in investigating new products that will contribute
strategically to its overall product line. Biomerica sales decreased for the
six months ended by $557,465 as compared to the six month period of the previous
fiscal year and by $317,736 for the three month period. This decrease was
primarily due to decreases in foreign sales. Allergy Immuno Technologies had a
decrease in sales of $6,408 for the six months and a decrease of $5,596 for the
three month period due to the loss of some laboratory services users.
Cost of sales decreased for the six months by $128,910 (4.5%) and decreased by
$90,684 (6.0%) for the quarter. Lancer had increased cost of sales as a
percentage of sales of 1.9% for the six months and of 4.2% for the quarter due
to industry-wide price competition. Biomerica had an increase of cost of goods
as a percentage of sales of 6.6% for the six months and 3.5% for
the three months over the prior periods. This was due to increased
manufacturing labor costs.
Selling, general and administrative expenses increased for the six months by
$1,681 (0%) and increased for the three months by $37,946 (0.5%). Lancer had
increased selling, general and administrative costs for the six months and three
month periods due to higher wages and commissions. These were offset by
decreases at Biomerica and Allergy Immuno Technologies.
<PAGE>
Research and development for the six months decreased from $275,166 to
$229,634 or $45,532 (16.5%) and for the three months from $171,794 to $114,182,
or $57,612 (33.5%). For the six months, Lancer had decreased product
development of $17,621 and for the three months of $10,301 due to decreased
wages. Biomerica also had decreased expenses of $28,211 for the six months and
$47,461 for the quarter. Decreases at Biomerica were attributable to lower
payroll costs. Allergy Immuno Technologies had an increase for the six months
of $300 and of $150 for the quarter.
Interest expense decreased by $12,466 (73%) for the six months and by $4,972
(65.4%) for the three months due to reduced debt and interest rates at Lancer.
Liquidity and Capital Resources
As of November 30, 1998, the Company had cash and available-for-sale
securities in the amount of $1,903,764, and working capital of $5,053,785.
Biomerica is currently able to meet its costs of operations, development and
expansion 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.
At November 30, 1998, Lancer had a $1,000,000 line of credit with a bank.
Borrowings are made at prime plus .75% (8.5% at November 30, 1998) and are
limited to specified percentages of eligible accounts receivable. The unused
portion available under the line of credit at November 30, 1998 was $181,290.
The line of credit expires on November 3, 1999. The Company is not required to
maintain compensating balances in connection with this borrowing arrangement.
The line of credit is collateralized by substantially all the assets of Lancer,
including inventories, receivables, and equipment. The lending agreement for
the line of credit requires, among other things, that Lancer maintain a
tangible net worth of $2,500,000 and a debt to tangible net worth ratio of no
more than 1 to 1. Lancer is not required to maintain compensating balances in
connection with this lending agreement.
<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. Inapplicable.
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 14, 1999
BIOMERICA, INC.
By: /S/ Zackary S. Irani
------------------------
Zackary S. Irani, President
and Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> NOV-30-1998
<CASH> 1,751,578
<SECURITIES> 152,186
<RECEIVABLES> 1,640,230
<ALLOWANCES> 123,208
<INVENTORY> 2,936,458
<CURRENT-ASSETS> 6,501,672
<PP&E> 3,137,945
<DEPRECIATION> 2,692,887
<TOTAL-ASSETS> 7,515,393
<CURRENT-LIABILITIES> 1,447,887
<BONDS> 0
0
0
<COMMON> 317,124
<OTHER-SE> 3,324,560
<TOTAL-LIABILITY-AND-EQUITY> 7,515,393
<SALES> 4,356,323
<TOTAL-REVENUES> 4,356,323
<CGS> 2,741,175
<TOTAL-COSTS> 2,741,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,608
<INCOME-PRETAX> (21,229)
<INCOME-TAX> 1,600
<INCOME-CONTINUING> (22,829)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,829)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
