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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2000 COMMISSION FILE NUMBER: 0-8765
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BIOMERICA, INC.
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(Small Business Issuer 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, CA 92663
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (949) 645-2111
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Securities registered under Section 12(b) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
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NONE NASDAQ
Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
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COMMON STOCK, PAR VALUE $0.08
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES[x] NO[_]
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of issuer's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X]
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State issuer's revenues for its most recent fiscal year: $8,033,708.
State the aggregate market value of the voting and non-voting stock held by non-
affiliates of the issuer (based upon 3,896,865 shares held by non-affiliates and
the closing price of $1.3125 per share for Common Stock in the over-the-counter
market as of August 21, 2000): $5,114,635.
Number of shares of the issuer's common stock, par value $0.08, outstanding as
of August 21, 2000: 4,578,623 shares.
DOCUMENTS INCORPORATED BY REFERENCE: The issuer's proxy statement for its 2000
Annual Meeting of Stockholders is incorporated into Part III hereof. Also
incorporated by reference are the Annual Reports on Form 10-KSB for the fiscal
year ended May 31, 2000, for Lancer Orthodontics, Inc.
Transitional Small Business Disclosure Format YES [_] NO [X]
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PART I*
ITEM 1. DESCRIPTION OF BUSINESS
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THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE HARBOR"
FOR FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION CONTAINED HEREIN (AS WELL
AS INFORMATION INCLUDED IN ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE OR
TO BE MADE BY BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS
STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND
SUCCESS OF CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION
INVOLVES IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT
ANTICIPATED RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR
ON BEHALF OF BIOMERICA. THE POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG
OTHERS, FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS DUE TO ITS NEW
BUSINESS MODEL AND EXPANSION PLANS AND THE COMPETITIVE ENVIRONMENT IN WHICH
THE COMPANY WILL BE COMPETING. THESE RISKS AND UNCERTAINTIES ALSO INCLUDE THE
SUCCESS OF THE COMPANY IN RAISING NEEDED CAPITAL, THE CONTINUAL DEMAND FOR THE
COMPANY'S PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE MARKETPLACE,
AVAILABILITY OF RAW MATERIALS, YEAR 2000 ISSUES, HEALTH CARE REGULATIONS AND
THE STATE OF THE ECONOMY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF, AND
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.
BUSINESS
OVERVIEW
THE COMPANY
Biomerica, Inc. ("Biomerica", the "Company", "we" or "our") was
incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc. We
changed our corporate name in February 1983 to NMS Pharmaceuticals, Inc., and in
November 1987 to Biomerica, Inc. We have three subsidiaries, Lancer
Orthodontics, Inc. ("Lancer"), an international manufacturer of orthodontics
products, Allergy Immuno Technologies, Inc.("AIT"), which is engaged in
providing specialized laboratory testing services and ReadyScript, Inc.
("ReadyScript"), which is a development stage company which that was created to
provide wireless handheld point of care systems to physicians. Both Lancer and
AIT are majority-controlled subsidiaries, while ReadyScript is a wholly owned
subsidiary of Biomerica. Our business is focused in two separate areas, our
diagnostic business and our proposed point-of-care wireless handheld technology
solutions. We also continue to develop products for the diagnostics business.
We conduct our medical device business through Biomerica, Lancer and AIT.
We operate as a global medical technology company primarily engaged in
developing, manufacturing and distributing medical diagnostic products for early
detection and monitoring of chronic diseases to facilitate prevention and cure.
We use our expertise to manufacture products in the areas of diabetes, allergy,
cancer, gastroenterology, cardiology and endocrinology. Our customers include
medical schools and universities, pharmaceutical companies, health maintenance
organizations, hospitals, clinics, commercial laboratories, physician's offices,
drugstores and individual customers.
We intend to conduct our proposed wireless point-of-care business through
ReadyScript. In June 1999, we raised $2 million in equity to develop the
infrastructure of our e-health business, now incorporated as ReadyScript, Inc.
Since that time we have used proceeds for developing an on-line drugstore and
ReadyScript's infrastructure (a wireless medication management system that
enable physicians to wirelessly transmit legible, pre-qualified formulary-
compliant prescription orders directly to the patient's choice of pharmacy).
In order to focus our efforts on the point of care portion of our e-health
business, we have closed our former online drugstore, the bigrx.com
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OUR MEDICAL DEVICE BUSINESS
Our existing medical device business is conducted through three companies:
(1) Biomerica, Inc., engaged in the diagnostic products field; (2) Lancer
Orthodontics, Inc., engaged in orthodontic products; and (3) Allergy Immuno
Technologies, Inc., engaged in allergy-related testing services.
BIOMERICA - DIAGNOSTIC PRODUCTS
Biomerica develops, manufactures, and markets medical diagnostic products
designed to detect certain medical conditions and diseases, such as, certain
cancers, heart attack, fertility, gastritis and ulcers, diabetes and candida.
Since 1971, our immunoassay diagnostic test kits have been used by
hospitals, clinical laboratories and medical researchers to analyze blood or
urine from patients in the diagnosis of various diseases and other medical
complications, or to measure the level of specific hormones, antibodies,
antigens or other substances which may exist in the human body in extremely
small concentrations. Our over-the-counter products such as EZDetect and Fortel
are rapid diagnostic test products that are used in the physician's office and
by the patient at home.
Our clinical laboratory diagnostic products include tests for thyroid
conditions, yeast infections, H. pylori, and others. These diagnostic test kits
utilize enzyme immunoassay or radioimmunoassay technology. Some of these
products have not yet been submitted for clearance by the FDA for diagnostic
use, but can be sold in various foreign countries.
Our over-the-counter and professional rapid diagnostic products help to
manage existing medical conditions and may save lives through prompt diagnosis
and early detection. Technological advances in medical diagnostics have made it
possible to perform diagnostic tests within the home and the physician's office,
rather than in the clinical laboratory. Our objective has been to develop rapid
diagnostic tests that are accurate, employ easily obtained specimens, and are
simple to perform without instrumentation.
Until recently, tests of this kind required the services of medical
technologists and sophisticated instrumentation. Frequently, results were not
available until at least the following day. The majority of our over-the-counter
tests are FDA cleared. We believe that such tests are as accurate as laboratory
tests when used properly, require no instrumentation, give reliable results in
minutes and can be performed with confidence in the home or the physician's
office.
LANCER ORTHODONTICS, INC. -- ORTHODONTIC PRODUCTS
Lancer is engaged in developing, manufacturing, and selling orthodontic
products including, among others, ceramic brackets and wires. Lancer is
established in the field of orthodontics and its products are sold worldwide
through a direct sales force and distributors.
Lancer's product line includes preformed bands, direct bonding pads,
various brackets, buccal tubes, arch wires, lingual attachments and related
accessories. The foregoing are assembled to the orthodontists' prescriptions or
the specifications of private label customers. Lancer also markets products
which are purchased and resold to orthodontists, including sealants, adhesives,
elastomerics, headgear cases, retainer cases, orthodontic wire, and preformed
arches.
Most of Lancer's manufacturing and shipping operations are located in
Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more
effectively worldwide. Lancer maintains its headquarters in San Marcos,
California where it houses administration, engineering, sales and marketing, and
customer services.
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ALLERGY IMMUNO TECHNOLOGIES, INC. -- ALLERGY SERVICES
AIT has been providing clinical testing services to doctors, clinics and
drug firms in specialized areas of allergy and immunology determinations. AIT
also owns four patents covering several inventions relating to the therapeutic
treatment of allergy.
AIT employs one medical technologist and one technician, and receives
substantial assistance from Biomerica whose laboratory is contiguous to that of
AIT.
PRODUCTION
All of our diagnostic test kits are processed and assembled at our
facilities in Newport Beach, California. Production of diagnostic tests involve
formulating component antibodies and antigens in specified concentrations,
attaching a tracer to the antigen, filling components into vials, packaging and
labeling. We continually engage in quality control procedures to assure the
consistency and quality of our products and to comply with applicable FDA
regulations.
All manufacturing production is regulated by the FDA Good Manufacturing
Practices for medical devices. We have an internal quality control unit that
monitors and evaluates product quality and output. In addition, we employ a
qualified external quality assurance consultant who monitors procedures and
provides guidance in conforming with the Good Manufacturing Practices
regulations. We either produce our own antibodies and antigens or purchase these
materials from qualified vendors. We have alternate, approved sources for raw
materials procurement and we believe that material availability in the
foreseeable future does not pose a primary constraint for us in our relevant
ranges of production.
Lancer currently utilizes a manufacturing subcontractor to provide
manufacturing services to Lancer through its affiliated entities located in
Mexicali, B.C., Mexico. The current agreement allows for the pass through of
actual costs plus a weekly administrative fee. This gives Lancer greater control
over all costs associated with the manufacturing operation. During 1999, Lancer
extended the Manufacturing Agreement through December, 2003. Lancer has retained
an option to convert the manufacturing operation to a wholly owned subsidiary at
any time without penalty. Should Lancer discontinue operations in Mexico, it is
responsible for accumulated employee seniority obligations as prescribed by
Mexican law. At May 31, 2000, this obligation was approximately $256,000. Such
obligation is contingent in nature and accordingly has not been accrued in the
financial statements.
RESEARCH AND DEVELOPMENT
Biomerica is engaged in research and development to broaden its diagnostic
product line in specific areas. Research and development expenses include the
costs of materials, supplies, personnel, facilities and equipment. Lancer is
engaged in development programs to improve and expand its orthodontic products
and production techniques. Lancer consults frequently with practicing
orthodontists.
Research and development expenses incurred by Biomerica for the years ended
May 31, 2000 and 1999 aggregated $898,000 and $459,000, respectively. These
expenses included approximately $184,000 and $165,000 for fiscal 2000 and 1999,
respectively, for Lancer's product development.
In fiscal 1999, development costs of $47,000 and equipment and leasehold
costs of $32,000 were incurred by Lancer in the development of PARAGON(TM), a
dental amalgam.
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MARKETS AND METHODS OF DISTRIBUTION
Biomerica has approximately 320 current customers for its diagnostic
business, of which approximately 60 are distributors and the balance are
hospital and clinical laboratories, medical research institutions, medical
schools, pharmaceutical companies, chain drugstores, wholesalers and physicians'
offices.
We rely on unaffiliated distributors, advertising in medical and trade
journals, exhibitions at trade conventions, direct mailings and an internal
sales staff to market our diagnostic products. We target three main markets: (a)
clinical laboratories, (b) physicians' offices, and (c) over-the-counter drug
stores. Separate marketing plans are utilized in targeting each of the three
markets.
Lancer sells its products directly to orthodontists through company-paid
sales representatives in the United States. At the end of its fiscal year,
Lancer had five sales representatives, all in the United States, all of whom are
employees of Lancer.
In selected foreign countries, Lancer sells its products directly to
orthodontists through its international marketing division. Lancer also sells
its products through distributors in certain foreign countries and to other
companies on a private label basis. Lancer has entered into a number of
distributor agreements whereby it granted the marketing rights to its products
in certain sales territories in Mexico, Central America, South America, Europe,
Canada, Australia, and Japan. The distributors complement the international
marketing department which was established in 1982 and currently employs three
people.
The loss of any one or a few customers would not have a material adverse
effect upon our revenues.
BACKLOG
At May 31, 2000 and 1999 Biomerica and Allergy Immuno Technologies, Inc.
had no backlog of product orders. As of May 31, 2000 and 1999, Lancer had a
backlog of $146,000 and $213,000, respectively.
RAW MATERIALS
The principal raw materials utilized by us consist of various chemicals,
serums, reagents, radioactive isotopes and packaging supplies. Almost all of our
raw materials are available from several sources, and we are not dependent upon
any single source of supply or a few suppliers. Many antibodies used in our
immunoassay products are produced by us by injecting antigens into animals which
are maintained by us.
We maintain inventories of antibodies and antigens as components for our
diagnostic test kits. Due to a limited shelf life on some products such as the
RIA kits, which averages 60 days, finished kits are prepared as required for
immediate delivery of pending and anticipated orders. Sales orders are normally
processed on the day of receipt.
The principal raw materials used by Lancer in the manufacture of its
products include: stainless steel, which is available from several commercial
sources; nickel titanium, which is available from three sources; and lucolux
translucent ceramic, which is currently only available from one source, General
Electric, and is purchased on open account. Ceramic material similar to General
Electric's lucolux translucent ceramic is available from other sources. Lancer
had no difficulty in obtaining an adequate supply of raw materials during its
1999 fiscal year, and does not anticipate that there will be any interruption or
cessation of supply in the future.
COMPETITION
Immunodiagnostic products are currently produced by more than 100
companies, a majority of which are located within the United States. Biomerica
and its subsidiaries are not a significant factor in the market. Allergy
diagnostic products are currently produced by over ten competitors, and there
are
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approximately the same number producing allergy therapeutics.
Our competitors vary greatly in size. Many are divisions or subsidiaries of
well-established medical and pharmaceutical concerns which are much larger than
Biomerica and expend substantially greater amounts than we do for research and
development, manufacturing, advertising and marketing.
The primary competitive factors affecting the sale of diagnostic products
are uniqueness, quality of product performance, price, service and marketing.
The prices for our products compare favorably with those charged by most of our
competitors.
We believe we compete primarily on the basis of our reputation for the
quality of our products, the speed of our test results, the unique niches we
fill in the market, our patent position, and our prompt shipment of orders. We
offer a broader range of products than many competitors of comparable size, but
to date have had limited marketing capability. We are working on expanding this
capability through strategic cooperations with larger companies and
distributors.
Lancer encounters intense competition in the sale of orthodontic products.
Lancer's management believes that Lancer's seven major competitors are: Unitek,
a subsidiary or division of 3M; "A" Company, a private company; Ormco, a
subsidiary or division of Sybron; RMO Inc., a private company; American
Orthodontics, a private company; GAC, a foreign company; and Dentaurum, a
foreign company. Lancer estimates that these seven competitors account for
approximately 80% of the orthodontic products manufactured and sold in the
United States. Lancer's management also believes that each of these seven
competitors is larger than Lancer, have more diversified product lines and have
financial resources exceeding those of Lancer. While there is no assurance that
Lancer will be successful in meeting the competition of these seven major
competitors or other competitors, Lancer has, in the past, successfully competed
in the orthodontic market and has achieved recognition of both its name and its
products.
With respect to AIT, 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 OF OUR DIAGNOSTIC BUSINESS
As part of our diagnostic business, we sell products that are legally
defined to be medical devices. As a result, we are considered to be a medical
device manufacturer, and as such are subject to the regulations of numerous
governmental entities. These agencies include the Food and Drug Administration
(the "FDA"), the United States Drug Enforcement Agency (the "DEA"),
Environmental Protection Agency, Federal Trade Commission, Occupational Safety
and Health Administration, U.S. Department of Agriculture ("USDA"), and Consumer
Product Safety Commission. These activities are also regulated by various
agencies of the states and localities in which our products are sold. These
regulations govern the introduction of new medical devices, the observance of
certain standards with respect to the manufacture and labeling of medical
devices, the maintenance of certain records and the reporting of potential
product problems and other matters.
The Food, Drug & Cosmetic Act of 1938 (the "FDCA") regulates medical
devices in the United States by classifying them into one of three classes based
on the extent of regulation believed necessary to ensure safety and
effectiveness. Class I devices are those devices for which safety and
effectiveness can reasonably be ensured through general controls, such as device
listing, adequate labeling, pre-market notification and adherence to the Quality
System Regulation ("QSR") as well as Medical Device Reporting (MDR), labeling
and other regulatory requirements. Some Class I medical devices are exempt from
the requirement of Pre-Market Approval ("PMA") or clearance. Class II devices
are those devices for which safety and effectiveness can reasonably be ensured
through the use of
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special controls, such as performance standards, post-market surveillance and
patient registries, as well as adherence to the general controls provisions
applicable to Class I devices. Class III devices are devices that generally must
receive pre-market approval by the FDA pursuant to a pre-market approval
application to ensure their safety and effectiveness. Generally, Class III
devices are limited to life-sustaining, life-supporting or implantable devices.
However, this classification can also apply to novel technology or new intended
uses or applications for existing devices.
If the FDA finds that the device is not substantially equivalent to a
predicate device, the device is deemed a Class III device, and a manufacturer or
seller is required to file a PMA application. Approval of a PMA application for
a new medical device usually requires, among other things, extensive clinical
data on the safety and effectiveness of the device. PMA applications may take
years to be approved after they are filed. In addition to requiring clearance or
approval for new medical devices, FDA rules also require a new 510(k) filing and
review period, prior to marketing a changed or modified version of an existing
legally marketed device, if such changes or modifications could significantly
affect the safety or effectiveness of that device. The FDA prohibits the
advertisement or promotion or any approved or cleared device for uses other than
those that are stated in the device's approved or cleared application.
Pursuant to FDCA requirement, we have registered our manufacturing facility
with the FDA as a medical device manufacturer, and listed the medical devices we
manufacture. We are also subject to inspection on a routine basis for compliance
with FDA regulations. This includes the QSR, which, unless the device is a Class
I exempt device, requires that we manufacture our products and maintain our
documents in a prescribed manner with respect to issues such as design controls,
manufacturing, testing and validation activities. Further, we are required to
comply with other FDA requirements with respect to labeling, and the MDR
regulation which requires that we provide information to the FDA on deaths or
serious injuries alleged to have been associated with the use of our products,
as well as product malfunctions that are likely to cause or contribute to death
or serious injury if the malfunction were to recur. We believe that we are
currently in material compliance with all relevant QSR and MDR requirements.
In addition, our facility is required to have a California Medical Device
Manufacturing License. The license is not transferable and must be renewed
annually. Approval of the license requires that we be in compliance with QSR,
labeling and MDR regulations. Our license expires on March 16, 2001. We are also
registered with the Department of Health and Human Services, Public Health
Service of the FDA as a Device establishment. This registration expires on
February 28, 2001. We also hold two radioactive materials licenses from the
State of California (both expiring on June 20, 2001), and two permits from the
USDA, one expiring on January 28, 2001 and the other expiring on June 30, 2001.
These licenses are renewed periodically, and to date we have never failed to
obtain a renewal.
Through compliance with FDA and California regulations, we can market our
medical devices throughout the United States. International sales of medical
devices are also subject to the regulatory requirements of each country. In
Europe, the regulations of the European Union require that a device have a "CE
Mark" in order to be sold in EU countries. The directive goes into effect
beginning March 2003. The Company has already started the application process
and believes it will be compliant by the time the "CE Mark" directive becomes
effective. At present the regulatory international review process varies from
country to country. We, in general, rely upon our distributors and sales
representatives in the foreign countries in which we market our products to
ensure that we comply with the regulatory laws of such countries. We believe
that our international sales to date have been in compliance with the laws of
the foreign countries in which we have made sales. Exports of most medical
devices are also subject to certain FDA regulatory controls.
Lancer is licensed to design, manufacture, and sell orthodontic appliances
and is subject to the Code of Federal Regulations, Section 21, parts 800-1299.
The FDA is the governing body that assesses and issues Lancer's license to
assure that it complies with these regulations. Lancer is currently licensed,
and its last assessment was in November 1997. Also, Lancer is registered and
licensed with the state of California's Department of Health Services.
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Effective June 18, 1998, fifteen major European countries are requiring a
CE (European Community) certification to sell products within their countries.
In order to obtain this CE certification Lancer retained British Standards
Institution (BSI) to evaluate Lancer's quality system. Lancer's quality system
is imaged under International Standards Organization (ISO) 9002. ISO 9002 is an
internationally recognized standard in which companies establish their methods
of operation and commitment to quality. There are 20 clauses for which Lancer
has developed standard operating procedures in accordance with these ISO 9002
requirements.
EN 46002 is the medical device directive (MDD) for the European Community.
Strict standards and clauses within the MDD are required to be implemented to
sell within the European Community. In order for Lancer's medical devices to be
sold within the European Community with the CE Mark, Lancer must fully comply
with the EN 46002 requirements. Lancer has also constructed a technical file
that gives all certifications and risk assessments for Lancer's products as a
medical device (the "Product Technical Files").
With ISO 9002, EN 46002, and the Product Technical Files, Lancer applied
for and was granted certification under ISO 9002, EN 46002, and CE. With the CE
certification, Lancer is now permitted to sell its products within the European
Community.
AIT currently holds an annually renewed clinical laboratory license with
the Department of Health Services, State of California. The current license
expires December 31, 2000. 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.
OUR E-HEALTH BUSINESS
Our e-health business is conducted through ReadyScript.
READYSCRIPT - E-HEALTH TECHNOLOGY
Our e-health division was established in November 1998 to capitalize on the
emerging market for healthcare technology. We have fortified the ReadyScript
management with a team of executives possessing extensive healthcare industry
and technology-based experience.
ReadyScript is engaged in developing point-of-care, wireless handheld
technology solutions for the healthcare industry. The Company's first product
offering is invested to be ReadyScript-Rx, a wireless medication management
system that has been designed to enable physicians to provide legible, pre-
qualified, formulary-compliant prescription orders directly to the patient's
choice of pharmacy. The ReadyScript point-of-care technology system is being
designed to automate today's inefficient and manual processes, substantially
reduce healthcare and administrative costs, increase efficiency and enhance
patient satisfaction. The Company plans to complement ReadyScript-Rx with other
point-of-care applications such as ReadyScript-lab, ReadyScript-Imaging,
ReadyScript-Encounter/Billing, ReadyScript-Vitals and ReadyScript-referral
currently under development.
The Company's proprietary solution utilizes an embedded relational database
installed directly on a wireless handheld computer that is small enough to fit
into the pocket of a physician's lab coat. The system will be supported by a
wireless local area network (LAN) in the physician's office that is controlled
and maintained by ReadyScript. The Company believes that wireless LANs offer (i)
stronger in-building coverage and thus enhanced reliability and performance;
(ii) greater bandwidth to support additional point-of-care applications; (iii)
greater speed and (iv) higher security.
ReadyScript's strategy is to forge strategic relationships with large and
mid-size physician groups to rapidly achieve high physician adoption of the
ReadyScript-Rx system in strategic markets throughout the nation. To date, the
Company has signed agreements with four highly respected and leading medical
groups: Facey Medical Group, HealthCare Partners Medical Group, Talbert Medical
group and another major medical group on the West Coast. These groups represent
more than 4,000 physicians and provide care to over 600,000 managed care lives.
Three of these groups have signed exclusive 5-year agreements.
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The First ReadyScript-Rx application is currently being tested in two of
the four medical groups. The Company plans to beta test six (6) new software
applications outlined above with the Company's leading physician group partner
beginning in September/October 2000.
The First ReadyScript-Rx system, with future applications being developed,
is offered to medical group practices at a nominal monthly subscription fee per
physician. However, the Company plans to derive the majority of its revenue from
transaction fees and data management fees collected from health plans, pharmacy
benefit managers (PBMs), mail order pharmacies and retail pharmacy chains.
In order to focus our efforts we have closed operations of our former
online drugstore, the BigRx.com. The operations were shut down in August 2000
due to insignificant revenue and non-performance by the other party of a third
party backend processing agreement.
HEALTHCARE INFORMATION TECHNOLOGY
Though traditional desktop and laptop computers can bring enhanced
efficiencies to physician offices, the Company believes that handheld computers
are much better for use at the point-of-care, since they are lightweight, fit
easily into a lab coat, turn on instantly, and have long battery lives. Early
corporate users of handheld computers integrated into network environments, such
as FedEx and UPS, have seen tremendous benefits from this form of computing.
Only recently has handheld technology become advanced enough to support the
complex information needs of physician practices, and begun to experience wider
physician acceptance. Harvard Medical School, for example, began acclimating
physicians to handheld technology in 1995 by requiring its students to have a
handheld computer. With technology becoming more powerful and more affordable,
we believe physicians will increasingly use these tools in their practices.
MEETING THE NEEDS OF THREE KEY AUDIENCES
THE PHYSICIAN
We are developing our ReadyScript technology to streamline the prescribing
of pharmaceuticals through automation and provide physicians immediate access to
critical information. We believe ReadyScript's benefits to physicians include:
. PROMOTING RATIONAL, COST-EFFECTIVE AND OPTIMAL DRUG THERAPIES. We can
provide physicians immediate access to up-to-date best practice
guidelines for medications and formulary preferred drug information
when making their prescribing decisions. We believe this will save
physicians and insurers money on overall healthcare costs, and save
patients money spent out-of-pocket for non-preferred drugs.
. STREAMLINING THE PRESCRIBING PROCESS. Electronically transmitted
prescriptions do not need to be handwritten, phoned or faxed into the
pharmacy. Likewise, pharmacists do not need to phone physician offices
to verify prescriptions. We believe this will save time and increase
productivity for physicians and pharmacies alike.
. EMPOWERS PHYSICIANS. We believe our ReadyScript technology will
provide physicians greater confidence in their patient management
decisions, as they will have immediate access to pertinent patient
information and current best practice standards. We believe they will
also be able to reference up-to-date chronic disease management
information amassed from various health information sources to help
educate their patients and increase patient compliance.
. INCREASING PATIENT SATISFACTION. Physicians should be able to build
patient satisfaction by providing patients the convenience of having
prescriptions ready for pick up or mailed directly to them.
Facing increasing economic pressures, physicians are seeking tools to help
them save time, increase productivity, lower the cost of service delivery,
manage pharmacy risk, and improve their practice of medicine. We believe our
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technology solutions will help physicians achieve these benefits and maximize
their practice revenues.
THE INSURER
The benefits of our ReadyScript technology to the insurer overlap with many
of the same benefits for physicians. We believe additional benefits to insurers
include:
. IMPROVED FORMULARY COMPLIANCE. We believe physicians can make more
compliant prescribing decisions with the benefit of immediate online
access to the insurer's formulary preferences.
. REDUCED ADMINISTRATIVE BURDEN AND IMPROVED CUSTOMER SATISFACTION. We
expect insurers will realize a reduction in phone calls to their
customer service departments regarding formulary guidelines and
prescription approvals. We believe this should result in increased
physician and patient satisfaction, which can help reduce the number of
patients who may consider changing insurance plans.
. INCREASED MAIL-ORDER PHARMACEUTICAL FULFILLMENT. Electronic
prescriptions routed directly to the insurer's designated mail-order
pharmacy should contribute to lower overall pharmacy costs.
. IMPROVED CLINICAL OUTCOMES. We expect insurers will benefit from lower
overall healthcare costs associated with following best practice
guidelines for medication, improving clinical outcomes, and minimizing
adverse drug reactions.
We anticipate insurers will support our technology to address their
escalating healthcare and pharmacy costs, improve their medical-loss ratios, and
improve their financial viability.
THE PATIENT
For patients, ReadyScript provides many value-added services and benefits,
including:
. IMPROVED CLINICAL OUTCOMES. We expect patients will benefit from the
improved health and reduced adverse reactions resulting from their
physicians' appropriate and optimal drug prescribing practices.
. Convenience
. Possible reduction of medication errors as a result of 1) poor
handwriting and transcription errors and 2) adverse drug interactions.
We also expect that ReadyScript will help reduce these errors at the
point of care.
We anticipate that patients will be empowered to be more active in managing
their health, and be more secure in the care they are receiving.
OPERATIONS AND TECHNOLOGY
We believe our ReadyScript product is easy to use. It is was designed to
operate on the various Microsoft platforms including desktop and handheld
operating system environments. Built-in state-of-the-art security features are
planned to prevent unauthorized access to the ReadyScript system.
COMPETITION
There are many competitors for the ReadyScript system, however we believe
there are only two other competitors that use a wireless LAN. We believe that
the unique features of ReadyScript offer substantial benefits to users. However,
our competitors vary greatly in size. Some are divisions of larger, well
established medical companies which are much larger than Biomerica and can
expend substantially greater resources then ReadyScript.
<PAGE>
GOVERNMENT REGULATION OF OUR READYSCRIPT BUSINESS
Automated prescribing and the electronic routing of prescriptions to
pharmacies are governed by state and federal law. States have varying
prescription format requirements, which will be incorporated into ReadyScript.
Many states permit electronic, and/or faxed prescriptions. Many existing laws
and regulations when enacted, did not contemplate the methods of e-commerce now
being developed. The laws of several states and the DEA, which governs
controlled substances, neither specifically permit nor specifically prohibit
electronic transmission of prescription orders. Given the rapid growth of the
Internet, it is anticipated that many states, as well as the DEA, will directly
address these areas with regulation in the near future.
Until recently, Health Care Financing Administration guidelines prohibited
transmission of Medicare eligibility information over the Internet. We are also
subject to extensive regulation relating to the confidentiality and release of
patient records. Additional legislation governing the distribution of medical
records exists or has been proposed at both the state and federal level.
SEASONALITY OF BUSINESS
The business of the Company and its subsidiaries has not been subject to
significant seasonal fluctuations.
FOREIGN BUSINESS
All of our fixed assets, excluding some of Lancer, are located within
southern California. The following table sets forth the dollar volume of revenue
attributable to sales to domestic customers and foreign customers during the
last two fiscal years for the Biomerica and its consolidated subsidiaries:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
----------------------------------------------------
2000 1999
------------------------ -------------------
<S> <C> <C>
Revenues from sales to:
United States customers................................ $ 4,451,000/55.4% $ 4,638,000/53.4%
Asia................................................... 349,000/ 4.3% 426,000/ 4.9%
Europe................................................. 1,683,000/21.0% 1,710,000/19.7%
South America.......................................... 543,000/ 6.8% 749,000/ 8.6%
Other foreign.......................................... 1,008,000/12.6% 1,165,000/13.4%
------------------- -------------------
Total revenues........................................ $ 8,034,000/ 100% $ 8,688,000/ 100%
=================== ===================
</TABLE>
We recognize that our foreign sales could be subject to some special or
unusual risks which are not present in the ordinary course of business in the
United States. Changes in economic factors, government regulations and import
restrictions all could impact sales within certain foreign countries. Foreign
countries have licensing requirements applicable to the sale of diagnostic
products which vary substantially from domestic requirements; depending upon the
product and the foreign country, these may be more or less restrictive than
requirements within the United States. We cannot predict the impact that
conversion to the Euro in the European countries may have on Biomerica, if any.
Foreign sales are made primarily through a network of over 60 independent
distributors in approximately 40 countries.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks and
trade secrets as critical to our future success. We rely on a combination of
<PAGE>
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect our proprietary rights in products and
services. We have entered into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
our vendors, fulfillment partners and strategic partners to limit access to and
disclosure of proprietary information. We cannot be certain that these
contractual arrangements or the other steps taken by us to protect our
intellectual property will prevent misappropriation of our technology. We have
licensed in the past, and expect that we may license in the future, certain of
our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of our products brand is
maintained by such licensees, we cannot be certain that such licensees will not
take actions that might hurt the value of our proprietary rights or reputation.
We also rely on technologies that we license from third-parties, such as Sybase
and Microsoft, the suppliers of key database technology, the operating system
and specific hardware components for our service. We cannot be certain that
these third-party technology licenses will continue to be available to us on
commercially reasonable terms. The loss of such technology could require us to
obtain substitute technology of lower quality or performance standards or at
greater cost.
BRANDS, TRADEMARKS, PATENTS
We use the trademark "ReadyScript" as identification of our automated
medication management prescribing system and have received approval from the
United States Department of Commerce, Patent and Trademark Office to use that
trademark.
We registered the tradenames "Fortel," "Isletest," "Nimbus" and "GAP" with
the Office of Patents and Trademarks on December 31, 1985. Our unregistered
tradenames are "EZDetect," "CAST," "COT," "EquistiK," "FelistiK," "Tri-Level
Controls," "Tru-Level Controls," "T-Marker Controls," "AllerHalt," "Candiquant,"
"Candigen," "EZ-H.P." and "EZ-PSA."
Allergy Immuno Technologies, Inc. has 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 medicated
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.
On April 4, 1989, Lancer was granted a patent on its CounterForce design of
a nickel titanium orthodontic archwire. On August 1, 1989, Lancer was granted a
patent on its bracket design used in the manufacturing of Sinterline and
Intrigue orthodontic brackets. On September 17, 1996, Lancer was granted a
patent on its method of laser annealing marking of orthodontic appliances. On
March 4, 1997, Lancer was granted a patent on an orthodontic bracket and method
of mounting. All of the patents are for a duration of 17 years. Lancer has
entered into license agreements expiring in 2006 whereby, for cash
consideration, the counter party has obtained the rights to manufacture and
market certain products patented by Lancer. Lancer has also entered into a
number of license and/or royalty agreements pursuant to which it has obtained
rights to certain of the products which it manufactures and/or markets. The
patents and agreements have had a favorable effect on Lancer's image in the
orthodontic marketplace and Lancer's sales.
<PAGE>
The laws of some foreign countries do not protect our proprietary rights to the
same extent as do the laws of the U.S. Effective copyright, trademark and trade
secret protection may not be available in such jurisdictions. Our efforts to
protect our intellectual property rights may not prevent misappropriation of our
content.
RECENT DEVELOPMENTS
Our e-health division was incorporated in California in May 2000, as
ReadyScript, Inc. In connection with the organization of ReadyScript as our
wholly owned subsidiary, we have transferred employees and property (both
physical and intellectual) to ReadyScript. As of August 2000, ReadyScript has
raised $715,000 through issuance of convertible notes at an interest rate of 8%.
The notes can be converted into ReadyScript common stock based on a pre-
determined valuation. Further, upon a qualified financing or corporate
transaction defined within the note, the principal amount of the notes will
automatically convert to ReadyScript common stock in an amount that is equal to
the principal amount of the note divided by 60% of the per share purchase price
of the conversion stock in the financing or corporate transaction, as defined.
If no financing occurs prior to July 31, 2001, the principal amount of the
notes, plus accrued interest will become due and payable.
EMPLOYEES
As of August 31, 2000, the Company and its subsidiaries employed 89 full-
time employees. Lancer, through its Mexican subcontractor, utilizes the services
of approximately 100 people in Mexico. We also engage the services of various
outside Ph.D. and M.D. consultants as well as medical institutions for technical
support on a regular basis. We are not a party to any collective bargaining
agreement and have never experienced a work stoppage. We consider our employee
relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
During fiscal 1998 we leased approximately 21,000 square feet of space in
Newport Beach, California for a term which expired May 31, 1998 (and which was
renewed until May 31, 1999) and is currently being renegotiated. Pursuant to the
lease and the current month-to-month tenancy, we pay an annual base rent, set
initially at $143,880 and adjusted annually to reflect cost of living increases,
plus all real estate taxes and insurance costs. In fiscal 1999 a portion of the
rent was paid through the issuance of shares of our restricted common stock to
JSJ Management and another individual. During fiscal 1999, an aggregate of
31,793 shares of our restricted common stock were issued at quoted market prices
in satisfaction of accrued rent totaling $38,000. During fiscal 2000 the Company
paid a total of $172,640 in rent for approximately 24,500 square feet of space.
These facilities are used for diagnostic test kit research and development,
manufacturing, marketing, administration, and our ReadyScript operations.
The facilities are leased from Mrs. Ilse Sultanian and JSJ Management. Ms.
Janet Moore, an officer, director and shareholder of our Company, is a partner
in JSJ Management.
AIT currently leases approximately 1,600 square feet at the above facility
for $1,400 per month. These properties are leased by AIT on a month-to-month
basis from Mrs. Sultanian and JSJ Management.
Lancer leases a 9,240-square-foot manufacturing building in San Marcos,
California. The term of the initial lease was for five years commencing January
1, 1994. In 1998, Lancer renegotiated the lease and extended the terms to
December 31, 2003. The Mexicali facility consists of a 16,000-square-foot
manufacturing and office building. The lease expires in October 2003 and
requires monthly rentals of approximately $5,200. Our management believes that
the properties are currently suitable and adequate for Lancer's operations.
We maintain animals at a ranch in Vista, California, which are treated
biologically to produce antibodies used in certain of our immunodiagnostic
products. These facilities are utilized on a month-to-month basis at a charge
based on the number of animals maintained at the facility.
<PAGE>
We believe that our facilities and equipment are in suitable condition and
are adequate to satisfy the current requirements of our Company and our
subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
-------------------------------------------------
Inapplicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
Biomerica's common stock is traded on the NASDAQ SmallCap Stock Market
under the symbol "BMRA".
The following table shows the high and low bid prices for Biomerica's
common stock over the last two years based upon data reported by NASDAQ. Prices
shown represent quotations by dealers, and do not reflect markups, markdowns or
commissions.
Bid Prices
-----------------------------------
High Low
-------------- -------------------
Quarter ended:
May 31, 2000 . . . . . . . .............. $4.375 $1.438
February 29, 2000........................ $4.563 $2.031
November 30, 1999........................ $4.25 $2.00
August 31, 1999.......................... $3.75 $1.875
May 31, 1999............................. $5.00 $0.969
February 28, 1999........................ $1.75 $0.9375
November 30, 1998........................ $2.25 $0.875
August 31, 1998.......................... $2.125 $1.125
As of August 21, 2000, the number of holders of record of Biomerica's
common stock was approximately 1,641, excluding stock held in street name.
No dividends have been declared or paid by Biomerica. We intend to employ
all available funds for development of our business and, accordingly, do not
intend to pay cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
The following discussion of our financial condition and results of
operations should be read in conjunction with our Consolidated Financial
Statements and related notes contained elsewhere in this report. This report
contains forward-looking statements that involve risks and uncertainties. Our
actual results may differ significantly from the results discussed in the
forward-looking statements.
Operations for fiscal 1999 relate to our historic diagnostic, orthodontic
and allergy product businesses. Operations for the ReadyScript division began
after we raised $1,965,557 in equity in June 1999.
<PAGE>
RESULTS OF OPERATIONS
We currently have three subsidiaries, Lancer Orthodontics, Inc. ("Lancer"),
which is engaged in manufacturing, sales and development of orthodontic
products, Allergy Immuno Technologies, Inc. ("AIT"), which is engaged in
providing specialized testing services to pharmaceutical companies and
physicians and has obtained four patents related to allergy treatment therapies,
and ReadyScript, which is engaged in developing innovative point-of-care,
wireless handheld technology solutions for the healthcare industry. We own
approximately 30.78% of the outstanding stock of Lancer and 74.6% of the
outstanding stock of AIT. We exercise effective control of 53.23% over Lancer
via voting agreements with certain shareholders. ReadyScript is a wholly owned
subsidiary of Biomerica. As a result of our control and ownership, our financial
statements are consolidated with those of Lancer and AIT. Both Lancer and AIT
are public companies. The common stock of Lancer is traded on the Nasdaq
SmallCap market under the symbol "LANZ," and the common stock of AIT is traded
in the pink sheets under the symbol "ALIM."
Fiscal 2000 Compared to Fiscal 1999
Our consolidated net sales were $8,033,708 for fiscal 2000 compared to
$8,688,106 for fiscal 1999. This represents a decrease of $654,398, or 7.5% for
fiscal 2000. Of the total consolidated net sales for fiscal 2000, $5,650,512 is
attributable to Lancer, $79,976 to AIT, $2,283,433 to Biomerica and $19,787 to
ReadyScript. Lancer's sales decreased by $508,984, Biomerica showed a sales
decrease of $174,004, AIT had an increase of $9,625 and ReadyScript had an
increase of $18,965. The decrease at Lancer was attributable to increased
discounting due to competitive pressures and lower foreign sales as a result of
economic conditions in Europe and South America. While the trend in increased
discounting at Lancer continues, it has slowed, partially the result of
orthodontic industry consolidation. Lancer continues to search for new sales
representatives, distributors, private label customers, products, and product
ideas, any of which, if successful, could result in increased sales. The
decrease in sales at Biomerica was in large part due to a decrease of sales to
foreign distributors as well as in domestic sales at, in particular to a
domestic distributor which sells the products internationally. ReadyScript had
some sales from the on-line pharmacy this fiscal year which increased sales over
the prior fiscal year.
Cost of sales in fiscal 2000 as compared to fiscal 1999 increased by
$207,910 or (3.7%). Lancer's cost of sales as a percentage of sales increased
from 61.4% to 68.4% in fiscal 2000 as compared to fiscal 1999. The increase was
primarily attributable to fixed costs of the Mexicali location not producing at
full capacity. Biomerica had an decrease in cost of goods as a percentage of
sales from 63.1% to 72.1% in fiscal 2000 as compared to fiscal 1999 due to
higher labor and other costs as well as a write-down for obsolete inventory of
approximately $80,000. AIT had a decrease in cost of goods as a percentage of
sales of 127% to 115% primarily due to lower material costs.
Selling, general and administrative costs increased in fiscal 2000 as
compared to fiscal 1999 by $2,577,223 (82.5%). Lancer had a decrease of $85,222
in these costs due to decreases in commissions and bad debt expense, partially
offset by increases in show expenses and other expenses. Biomerica and
ReadyScript had an increase in fiscal 2000 as compared to fiscal 1999 of
$2,445,580. This increase was a result of the ReadyScript operation, which has
had minor revenues to date, but high start-up costs. AIT had increased costs of
$46,421 due to higher legal and accounting costs related to new SEC filing
requirements.
Research and development expense increased in fiscal 2000 as compared to
fiscal 1999 by $439,512 (95.8%). Of this, Lancer had an increase of $19,211, as
a result of increased payroll and development costs of new products. Biomerica
and ReadyScript had an increase in research and development expenses of
$367,701, primarily due to the expenses related to the development of
ReadyScript. AIT had an increase of $52,300 as a result of research on a new
project.
Interest expense, which was incurred by Lancer, increased in fiscal 2000 as
compared to fiscal 1999 by $3,955 (25.3%) due to borrowings against the line of
credit to finance development costs and an increase in the interest rate.
Other income net, decreased by $174,269 (59.6%) in fiscal 2000 as compared
to fiscal 1999. An increase of $220,000 is attributable to Lancer due to payment
<PAGE>
from an insurance claim for inventory theft and the reversal of an accrual for
taxes assessed by a subcontractor in the prior year which was determined by
legal counsel in fiscal 2000 not to be owed, a decrease of $125,126 was
attributable to Biomerica due to a decrease in the sale of available-for-sale
securities, a decrease of $100,000 was attributable to AIT due to a non-
recurring consulting fee paid to AIT in fiscal 1999 and a decrease of 251,574
due to the write-off of offering expenses.
As of May 31, 2000, Biomerica had net tax operating loss carryforwards of
approximately $6,648,158 and investment tax and research and development credits
of approximately $23,000, which are available to offset future federal tax
liabilities. As of May 31, 2000, Lancer had net operating loss carryforwards of
approximately $2,101,000 and business tax credits of approximately $115,000
available to offset future Federal tax liabilities. As of May 31, 2000, AIT had
net tax operating loss carryforwards of $1,866,000 and business tax credits of
approximately $29,000 to offset future Federal tax liabilities. The
carryforwards expire at varying dates from 2000 to 2012. The Company's effective
tax rates for fiscal 2000 and fiscal 1999 were 0% and 8%, respectively. These
differ from the statutory tax rates primarily as a result of changes in the
Company's valuation allowance.
Liquidity and Capital Resources
As of May 31, 2000, we had cash and available for sale securities of
$732,984 (see Note 1 of Notes to Consolidated Financial Statements) and current
working capital of $3,981,161. The Company's fiscal 2000 losses were
substantially the result of its investment in ReadyScript. ReadyScript
subsidiary is a development-stage enterprise and will require the of a
significant amount of capital to fund its short-term and longer-term working
capital needs until it can support itself through its planned operations. The
Board of Directors of the Company have decided that the ReadyScript subsidiary
will no longer be funded in any way by Biomerica, Inc. or its other
subsidiaries. ReadyScript currently is trying to raise additional capital
through a private placement memorandum and through the issuance of convertible
debt. ReadyScript has raised $715,000 in convertible debt since May 31, 2000
(See Note 11). Management of the Company expects these funds to sustain
ReadyScript through October 31, 2000. There can be no assurances that
ReadyScript will be successful in its plans to raise additional capital to meet
its short-term and/or future working capital needs. Biomerica, Inc. and its
subsidiaries, with the exception of ReadyScript, are expected to fund their
operations for at least the next twelve months through their existing available
financing, working capital, and its shareholder line of credit (See Note 11).
During 2000, the Company used cash in operations of $2,563,803, primarily
as a result of increased losses at the ReadyScript subsidiary. During 1999, the
Company used cash flows from operations of $358,366, primarily due to increased
in inventories. Cash used in investing activities increased during fiscal 2000
as a result of increased Investments in capital equipment and other assets.
During 1999, the Company invested in capital equipment but this was offset by
cash obtained by the sale of available-for-sale securities. The Company
generated cash flow from financing activities of $1,889,295 during fiscal 2000,
primarily due to the sale of common stock (net of offering costs) of $1,965,557.
This compares to cash provided by financing activities of $230,282 in 1999, as a
result of exercise of stock options, repayment of shareholder loan and an
increase in the credit line at Lancer.
During fiscal 2000, Lancer's management negotiated a renewal of Lancer's
line of credit through November 3, 2000. The line of credit allows for borrowing
up to $500,000 and is limited to specified percentages of eligible accounts
receivable. The unused portion available under the line of credit at May 31,
2000, was approximately $173,000. Borrowings bear interest at prime plus 1.25%
per annum (10.75% at May 31, 2000).
On June 11, 1999, we sold 400,000 shares of our common stock in a private
placement for $5 per share to management and an outside investor. This increased
our cash position by $1,965,557 (net of offering costs) which was primarily used
for launching of the on line drugstore, theBigRx and development of ReadyScript.
Biomerica, Inc. entered into an agreement, in substance, for a line of
credit on September 12, 2000 with a shareholder whereby the shareholder will
loan to the Company, as needed, up to $500,000 for working capital needs. The
line of credit bears interest at 8%, is secured by Biomerica accounts receivable
and inventory and expires September 12, 2001. Biomerica and the shareholder are
in the process of formalizing this line of credit.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Exhibit 99.1, "Biomerica, Inc. and Subsidiaries Consolidated Financial
Statements" is incorporated herein by this reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
---------------------------------------------------------------
Inapplicable.
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
-------------------------------------------------------------------
This information is incorporated by reference to the Company's proxy
statement for its 2000 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2000.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
This information is incorporated by reference to the Company's proxy
statement for its 2000 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
This information is incorporated by reference to the Company's proxy
statement for its 2000 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2000.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
This information is incorporated by reference to the Company's proxy
statement for its 2000 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2000.
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
-------------------------------------
(a) EXHIBITS
--------
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Incorporation of Registrant filed with the
Secretary of the State of Delaware on September 22, 1971
(incorporated by reference to Exhibit 3.1 filed with Amendment
No. 1 to Registration Statement on Form S-1, Commission File
No. 2-83308).
3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
February 6, 1978 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form S-
1, Commission File No. 2-83308).
3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
February 4, 1983 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form S-
1, Commission File No. 2-83308).
3.4 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
January 19, 1987 (incorporated by reference to Exhibit 3.4
filed with Form 8 Amendment No. 1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1987).
3.5 Certificate of Amendment of Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
November 4, 1987 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form S-
1, Commission File No. 2-83308).
3.6 Bylaws of the Registrant (incorporated by reference to Exhibit
3.2 filed with Amendment No. 1 to Registration Statement on
Form S-1, Commission File No. 2-83308).
3.7 Certificate of Amendment of Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
December 20, 1994 (incorporated by reference to Exhibit 3.7
filed with Registrant's Annual Report or Form 10-KSB for the
fiscal year ended May 31, 1995).
3.8 First Amended and Restated Certificate of Incorporation Of
Biomerica, Inc. filed with the Secretary of State of Delaware
on August 1, 2000.
4.1 Specimen Stock Certificate of Common Stock of Registrant
(incorporated by reference to Exhibit 4.1 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).
10.1 Office lease dated June 1, 1988 between Registrant and
Redington Company covering Registrant's lease of premises at
1531/1533 Monrovia Avenue, Newport Beach, California
(incorporated by reference to Exhibit 10.1 filed with
Registrant's Annual Report on Form 10-K for the fiscal year
ended May 31, 1989).
<PAGE>
10.2 Lancer purchase agreement and warrants (incorporated by
reference to Exhibit 10.10 filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1989).
10.3 1999 Stock Incentive Plan of Registrant (incorporated by
reference to Exhibit 10.1 to Registration Statement on Form S-8
filed with the Securities and Exchange Commission on March 29,
2000).
10.4 1995 Stock Option and Common Stock Plan of Registrant
(incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on January 20, 1996).
10.5 1991 Stock Option and Restricted Stock Plan of Registrant
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on April 6, 1992).
10.6 Stock Purchase Agreement by and between Biomerica, Inc.,
RidgeRose Capital Partners, LLC and Zackary Irani and Janet
Moore dated June 11, 1999 (incorporated by reference to Exhibit
10.10 filed with Form 8-K on July 7, 1999).
10.7 Stock Purchase Agreement by and between Biomerica, Inc. and
Zackary Irani and Janet Moore dated June 11, 1999 (incorporated
by reference to Exhibit 10.11 filed with Form 8-K on July 7,
1999).
10.8 Back-end Processing Agreement by and between TheBigStore.com,
Inc. and Biomerica, Inc. and dated June 11, 1999 (incorporated
by reference to Exhibit 10.12 filed with Form 8-K on July 7,
1999).
10.9 Common Stock Purchase Warrant granted to TheBigStore.com, Inc.
dated June 11, 1999 (incorporated by reference to Exhibit 10.13
filed with Form 8-K on July 7, 1999).
10.10 Common Stock Purchase Warrant granted to RJM Consulting, LLC
dated June 11, 1999 (incorporated by reference to Exhibit 10.14
filed with Form 8-K on July 7, 1999).
10.11 Non-Qualified Option Agreement by and between Zackary Irani and
the Company dated June 10, 1999 (incorporated by reference to
Exhibit 10.15 filed with Form 8-K on July 7, 1999).
10.12 Non-Qualified Option Agreement by and between Janet Moore and
the Company dated June 10, 1999 (incorporated by reference to
Exhibit 10.16 filed with Form 8-K on July 7, 1999).
10.13 Non-Qualified Option Agreement by and between Philip Kaplan,
M.D. and the Company dated June 10, 1999 (incorporated by
reference to Exhibit 10.17 filed with Form 8-K on July 7,
1999).
10.14 Non-Qualified Option Agreement by and between Robert A.
Orlando, M.D., Ph.D. and the Company dated June 10, 1999
(incorporated by reference to Exhibit 10.18 filed Form 8-K on
July 7, 1999).
10.15 Strategic Marketing Agreement entered into as of the 2nd day of
September, 1999 by and between TheBigHub.com, Inc., a Florida
corporation and Biomerica, Inc. (incorporated by reference to
Exhibit 10.16 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
<PAGE>
10.16 First Amendment to Back-End Processing Agreement entered into
as of September 2, 1999 whereby TheBigStore.com, Inc., a
Delaware corporation and Biomerica amend the Back-End Agreement
dated June 11, 1999 (incorporated by reference to Exhibit 10.17
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.17 Private Placement Memorandum of Biomerica, Inc. dated June 9,
1999 offering 400,000 shares of its Common Stock at $5.00 per
share (incorporated by reference to Exhibit 10.18 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).
10.18 Employment Agreement entered into as of August 30, 1999 by and
between the Internet division of Biomerica, Inc. and Steven J.
Goto (incorporated by reference to Exhibit 10.19 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).
10.19 Employment Offer Letter dated August 12, 1999 from Biomerica,
Inc. to Pete McKinley to join the Internet division of
Biomerica, Inc. (incorporated by reference to Exhibit 10.20
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.20 Employment Offer Letter dated August 12, 1999 from Biomerica,
Inc. to Richard Jay, Pharm.D. to join the Internet division of
Biomerica, Inc. (incorporated by reference to Exhibit 10.21
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.21 Amendment to Lease Extension/Lease Term effective January 1,
1999, whereby Lancer Orthodontics, Inc. and L&T Corporation, a
California corporation entered into an amendment and extension
to the terms of that certain lease agreement dated November 4,
1993 for the premises located at 253 Pawnee Street, Suite A,
San Marcos, California 92069 (incorporated by reference to
Exhibit 10.22 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.22 Sublease Agreement entered into by and between Eagleson de
California S.A. de C.V. and Lancer Orthodontics, Inc.
commencing on November 1, 1998 covering approximately 16,000
square feet located in the Industrial Park at Ave. Saturno No.
20 and of certain improvements constructed on the land as
detailed in that certain sublease between the parties dated
April 1, 1996 (incorporated by reference to Exhibit 10.23 filed
with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.23 Fifth Revision to Manufacturing Shelter Agreement effective
November 1, 1998, whereby Lancer Orthodontics, Inc. and
Eagleson Industries, Inc. revised and amended that certain
Manufacturing Shelter Agreement entered into on May 11, 1990,
revised on June 20, 1991, December 2, 1992, July 1, 1994 and
April 1, 1996 (incorporated by reference to Exhibit 10.24 filed
with Registrant's Registration Statement on Form SB-2,
Commission No.
<PAGE>
333-87231 filed on September 16, 1999).
10.24 Technical Skills Consulting Agreement entered into on January
1, 1999 by and between Lancer Orthodontics, Inc. and Alejandro
Carnero, a non-resident alien, independent contractor and
citizen of the Republic of Mexico (incorporated by reference to
Exhibit 10.25 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.25 Product Development and Marketing Agreement entered into as of
August 3, 1998 by and between Lancer Orthodontics, Inc. and AG
Metals, Inc., a Nevada corporation (incorporated by reference
to Exhibit 10.26 filed with Registrant's Registration Statement
on Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.26 Agreement between Lancer Orthodontics, Inc. and Gary Weikel, an
individual, incorporating by reference that certain Product
Development and Marketing Agreement of even date between Lancer
Orthodontics, Inc. and AG Metals, Inc. (incorporated by
reference to Exhibit 10.27 filed with Registrant's Registration
Statement on Form SB-2, Commission No. 333-87231 filed on
September 16, 1999).
16.1 Letter on Change of Certifying Accountant (incorporated by
reference to Exhibit A to Form 8-K filed with the Securities
and Exchange Commission on May 24, 1993).
16.2 Letter on change of certifying accountant (incorporated by
reference to Exhibit A to Form 10-QSB/A filed with the
Securities and Exchange Commission on April 14, 1999).
21.1 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21.1 to Form 10-KSB filed with the Securities and
Exchange Commission on September 14, 1999).
27.1 Financial Data Schedule.
99.1 Biomerica, Inc. and Subsidiaries Consolidated Financial
Statements For The Years Ended May 31, 2000 and 1999 and
Independent Auditors' Report.
(b) Reports on Form 8-K
-------------------
Biomerica filed a report on Form 8-K with the Securities and Exchange
Commission on July 7, 1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMERICA, INC.
Registrant
By /s/ Zackary S. Irani
-----------------------------
Zackary S. Irani, Chief Executive
Officer
Dated: 9/12/00
-------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature and Capacity
/s/ Zackary S. Irani Date: 9/12/00
------------------------------------
Zackary S. Irani
President, Director, Chief Executive
Officer
/s/ Janet Moore Date: 9/12/00
------------------------------------
Janet Moore, Secretary
Director, Chief Financial Officer
Date: 9/12/00
/s/ Robert Orlando Date: 9/12/00
------------------------------------
Robert Orlando, M.D., Ph.D.
Director
/s/ Carlos St. Aubyn Beharie Date: 9/12/00
------------------------------------
Carlos St. Aubyn Beharie
Director
/s/ David Burrows Date: 9/12/00
------------------------------------
David Burrows
Director
<PAGE>
/s/ Francis R. Cano
------------------------------------ Date: 9/12/00
Francis R. Cano
Director
/s/ Allen Barbieri Date: 9/12/00
------------------------------------
Allen Barbieri
Director
