<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
x Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934
For the Quarter Period Ended February 29, 2000
Transition Report under Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934 for the transition period from to .
------- -------
Commission File No. 0-8765
------
BIOMERICA, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-2645573
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
- --------------------------------------------------------------------------------
(Not applicable)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Check whether the Registrant (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 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
--------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,563,195 shares of Common
Stock as of April 4, 2000.
<PAGE>
BIOMERICA, INC.
INDEX
PART I - FINANCIAL INFORMATION
ITEM I Financial Statements:
Statements of Operations and Comprehensive Loss (unaudited) -
Nine Months and Three Months Ended February 29, 2000 and
February 28, 1999............................................... 2 & 3
Balance Sheet (unaudited) - February 29, 2000 .................. 4 & 5
Statements of Cash Flows (unaudited)
Nine Months Ended February 29, 2000 and February 28, 1999....... 6 & 7
Statement of Changes in Shareholders' Equity (unaudited) -
Nine Months Ended February 29, 2000................................. 8
Notes to Financial Statements.................................... 9-14
ITEM 2 Management's Discussion and Analysis of Financial Condition
and Selected Financial Data..................................... 15-19
PART II - OTHER INFORMATION
Other Information.................................................. 20
Signatures......................................................... 20
i
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<TABLE>
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
<CAPTION>
Nine Months Ended Three Months Ended
February 29 and 28 February 29 and 28
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net Sales........................................ $ 5,615,304 $ 6,182,537 $ 1,844,976 $ 1,826,214
Cost of sales................................ 3,853,246 3,932,381 1,336,088 1,191,206
-------------- -------------- -------------- --------------
Gross profit................................. 1,762,058 2,250,156 508,888 635,008
-------------- -------------- -------------- --------------
Operating Expenses:
Selling, general and administrative.......... 4,286,551 2,331,495 1,385,779 746,100
Research and development..................... 467,882 336,674 136,673 107,040
-------------- -------------- -------------- --------------
4,754,433 2,668,169 1,522,452 853,140
-------------- -------------- -------------- --------------
Other Expense (income):
Interest expense............................. 13,308 9,677 5,137 5,069
Other income, net............................ (258,939) (178,102) (28,086) (22,697)
-------------- -------------- -------------- --------------
Loss before minority
interest in net losses of consoli-
dated subsidiaries and income taxes (2,746,744) (249,588) (990,615) (200,504)
Minority interest in net losses
of consolidated subsidiaries................. 200,969 58,744 104,353 30,889
-------------- -------------- -------------- --------------
Loss income before taxes..................... (2,545,775) (190,844) (886,262) (169,615)
Income taxes................................. 2,400 2,400 0 800
-------------- -------------- -------------- --------------
NET LOSS..................................... (2,548,175) (193,244) (886,262) (170,415)
Other Comprehensive Loss, net of tax:
Unrealized loss on available for sale securities
(8,860) (14,601) (6,125) (6,673)
-------------- -------------- -------------- --------------
Total Comprehensive loss..................... $ (2,557,035) $ (207,845) $ (892,387) $ (177,088)
============== ============== ============== ==============
</TABLE>
2
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<TABLE>
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
(CONTINUED)
<CAPTION>
Nine Months Ended Three Months Ended
February 29 and 28 February 29 and 28
2000 1999 2000 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Per share data:
Net loss - basic............................. $ (.57) $ (.05) $ (.20) $ (.04)
============== ============== ============== ==============
Net loss - diluted........................... $ (.57) $ (.05) $ (.20) $ (.04)
============== ============== ============== ==============
Weighted average number of common
and common equivalent shares
Basic and diluted......................... 4,513,607 3,974,909 4,537,795 3,981,615
============== ============== ============== ==============
The accompanying notes are an integral part of these statements.
3
</TABLE>
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<TABLE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
February 29,
2000
--------------
<S> <C>
Assets
Current Assets
Cash and cash equivalents...................................................................... $ 1,647,692
Available for-sale securities.................................................................. 97,587
Accounts receivable, less allowance for doubtful accounts...................................... 1,450,826
Inventory...................................................................................... 3,228,344
Notes receivable............................................................................... 34,994
Prepaid expenses and other..................................................................... 506,712
--------------
Total Current Assets ..................................................................... 6,966,155
Inventory, non-current............................................................................. 25,000
Land held for investment........................................................................... 46,000
Property and Equipment, less accumulated depreciation and amortization............................. 470,902
Intangible assets, net of accumulated amortization................................................. 390,049
Other Assets....................................................................................... 6,756
--------------
$ 7,904,862
==============
The accompanying notes are an integral part of these statements.
4
</TABLE>
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<TABLE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
February 29,
2000
--------------
<S> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities...................................................... $ 1,265,435
Accrued compensation.......................................................................... 266,223
Line of credit................................................................................ 220,000
--------------
Total Current Liabilities................................................................ $ 1,751,658
Minority interest.................................................................................. 2,141,977
Shareholders' Equity
Common stock.................................................................................. 363,245
Additional paid-in-capital.................................................................... 15,418,471
Other comprehensive income.................................................................... (17,639)
Accumulated deficit........................................................................... (11,752,850)
--------------
Total Shareholders' Equity......................................................................... 4,011,227
--------------
Total Liabilities and Equity....................................................................... $ 7,904,862
==============
The accompanying notes are an integral part of these statements.
5
</TABLE>
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<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss........................................................................... $ (2,548,175) $ (193,244)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................. 188,804 178,901
Provision for losses on accounts receivable................................... (5,272) -
Realized gain on sale of available for-sale securities........................ (1,114) (111,885)
Minority interest in net loss of consolidated subsidiaries.................... (200,969) (58,744)
Common Stock options issued for services rendered............................. 16,000 3,927
Common stock issued for rent.................................................. 0 38,000
Options and warrants issued for services rendered............................. 742,680 -
Loss on disposal of fixed assets.............................................. 1,703 2,310
Changes in current assets and liabilities:
Accounts Receivable......................................................... 157,703 233,534
Inventories................................................................. (173,249) (439,281)
Increase in insurance receivable............................................ - (110,000)
Prepaid expenses and other current assets................................... (209,972) 63,941
Accounts payable and other accrued liabilities.............................. 250,584 114,844
Accrued compensation........................................................ (133,113) (108,325)
-------------- --------------
Net cash used in operating activities.............................................. (1,914,390) (386,022)
-------------- --------------
Net cash flows (used in) provided by investing activities:
Purchases of property and equipment........................................... (198,252) (80,481)
Sales of marketable securities, net........................................... 20,417 254,314
Other assets.................................................................. 124,073 17,158
Purchases of intangible assets................................................ - (78,755)
Note receivable............................................................... 9,491 (16,249)
-------------- --------------
Net cash (used in) provided by investing activities................................ (44,271) 95,987
-------------- --------------
Cash flows from financing activities:
Shareholder loan repayment.................................................... 1,000 56,000
Stock repurchase.............................................................. - (20,575)
Private placement, net of offering costs...................................... 1,965,557 -
Net borrowings under line of credit........................................... 40,000 100,000
Exercise of stock options..................................................... 25,305 5,045
Repurchase of minority interest............................................... (94,714) (7,632)
-------------- --------------
6
</TABLE>
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<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED FEBRUARY 29 AND FEBRUARY 28, 2000 AND 1999
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
Net cash provided by financing activities.......................................... 1,937,148 132,838
-------------- --------------
Net decrease in cash and cash equivalents.......................................... (21,513) (157,197)
-------------- --------------
Cash at beginning of period........................................................ 1,669,205 1,840,575
-------------- --------------
Cash at end of period.............................................................. $ 1,647,692 $ 1,683,378
============== ==============
The accompanying notes are an integral part of these statements.
7
</TABLE>
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<TABLE>
BIOMERICA, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000
<CAPTION>
Common Stock Other
----------------------------- Additional Compre-
Number of Paid-In hensive Shareholder Accumulated
Shares Amount Capital Loss Loan Deficit Total
-------------- -------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
May 31, 1999 4,110,445 $ 328,835 12,703,339 $ (8,779) (1,000) $ (9,204,675) $ 3,817,720
Private placement, net of
offering costs of $34,443 400,000 32,000 1,933,557 1,965,557
Change in unrealized
gain on available
for sale securities (8,860)
(8,860)
Compensation expense in 742,680
connection with options
and warrants granted 742,680
Shares issued for
services rendered 8,000 640 16,000
15,360
Exercise of employee
stock options 22,125 1,770 23,535 25,305
Repayment of
shareholder loan 1,000 1,000
Net loss (2,548,175) (2,548,175)
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Balance at
February 29, 2000 4,540,570 $ 363,245 $ 15,418,471 $ (17,639) $ 0 $ (11,752,850) $ 4,011,227
============== ============== ============== ============== ============== ============== ==============
The accompanying notes are an integral part of these statements.
8
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 29, 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, 1999, for a summary of significant accounting policies
utilized by the Company.
(2) 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, 1999, for a description of the investments in
affiliates and consolidated subsidiaries.
(5) Reference is made to Note 5 & 10 of the Notes to Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 1999, for information on commitments and litigation.
(6) Aggregate cost of available-for-sale securities exceeded aggregate market
value by approximately $17,639 at February 29, 2000.
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(7) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE ("EPS"). SFAS No. 128 requires dual presentation of
basic EPS and diluted EPS on the face of all income statements issued
after December 15, 1997 for all entities with complex capital structures.
Basic EPS is computed as net income divided by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur from common shares issuable
through stock options, warrants and other convertible securities. All
periods presented have been restated to adopt the provisions of SFAS No.
128.
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
<TABLE>
<CAPTION>
For the Nine Months Ended February 29, 2000
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- --------------
<S> <C> <C> <C>
Basic EPS -
Loss available to common
Shareholders................................................. $ (2,548,175) 4,513,607 $ (.57)
==============
Effect of dilutive securities - Options............................ - -
-------------- --------------
Diluted EPS -
Loss available to common share-
holders plus assumed conversions............................. $ (2,548,175) 4,513,607 $ (.57)
============== ============== ==============
For the Nine Months Ended February 28, 1999
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- --------------
Basic EPS -
Income available to common
Shareholders................................................. $ (193,244) 3,974,909 $ (.05)
==============
Effect of dilutive securities - Options............................ - -
-------------- --------------
Diluted EPS -
Income available to common share-
holders plus assumed conversions............................. $ (193,244) 3,974,909 $ (.05)
============== ============== ==============
</TABLE>
10
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<TABLE>
<CAPTION>
For the Three Months Ended February 29, 2000
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- --------------
<S> <C> <C> <C>
Basic EPS -
Loss available to common
shareholders................................................. $ (886,360) 4,537,795 $ (.20)
==============
Effect of dilutive securities - Options............................ - -
-------------- --------------
Diluted EPS -
Loss available to common share-
holders plus assumed conversions............................. $ (886,360) 4,537,795 $ (.20)
============== ============== ==============
For the Three Months Ended February 28, 1999
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
-------------- -------------- --------------
Basic EPS -
Income available to common
shareholders................................................. $ (170,415) 3,981,615 $ (.04)
==============
Effect of dilutive securities - Options............................ - -
-------------- --------------
Diluted EPS -
Income available to common share-
holders plus assumed conversions............................. $ (170,415) 3,981,615 $ (.04)
============== ============== ==============
</TABLE>
(8) Financial information about foreign and domestic operations and export sales
is as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended
2/29/00 2/28/99
-------------- --------------
<S> <C> <C>
Revenues from sales to unaffiliated customers:
United States $ 3,160,000 $ 3,384,000
Asia 258,000 346,000
Europe 1,220,000 1,304,000
South America 260,000 387,000
Other 717,000 762,000
-------------- --------------
$ 5,615,000 $ 6,183,000
</TABLE>
No other geographic concentrations exist where net sales exceed 10% of total net
sales.
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<TABLE>
<CAPTION>
Operating (loss) profit: 2/29/00 2/28/99
-------------- --------------
<S> <C> <C>
United States $ (2,628,000) $ (351,000)
Asia (59,000) (37,000)
Europe (163,000) (4,000)
South America (30,000) 1,000
Other (112,000) (27,000)
-------------- --------------
$ (2,992,000) $ (418,000)
</TABLE>
(8) On June 11, 1999, the Company completed two private placement agreements
to sell and issue a total of 400,000 (50,000 of which were sold to
related parties) shares of the Company'common stock at $5.00 per share.
The Company also issued 8,000 shares of common stock to a consultant for
services rendered.
On June 11, 1999, the Company issued 1,200,000 options to purchase shares
of the Company's common stock to employees and non-employees. The
purchase price of the options is $3.00 per share. The options are
exercisable for a period of ten years. The Company recorded $58,806
related to the fair value of options granted to non-employees.
On June 11, 1999, the Company issued 1,000,000 stock purchase warrants to
an unaffiliated entity for consulting and fund raising services rendered.
The holder was granted the right to purchase common stock at an exercise
price of $3.00 per share through the year 2005. The Company valued these
warrants at $1,362,880. Of this, $588,063 was expensed for consulting
services and $588,063 was recorded as reduction of paid in capital.
On June 11, 1999, the Company entered into a five year Back-End
Processing Agreement with an unaffiliated entity. The unaffiliated entity
will develop customized back-end processing to enable the Company to
process customer prescription orders on-line and insurance claims and
payments. In addition, the unaffiliated entity transferred and assigned
to the Company the right, title and interest in and to the internet
domain name "TheBigRx.com" and all rights to any trademark relating
thereto. The Company issued 410,000 stock purchase warrants for these
services. The holder is granted the right to purchase common stock at an
exercise price of $5.00. The Company valued these warrants at $333,000
and will be expensing them over sixty months. During the nine months
ended February 29, 2000, $49,938 of this was expensed.
On June 11, 1999, the Company entered into a Five Year Strategic
Marketing Agreement with TheBigHub.com whereby the BigHub.com will
provide strategic placement of advertising and marketing for Biomerica's
BigRX.com on its website. The Company issued 250,000 stock purchase
warrants for these services. The holder is granted the right to purchase
common stock at an exercise price of $5.00. The Company valued these
warrants at $203,000 and will be expensing them over sixty months. During
the nine months ended February 29, 2000, $30,450 of this was expensed.
During the nine months ended February 29, 2000, the Company recorded
additional compensation expense of $15,423 related to the amortization of
the fair value of options to purchase common stock previously issued.
As of March 21, 2000 options to purchase 440,000 shares of common stock
have been granted under the 1999 Stock Incentive Plan and the grant of
12
<PAGE>
options to purchase an aggregate of 170,000 shares of common stock are
pending approval of the Company's Board of Directors. The purchase price
of the options ranges from $2.06 to $3.69 per share.
On June 16, 1999, the Company entered into a Letter of Intent with an
underwriter with respect to a secondary public offering. If an offering
were to occur the offering price per share will be subject to market and
other conditions at the time of the offering. The Company is currently
determining the best method and timing to access additional funding and
the Company's efforts in this area have been progressing.
(9) The Year 2000 problem is the result of computer programs being written to
recognize two digits rather than four to define the applicable year. This
causes computer programs to interpret a date using "00" as the year 1900
rather than the year 2000, which could result in computer failures and
miscalculations. The effects of this issue will vary from system to
system and may adversely affect an entity's operations and its ability to
prepare financial statements. The Company has undertaken certain
corrective actions to ensure that our hardware and software systems used
to manage out business are Year 2000 compliant and will continue to
function properly in the year 2000. However, there can be no assurance
that Year 2000 problems will not be encountered or that the costs
incurred to resolve such problems will not be material. Additionally,
there can be no assurance that the Year 2000 problem will not affect the
Company by causing disruptions in the business operations of persons with
whom the Company does business, such as customers or suppliers. Year 2000
problems could have a material adverse effect on the Company.
The Company currently operates a Microsoft-based LAN system upgraded in
1999. Biomerica and AIT have upgraded all accounting related hardware,
the server and the accounting software. Year 2000 costs to date have been
immaterial and are not expected to be material in the future. The
accounting and record-keeping software that is employed is actively
supported by the developer vendor and is in wide use.
The Company has no way of knowing how the Year 2000 may affect its
various vendors in their ability to ship products or its customers in
their ability to purchase products. The Company believes that the Year
2000 issue will not have a material impact on our internal data records.
The Company has conducted a vendor and service provider compliance survey
to determine which of the companies we deal with are addressing the Year
2000 issue and the progress they are making on it. No responses received
by the Company's vendors and-or service providers indicate that their
Year 2000 issues will adversely affect the Company.
However, if the necessary providers of power, communications and other
such providers of important services are not fully prepared for the Year
2000, the Year 2000 could have a material impact on the Company. The
Company has no way of knowing how the Year 2000 will affect Internet
functions and if Internet functions are interrupted, there could be a
material impact on the Company.
AIT outsources its computer needs to Biomerica. Lancer has upgraded its
accounting and MRP software for its mainframe computer system to be Year
2000 compliant. This software is actively supported by the developer.
Lancer does not anticipate incurring significant additional costs to be
completely Year 2000 compliant.
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As of March 21, 2000, the Company has not experienced any Year 2000
related problems internally and is not aware of any Year 2000 problems
with vendors, customers or external Internet functions. However, because
of the complexity of the Year 2000 issue, the Company has no way of
knowing whether there will be any future problems related to the Year
2000 issue and cannot guarantee that these would not have a material
adverse affect on the Company.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS
DISCUSSION AND ANALYSIS ARE FORWARD-LOOKING STATEMENTS THAT ARE MADE PURSUANT TO
THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES, WHICH MAY CAUSE THE COMPANY'S ACTUAL RESULTS IN FUTURE PERIODS TO
DIFFER MATERIALLY FROM FORECASTED RESULTS. THESE RISKS AND UNCERTAINTIES
INCLUDE, AMONG OTHER THINGS, THE CONTINUED DEMAND FOR THE COMPANY'S PRODUCTS,
AVAILABILITY OF RAW MATERIALS AND THE STATE OF THE ECONOMY. THESE AND OTHER
RISKS ARE DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB AND IN THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
RESULTS OF OPERATIONS
Included in consolidated results of operations are the results of Biomerica,
Inc. through its two divisions: the diagnostics products division and the
e-health division; and the results of its controlling interests in two publicly
traded subsidiaries: Lancer Orthodontics, Inc. (NasdaqSC: LANZ) and Allergy
Immuno Technologies (OTC: ALIM).
Management believes that the Company has been highly productive since June 1999,
when $2 million in capital was raised through a private placement offering to
start a business-to-business e-health internet division.
During the second and third fiscal quarters and subsequent month and a half
period to the release of this Form 10-QSB the following were accomplished:
1. An e-health division was established with a business-to-business focus
and business model. Our plan is to be a leading company in the rapidly
emerging wireless point-of-care handheld prescribing industry. Our
e-health division is the first to combine a proprietary point-of-care
medication management system (ReadyScript(r)) with the value added
benefits of a private label/co-branded online drugstore (TheBigRX.com).
2. Significant strides in the development and marketing of our ReadyScript
medication management system have been made. ReadyScript will allow
physicians to generate and send prescriptions via fax or the internet
to retail, mail order and Internet pharmacies.
ReadyScript operates on wireless handheld or desktop computing systems
to provide physicians with critical medication and patient information
and allows them to issue and route prescriptions directly to pharmacies
while meeting with patients (at the point of care). The system reduces
the potential for dispensing errors and fraud, and will help improve
treatment outcomes as well as increase revenues. The ReadyScript system
will ultimately provide physicians access to other health care
information (laboratory results, etc.) and connectivity with their
patients.
Specific Readyscript progress includes:
15
<PAGE>
o Two large Southern California physician groups have signed
contracts to participate in the alpha, beta and commercial
deployment of ReadyScript with the intent of utilizing the
ReadyScript system when it is complete. Two more large
Southern California groups have expressed interest in entering
into contracts with us. Upon completion of these contracts and
full deployment of the product, ReadyScript is expected to be
the leading prescription automation software being implemented
in Southern California.
o We are actively marketing our prescription automation solution
to medical groups, insurance companies, pharmacy benefit
managers and chain drugstores.
o ReadyScript is expected to be ready for commercial release in
the second half of calendar year 2000.
3. A Registration Statement was filed as the first step of our efforts to
raise additional money to fund the development and marketing of our
e-health division's wireless handheld point-of-care solution. We have
been making progress in our capital raising activities. Management is
actively determining the best method and timing to access additional
funding.
4. We completed hiring an experienced core management team and staff for
our new e-health division. We are continuing to add other talented
individuals to that team.
5. Our board of directors was strengthened and expanded with the addition
of four new outside directors.
6. In December 1999 our e-health division launched an online drugstore,
www.TheBigRX.com., which can be private labeled or co-branded as well
as used by consumers. The launch occurred on schedule at a cost
significantly below that spent by any other public company launching an
online drugstore. We expect our business-to-business strategy, of
co-branding/private-labeling our online drugstore with partner medical
groups and health plans will be the main business driver. We do not
intend to spend significant sums promoting the site via the traditional
advertising methods used by other leading online drugstores. Instead,
we are using our business affiliations, directories, "search" and
"compare" engines, and other forms of innovative promotional campaigns
to generate traffic.
We are in the process of obtaining all necessary regulatory approvals
to provide prescription medication in all fifty states. We expect to
have that process complete and launch the prescription service portion
of the store at approximately the same time as the commercial release
of ReadyScript.
7. We redesigned our corporate website, www.biomerica.com. This site
includes a summary of our e-commerce strategy. We intend to continue to
expand this site to e-commerce enable online ordering of Biomerica's
diagnostic product line and improve investor communications.
8. In March the diagnostics division launched a new website,
www.ezdetect.com. The site offers extensive information and resources
on colorectal cancer prevention and early detection and online ordering
of EZ Detect tests. The site has attracted national media exposure and
thousands of visitors and purchasers from our free EZ Detect offer
(shipping is $3.65) in support of National Colorectal Cancer Awareness
Month. Due to ongoing publicity for the national awareness campaign, we
have extended the offer through May 31, 2000. Our diagnostics division
16
<PAGE>
will continue to make efforts to increase awareness of this product and
colorectal cancer prevention and early detection to the over 75 million
individuals age 50 and over and the over 41 million individuals between
the ages of 40 and 50 that this site is intended to serve.
9. The e-health division began developing a complementary and innovative
health site that we plan to launch in the second half of calendar
2000.
10. Our diagnostics division signed an exclusive two-year agreement with a
major Italian medical diagnostic products distributor to market and
distribute our Allerquant Med90 food allergy kit in Italy.
11. Our diagnostics division introduced to the international market only
its new GliaQuant(TM) test to detect and monitor the presence of
gliadin, a protein that causes Celiac disease in many individuals
worldwide.
Revenues
For the third quarter ended February 29, 2000, consolidated sales were
$1,844,976 compared to $1,826,214 in prior year third quarter sales. This
represents an increase of $18,762 (1%). The revenue growth is primarily
attributable to e-health division revenues and an increase in sales at Lancer
Orthodontics.
For the nine months ended February 29, 2000, consolidated sales were
$5,615,304 compared to $6,182,537 for the same period in the previous year. This
represents a decrease of $567,233 (9%). For the nine-month period Lancer
Orthodontics (Lancer) had decreased sales of $372,473, Biomerica had decreased
sales of $203,092 and AIT had a sales increase of $8,332.
The decline in year-to-date sales for Lancer is primarily attributable to
decreased foreign sales due to social policy changes in Germany and economic
conditions in Brazil. The sales decrease at Biomerica was primarily attributable
to lower foreign sales in Asia.
Lancer has obtained new distributors in other countries to increase foreign
sales. Lancer remains very active in investigating new products that will
contribute strategically to its overall product line. Biomerica is in the
process of creating media and consumer awareness of certain of its products and
establishing contracts and programs with independent sales organizations
conducting mass health screening programs to increase sales of certain of its
diagnostic products.
Profits and Losses
For the third quarter ended February 29, 2000, the consolidated net loss was
$886,262 compared to a net loss of $170,415 for the same period in the previous
year. For the nine months ended February 29, 2000, the net loss was $2,548,175
compared to $193,244 for the same period in the previous year. The loss is
primarily attributable to increased operating expenses associated with starting
the e-health division. We anticipate that our e-health business will be
reporting continuing losses and will make increased fixed asset investments over
the next year as our e-health division business plan is implemented.
17
<PAGE>
Costs and Expenses
For the third quarter ended February 29, 2000, consolidated Cost of Sales
were $1,336,088 compared to $1,191,206 in the prior year third quarter. Costs of
sales as a percentage of sales were 72% for the third quarter ended February 29,
2000 compared to 65% for the prior year third quarter. The decrease in gross
profit margin was attributable to increased manufacturing labor costs as well as
manufacturing fixed costs as a result of building up inventory in anticipation
of increased fourth quarter sales.
For the nine months ended February 29, 2000, consolidated Cost of Sales were
$3,853,246 compared to $3,932,381 for the same period in the previous year.
Costs of sales as a percentage of sales were 69% for the nine months ended
February 29, 2000 compared to 64% for the prior comparable period. Lancer cost
of sales as a percentage of sales increase was primarily due to fixed costs of
the Mexicali location not producing at full capacity. Cost of goods as a
percentage of sales at Biomerica increased due to increased manufacturing labor
costs as well as manufacturing fixed costs resulting in a larger percentage of
sales due to the lower sales volume and build up of inventory for fourth quarter
sales.
For the third quarter ended February 29, 2000, Selling, General and
Administrative expenses were $1,385,779 compared to $746,100 in the prior year
third quarter. The increase is primarily attributable to the operating costs of
the e-health division.
For the nine months ended February 29, 2000, consolidated Selling, General
and Administrative expenses were $4,286,551 compared to $2,331,495 for the same
period in the previous year. The increases are primarily attributable to the
operating costs of the e-health division. Included in the nine-month cost was
$660,134 in one-time, non-cash expenses related to the issuance of options and
warrants. Also, AIT had increased expenses of $85,878 for the nine months and
$20,799 for the three months due higher costs related to legal and accounting
costs associated with the filing of AIT's Form 10-SB, Form 10-KSB and Form
10-QSBs, which were not required to be filed in the prior fiscal year.
For the third quarter ended February 29, 2000, Research and Development
costs were $136,673 compared to $107,040 in the prior year third quarter.
Increases at Biomerica were primarily attributable to the costs associated with
the development of the ReadyScript software.
For the nine months ended February 29, 2000, consolidated Research and
Development costs were $467,882 compared to $336,674 for the same period in the
previous year an increase of $131,208 (39%). Increases were primarily
attributable to the costs associated with the development of the ReadyScript
software.
Interest expense increased by $3,631 (38%) for the nine months and by $68
(1%) for the three months due to borrowings against the line of credit and an
increase in the interest rate at Lancer.
Liquidity and Capital Resources
As of February 29, 2000, the Company had cash and available-for-sale
securities in the amount of $1,745,279. Working capital was $5,214,497.
Management is currently exploring capital raising options to increase our cash
reserves to fund the build out of the e-health business until that business is
able to sustain itself from continuing operations.
18
<PAGE>
At February 29, 2000, Lancer had a $500,000 line of credit with a bank.
Borrowings are made at prime plus 1.25% (10.0% at February 29, 2000) and are
limited to specified percentages of eligible accounts receivable. The unused
portion available under the line of credit at February 29, 2000 was $103,297.
The line of credit expires on November 3, 2000. Lancer is not required to
maintain compensating balances in connection with this borrowing arrangement.
The line of credit is collateralized by substantially all the assets of
Lancer including inventories, receivables, and equipment. The lending agreement
for the line of credit requires, among other things, that Lancer maintain a
tangible net worth of $2,800,000 and a debt to tangible net worth ratio of no
more than 1 to 1.
19
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. Inapplicable.
Item 2. CHANGES IN SECURITIES. Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable.
Item 5. OTHER INFORMATION. Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 4, 2000
BIOMERICA, INC.
By: /s/ Zackary S. Irani
------------------------
Zackary S. Irani, President
and Chief Executive Officer
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