<PAGE>
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 August 31, 2000 Commission File No. 0-8765
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BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
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(Not applicable)
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(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,737,911 shares of common
Stock as of October 13, 2000.
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BIOMERICA, INC.
INDEX
PART I
Item 1. Financial Statements:
Statements of Operations and Comprehensive Loss (unaudited)
- Three Months Ended August 31, 2000 and 1999....................2 & 3
Balance Sheet (unaudited) - August 31, 2000......................4 & 5
Statements of Cash Flows (unaudited)
Three Months Ended August 31, 2000 and 1999..........................6
Statement of Changes in Shareholders' Equity (unaudited)
Three Months Ended August 31, 2000...................................7
Notes to Financial Statements.....................................8-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data......................................11-12
PART II Other Information...................................................13
Signatures..........................................................14
i
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PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
<CAPTION>
Three Months Ended
August 31,
2000 1999
------------ ------------
<S> <C> <C>
Net sales ....................................................... 1,971,216 $ 1,824,584
Cost of sales .............................................. (1,310,512) (1,275,974)
------------ ------------
Gross profit ............................................... 660,704 548,610
------------ ------------
Operating Expenses:
Selling, general and administrative ........................ 1,235,174 952,698
Research and development ................................... 398,690 133,387
Non-cash expense in connection with issuance of
options and warrants to strategic partners ................ 29,902 687,780
------------ ------------
1,664,566 1,773,865
------------ ------------
Other Expense (income):
Interest expense ........................................... 5,207 3,705
Other income, net .......................................... (11,629) (203,610)
------------ ------------
(6,422) (199,905)
------------ ------------
Loss before minority interest in net losses of
consolidated subsidiaries and income taxes ................ (997,440) (1,025,350)
Minority interest in net losses (profits) of
consolidated subsidiaries .................................. 71,156 40,550
------------ ------------
Loss before taxes ............................................... (926,284) (984,800)
Income Taxes .................................................... 800 2,400
------------ ------------
Net loss ........................................................ $ (927,084) $ (987,200)
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on available-for-sale securities ....... (8,554) 2,219
------------ ------------
Comprehensive loss ............................................ $ (935,638) $ (984,981)
============ ============
2
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Per share data:
Net loss (basic) ........................................... $ (.20) $ (.22)
============ ============
Net loss (diluted) ......................................... $ (.20) $ (.22)
============ ============
Weighted average number of common and common equivalent shares:
Basic and diluted .......................................... 4,576,554 4,469,010
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
August 31,
2000
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Assets
Current Assets
Cash and cash equivalents .................................. $ 658,063
Available for-sale securities .............................. 74,451
Accounts receivable, less allowance for doubtful
accounts of $179,375 ...................................... 1,623,448
Inventory .................................................. 2,829,833
Notes receivable ........................................... 33,294
Prepaid expenses and other ................................. 384,589
-----------
Total Current Assets ................................. 5,603,678
Inventory, non-current ......................................... 21,405
Land held for investment ....................................... 46,000
Property and Equipment, less accumulated depreciation
and amortization .............................................. 483,386
Intangible assets, net of accumulated amortization ............. 362,389
Other Assets ................................................... 6,756
-----------
$6,523,614
===========
The accompanying notes are an integral part of these statements.
4
<PAGE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
August 31,
2000
-------------
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit ........................................... $ 200,000
Accounts payable and accrued liabilities ................ 1,171,872
Convertible promissory notes ............................ 710,000
Accrued compensation .................................... 327,662
-------------
Total Current Liabilities ........................... 2,409,534
-------------
Minority interest ............................................. 2,041,012
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Shareholders' Equity
Preferred stock, $0.08 par value, 5,000,000 authorized,
none outstanding ........................................ -
Accumulated other comprehensive loss ..................... (12,877)
Common stock, $0.08 par value authorized 25,000,000
shares, issued and outstanding 4,687,911 ................ 375,032
Additional paid-in-capital ............................... 15,733,521
Accumulated deficit ...................................... (14,022,608)
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Total Shareholders' Equity .................................... 2,073,068
-------------
Total Liabilities and Equity .................................. $ 6,523,614
=============
The accompanying notes are an integral part of these statements.
5
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BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED AUGUST 31, 2000 AND 1999
2000 1999
------------ ------------
Cash flows from operating activities:
Net loss ......................................... $ (927,084) $ (987,200)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............... 55,231 60,651
Realized gain on sale of available for-sale
securities ................................. (6,412) 0
Minority interest in net loss of consolidated
Subsidiaries .............................. (71,156) (40,550)
Common stock issued for services rendered ... 180,000 16,000
Provision for losses on accounts receivable . - (6,386)
Options issued for services rendered ........ 29,902 687,780
Changes in current assets and liabilities:
Accounts Receivable, net .................. 78,486 166,325
Inventories ............................... 30,451 (122,403)
Prepaid expenses and other current assets . 93,937 56,875
Accounts payable and other accrued
liabilities .............................. (142,175) (112,699)
Accrued compensation ...................... (25,853) 35,824
------------ ------------
Net cash used in operating activities ............ (704,672) (245,783)
------------ ------------
Cash flows from investing activities:
Sale of available for-sale securities ....... 22,181 0
Decrease in notes receivable ................ 1,700 9,200
Purchases of property and equipment ......... (47,704) (84,090)
Other assets ................................ 15,161 124,073
Purchases of intangible assets .............. (16,038) 0
Shareholder loan repayment .................. 0 1,000
------------ ------------
Net cash (used in) provided by investing
activities ...................................... (24,700) 50,183
------------ ------------
Cash flows from financing activities:
Private placement net of offering costs ..... 0 1,965,557
Repurchase by minority interests ............ 0 (60,336)
Exercise of stock options ................... 3,225 12,738
Increase in line of credit .................. 40,000 0
Proceeds from issuance of convertible
promissory notes ........................... 710,000 0
------------ ------------
Net cash provided by financing activities ........ 753,225 1,917,959
------------ ------------
Net increase in cash and cash equivalents ........ 23,853 1,722,359
Cash at beginning of period ...................... 634,210 1,669,205
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Cash at end of period ............................ $ 658,063 $ 3,391,564
============ ============
The accompanying notes are an integral part of these statements.
6
<PAGE>
<TABLE>
BIOMERICA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED AUGUST 31, 2000
<CAPTION>
Common Stock Accumulated
----------------------------- Additional Other Com-
Number of Paid-In Prehensive Accumulated
Shares Amount Capital Income (Loss) (Deficit) Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at 4,575,070 $ 366,005 $ 15,529,421 $ (4,323) $(13,095,524) $ 2,795,579
May 31, 2000
Compensation expense in
connection with
options
and warrants granted 29,902 29,902
Stock issued for
Consulting 109,091 8,727 171,273 180,000
Change in unrealized
gain on available
for sale securities (8,554) (8,554)
Exercise of stock
options 3,750 300 2,925 3,225
Net loss (927,084) (927,084)
------------- ------------- ------------- ------------- ------------- -------------
Balance at
August 31, 2000 4,687,911 $ 375,032 $ 15,733,521 $ (12,877) $(14,022,608) $ 2,073,068
============= ============= ============= ============= ============= =============
</TABLE>
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
August 31, 2000
(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, 2000, 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, 2000, for a description of the investments in
affiliates and consolidated subsidiaries.
(5) Reference is made to Notes 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, 2000, for information on commitments and
contingencies.
(6) Aggregate cost of available-for-sale securities exceeded aggregate
market value by approximately $12,877 at August 31, 2000.
(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.
(8) Please refer to Note 11 to the Notes to Consolidated Financial
Statements Years Ended May 31, 2000 and 1999 as reported in the Form
10-KSB filed with the Securities and Exchange Commission September 13,
2000 for information on Convertible Promissory Notes totaling $710,000
entered into by the ReadyScript subsidiary during the quarter ended
August 31, 2000.
8
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The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
<TABLE>
<CAPTION>
For the Three Months Ended August 31, 2000
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
<S> <C> <C> <C>
Basic EPS -
Loss attributable to common
Shareholders.................................. $ (927,084) 4,576,554 $ (.20)
=============
Effect of dilutive securities - Options............. - -
------------- -------------
Diluted EPS -
Loss attributable to common share-
Holders plus assumed conversions.............. $ (927,084) 4,576,554 $ (.20)
============= ============= =============
For the Three Months Ended August 31, 1999
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- -------------
Basic EPS -
Loss attributable to common
Shareholders.................................. $ (987,200) 4,469,010 $ (.22)
=============
Effect of dilutive securities - Options............. - -
------------- -------------
Diluted EPS -
Loss attributable to common share-
Holders plus assumed conversions.............. $ (987,200) 4,469,010 $ (.22)
============= ============= =============
</TABLE>
9
<PAGE>
(8) Financial information about foreign and domestic operations and export
sales is as follows:
For the Three Months Ended
8/31/00 8/31/99
------- -------
Revenues from sales to unaffiliated
customers:
United States $ 982,000 $ 1,099,000
Asia 84,000 71,000
Europe 500,000 319,000
South America 135,000 114,000
Other 270,000 222,000
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$ 1,971,000 $ 1,825,000
============ ============
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
Operating profit (loss):
United States $ (933,000) $(1,067,000)
Asia (14,000) (18,000)
Europe (24,000) (72,000)
South America (5,000) (23,000)
Other (28,000) (45,000)
------------ ------------
$(1,004,000) (1,225,000)
============ ============
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION CONTAINED HEREIN (AS
WELL AS INFORMATION INCLUDED IN ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE
OR TO BE MADE BY BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH
AS STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND SUCCESS
OR CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION INVOLVES
IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT ANTICIPATED
RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS MAY DIFFER MATERIALLY FROM
THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF
BIOMERICA. THE POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS DUE TO ITS NEW BUSINESS MODEL
AND EXPANSION PLANS AND THE COMPETITIVE ENVIRONMENT IN WHICH THE COMPANY WILL BE
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.
RESULTS OF OPERATIONS
Consolidated net sales for Biomerica were $1,971,216 for the first
quarter of fiscal 2001 as compared to $1,824,584 for the same period in the
previous year. This represents an increase of $146,632, or 8%. Of the total
consolidated net sales, $1,331,099 is attributable to Lancer, $33,054 to AIT and
$607,063 to Biomerica. Lancer sales increased by $59,554 over the previous
fiscal year primarily due to increased foreign sales in Europe and South
America. Increased discounting contributed to lower domestic sales at Lancer.
Biomerica sales increased by $96,526 primarily due to greater EZ Detect sales.
AIT had a sales increase of $8,155 due to a special testing project AIT
performed for a pharmaceutical company.
Cost of sales increased by $34,538, or 2.7%. Lancer's cost of sales as
a percentage of sales decreased from 70.9% to 69.5%. This decrease was
attributable to decreased production and royalty expense. Biomerica's costs
decreased from 66.6% of sales to 59.6% due to higher sales in relation to some
fixed costs and a planned increase in finished inventory items. AIT had a
decrease in cost of goods from 93.1% of sales to 69.8% of sales due higher sales
in relation to fixed costs.
Selling, general and administrative costs increased by $283,276, or
30.2%. Lancer had decreased selling, general and administrative costs of $71,224
due to a decrease in labor costs and commissions. Biomerica had an increase of
$59,437, which was due to various increases, but in particular wages, insurance
and accounting expenses. ReadyScript had increased expenses of $329,602 since it
has increased its overall operation as compared to last fiscal year. AIT had a
decrease of $34,539 due to decreased legal and accounting costs associated with
the filing of AIT's Form 10-SB and Form 10-KSB.
11
<PAGE>
Research and development increased by $265,303, or 199%. Lancer had a
decrease in research and development costs of $20,425 due to the discontinuance
of the dental amalgam development. Biomerica had decreased costs of $11,980
primarily due to lower wages and related costs. ReadyScript had increased
expenses of $297,708 due to an overall increase of the development of the
ReadyScript system.
Non-cash expenses in connection with the issuance of options and
warrants decreased by $657,878 to $29,902 which was due to expense incurred in
connection with the issuance of options and warrants to strategic partners and
other entities in the prior fiscal year and the discontinuance of the
amortization of such expense in the current fiscal year as a result of a breach
of the agreement by the strategic parties and other entities.
Interest expense increased by $1,502 compared to the previous year due
to the borrowings at Lancer and an increase in prime rate. Other income
decreased as a result of an insurance claim settlement of $279,672 for the theft
of inventory at Lancer's Mexicali facility, less $110,000 insurance claim
receivable valued at cost.
Please refer to Note 3 in the Notes to the Consolidated Financial
Statements in the report on Form 10-KSB for the year ended May 31, 2000, for a
more in-depth discussion of subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2000, the Company had cash and available-for-sale
securities in the amount of $732,514 and working capital of $3,194,146. Cash and
working capital totaling $136,358 and $2,639,567, respectively, relates to the
Lancer subsidiary. Lancer's line of credit restricts Biomerica's ability to draw
on Lancer's resources and, as such, said cash, working capital and equity are
not available to Biomerica. The Company's first quarter losses were
substantially the result of its investment in ReadyScript. The ReadyScript
subsidiary is a development-stage enterprise and will require 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. During this
quarter ReadyScript raised $710,000 in convertible debt. 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.
During the quarter ended August 31, 2000, the Company used cash in
operations of $704,672, primarily as a result of increased losses at the
ReadyScript subsidiary. This compares to cash used from operations of $245,783
in the same period in the prior fiscal year. The Company generated cash flow
from financing activities of $753,225 during the first quarter, primarily due to
$710,000 in convertible promissory notes entered into by the ReadyScript
subsidiary. During the quarter ended August 31, 1999 the Company generated cash
flow from financing activities of $1,917,959 as a result of the sale of common
stock, net of offering costs.
12
<PAGE>
At August 31, 2000, Lancer had a $500,000 line of credit with a bank.
Borrowings are made at prime plus 1.25% (10.75% at August 31, 2000) and are
limited to specified percentages of eligible accounts receivable. The unused
portion available under the line of credit at August 31, 2000 was $110,089. The
line of credit expires on November 3, 2000. The line of credit is collateralized
by substantially all the assets of the Lancer, including inventories,
receivables, and equipment. The lending agreement for the line of credit
requires, among other things, that the Lancer maintain a tangible net worth of
$2,800,000 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
borrowing arrangement. Lancer was in violation of certain of its debt covenants
at August 31, 2000. A waiver has been requested but not yet received a of the
date of filing.
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.
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. Inapplicable.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable.
Item 5. OTHER INFORMATION. Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. None.
Exhibit
No. Description
--- -----------
3.1 First Amended and Restated Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware
on August 1, 2000 (incorporated by reference to Exhibit 3.8
filed with Registrant's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 2000.
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 13, 2000
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------------
Zackary Irani
Chief Executive Officer
14
