FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended November 30, 2000 Commission File No. 0-8765
----------------- ------
BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (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: 4,858,112 shares of common
Stock as of January 19, 2001.
<PAGE>
BIOMERICA, INC.
INDEX
<TABLE>
<CAPTION>
PART I
Item 1. Financial Statements:
<S> <C> <C>
Statements of Operations and Comprehensive Loss (unaudited) - Six Months and
Three Months Ended November 30, 2000 and 1999..................................................2 & 3
Balance Sheet (unaudited) - November 30, 2000..................................................4 & 5
Statements of Cash Flows (unaudited)
Six Months Ended November 30, 2000 and 1999....................................................6 & 7
Statement of Changes in Shareholders' Equity (unaudited)
Six Months Ended November 30, 2000.................................................................8
Notes to Financial Statements...................................................................9-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data....................................................................14-16
PART II Other Information.................................................................................17
Signatures........................................................................................18
</TABLE>
i
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
<CAPTION>
Six Months Ended Three Months Ended
November 30, November 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .................................... $ 4,253,732 $ 3,770,328 $ 2,282,516 $ 1,945,744
Cost of sales ........................... 2,575,171 2,517,158 1,264,659 1,241,184
------------ ------------ ------------ ------------
Gross profit ............................ 1,678,561 1,253,170 1,017,857 704,560
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative ..... 2,556,105 2,900,772 1,290,229 1,277,416
Research and development ................ 763,628 331,209 364,938 180,701
------------ ------------ ------------ ------------
3,319,733 3,231,981 1,655,167 1,458,117
------------ ------------ ------------ ------------
Other Expense (income):
Interest expense ........................ 9,860 8,171 4,653 4,466
Other income, net ....................... (14,805) (230,853) (3,176) (27,244)
------------ ------------ ------------ ------------
Loss before minority interest in net
losses of consolidated subsidiaries
and income taxes ........................ (1,636,227) (1,756,129) (638,787) (730,779)
Minority interest in net losses (profits) of
consolidated subsidiaries ............... 118,716 96,616 47,560 56,066
------------ ------------ ------------ ------------
Loss before taxes ............................ (1,517,511) (1,659,513) (591,227) (674,713)
Income Taxes ................................. 1,600 2,400 800 0
------------ ------------ ------------ ------------
Net loss ..................................... $(1,519,111) $(1,661,913) $ (592,027) $ (674,713)
2
<PAGE>
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED), CONTINUED
Six Months Ended Three Months Ended
November 30, November 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on available-for-sale
securities .............................. 608 (2,735) 9,162 (4,954)
------------ ------------ ------------ ------------
Comprehensive loss ......................... $(1,518,503) $(1,664,648) $ (582,866) $ (679,667)
============ ============ ============ ============
Per share data:
Net loss (basic)
$ (.32) $ (.37) $ (.12) $ (.15)
Net loss (diluted) ...................... $ (.32) $ (.37) $ (.12) $ (.15)
============ ============ ============ ============
Weighted average number of common and
common equivalent shares:
Basic and diluted ....................... 4,694,734 4,501,766 4,814,213 4,534,522
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>
November 30,
2000
-----------
<S> <C>
Assets
Current Assets
Cash and cash equivalents ........................................... $ 247,004
Available for-sale securities ....................................... 83,614
Accounts receivable, less allowance for doubtful accounts of $179,965 1,630,739
Inventory, net ...................................................... 2,950,397
Notes receivable .................................................... 44,379
Prepaid expenses and other, net ..................................... 473,075
-----------
Total Current Assets .......................................... 5,429,208
Inventory, non-current .................................................. 21,405
Land held for investment ................................................ 46,000
Property and Equipment, net of accumulated depreciation and amortization 512,850
Intangible assets, net of accumulated amortization ...................... 341,925
Other Assets ............................................................ 6,756
-----------
$6,358,144
===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED), CONTINUED
<CAPTION>
November 30,
2000
-------------
<S> <C>
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit ......................................................... $ 220,000
Accounts payable and accrued liabilities ............................... 1,142,174
Convertible promissory notes ........................................... 503,000
Accrued compensation ................................................... 453,635
-------------
Total Current Liabilities ......................................... 2,318,809
-------------
Minority interest ........................................................... 2,007,361
-------------
Shareholders' Equity
Preferred stock, $0.08 par value, 5,000,000 authorized, none outstanding -
Common stock, $0.08 par value authorized 25,000,000 shares,
issued and outstanding 4,858,112 .................................... 388,648
Additional paid-in-capital ............................................. 16,261,676
Accumulated other comprehensive loss ................................... (3,715)
Accumulated deficit .................................................... (14,614,635)
-------------
Total Shareholders' Equity .................................................. 2,031,974
-------------
Total Liabilities and Shareholders' Equity .................................. $ 6,358,144
=============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................................... $(1,519,111) $(1,661,913)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............................ 110,663 125,763
Realized gain on sale of available for-sale securities ... (6,412) (1,113)
Minority interest in net loss of consolidated subsidiaries (118,716) (96,616)
Common stock issued for services rendered ................ 248,489 16,000
Provision for losses on accounts receivable .............. (16,829)
Options issued for services rendered ..................... 58,378 715,230
Changes in current assets and liabilities:
Accounts Receivable .................................... 88,025 112,167
Inventories ............................................ (90,113) (61,664)
Prepaid expenses and other current assets .............. 5,451 (153,525)
Accounts payable and other accrued liabilities ......... (171,873) 128,120
Accrued compensation ................................... 100,120 (119,996)
------------ ------------
Net cash used in operating activities ......................... (1,311,928) (997,547)
------------ ------------
Cash flows from investing activities:
Sale of available for-sale securities .................... 22,180 20,417
Increase in notes receivable ............................. (9,385) 13,491
Purchases of property and equipment ...................... (112,136) (159,828)
Other assets ............................................. 15,161 124,073
Purchases of intangible assets ........................... (16,038) -
------------ ------------
Net cash used in investing activities ......................... (100,218) (1,847)
------------ ------------
Cash flows from financing activities:
Private placement net of offering costs .................. 153,922 1,965,557
Repurchase by minority interests ......................... - (94,800)
Exercise of stock options ................................ 6,018 18,941
Increase in line of credit ............................... 60,000 40,000
Shareholder loan payment ................................. - 1,000
Proceeds from issuance of convertible promissory notes ... 805,000 -
------------ ------------
6
<PAGE>
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(CONTINUED)
SIX MONTHS ENDED NOVEMBER 30, 2000 AND 1999
2000 1999
------------ ------------
Net cash provided by financing activities ..................... 1,024,940 1,930,698
------------ ------------
Net increase in cash and cash equivalents ..................... (387,206) 931,304
Cash at beginning of period ................................... 634,210 1,669,205
------------ ------------
Cash at end of period ......................................... $ 247,004 $ 2,600,509
============ ============
The accompanying notes are an integral part of these statements.
</TABLE>
7
<PAGE>
<TABLE>
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000
<CAPTION>
Common Stock Accumulated
---------------------------- Additional Other
Number of Paid-In Comprehensive Accumulated
Shares Amount Capital Income (Loss) (Deficit) Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at May 31, 2000 4,575,070 $ 366,005 $ 15,529,421 $ (4,323) $(13,095,524) $ 2,795,579
Compensation expense in
connection with options - - 58,378 - - 58,378
and warrants granted
Stock issued for
Consulting 159,091 12,727 232,898 - - 245,625
Change in unrealized
gain on available
for sale securities - - - 608 - 608
Exercise of stock options 7,000 560 5,458 - - 6,018
Stock issued in satisfaction 2,083 167 2,697 - - 2,864
of payable
Private placement, net of 114,868 9,189 144,733 - - 153,922
issuance costs of $0
Conversion of a
subsidiary debt into
common stock of the
subsidiary - - 288,091 - - 288,091
Net loss - - - - (1,519,111) (1,519,111)
------------- ------------- ------------- ------------- ------------- -------------
Balance at
November 30, 2000 4,858,112 $ 388,648 $ 16,261,676 $ (3,715) $(14,614,635) $ 2,031,974
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
November 30, 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 $3,715 at November 30, 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. For all periods presented, no common stock equivalents have
been included in the computation of diluted earnings per share as they
were determined to be anti-dilutive.
9
<PAGE>
(8) Please refer to Note 11 to the Notes to Consolidated Financial
Statements for the Years Ended May 31, 2000 and 1999 as reported in the
Form 10-KSB filed with the Securities and Exchange Commission on
September 13, 2000 for information on Convertible Promissory Notes
totaling $805,000 ($715,000 as of September 12, 2000) entered into by
the ReadyScript subsidiary during the six months ended November 30,
2000, and raised an additional $30,000 subsequent to that date. As of
November 30, 2000, $302,000 of that debt had been converted to 579,351
shares of ReadyScript common stock. The Company recorded an increase to
additional paid-in-capital of $288,091 as a result of this conversion.
(9) 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 Six Months Ended November 30, 2000
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
<S> <C> <C> <C>
Basic loss per share -
Loss attributable to common
Shareholders ........................... $(1,519,111) 4,694,734 $ (.32)
============
Effect of dilutive securities - Options....... - -
------------ ------------
Diluted loss per share -
Loss attributable to common share-
Holders plus assumed conversions ....... $(1,519,111) 4,694,734 $ (.32)
============ =========== ============
For the Six Months Ended November 30, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic loss per share -
Loss attributable to common
Shareholders............................ $(1,661,913) 4,501,766 $ (.37)
============
Effect of dilutive securities - Options....... - -
------------ ------------
Diluted loss per share -
Loss attributable to common share-
Holders plus assumed conversions........ $(1,661,913) 4,501,766 $ (.37)
============ ============ ============
10
<PAGE>
For the Three Months Ended November 30, 2000
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss attributable to common
Shareholders............................ $ (592,027) 4,814,213 $ (.12)
============
Effect of dilutive securities - Options....... - -
------------ ------------
Diluted EPS -
Loss attributable to common share-
Holders plus assumed conversions........ $ (592,027) 4,814,213 $ (.12)
============ ============ ============
For the Three Months Ended November 30, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss attributable to common
Shareholders............................ $ (674,713) 4,534,522 $ (.15)
============
Effect of dilutive securities - Options....... - -
------------ ------------
Diluted EPS -
Loss attributable to common share-
Holders plus assumed conversions........ $ (674,713) 4,534,522 $ (.15)
============ ============ ============
</TABLE>
11
<PAGE>
(10) Financial information about foreign and domestic operations and export
sales is as follows:
<TABLE>
<CAPTION>
For the Six Months Ended
11/30/00 11/30/99
----------- -----------
<S> <C> <C>
Revenues from sales to unaffiliated customers:
United States $ 2,346,000 $ 2,184,000
Asia 1,026,000 140,000
Europe 214,000 741,000
South America 109,000 205,000
Other 559,000 500,000
----------- -----------
$ 4,254,000 $ 3,770,000
=========== ===========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
Operating profit (loss):
United States $(1,559,000) $(1,739,000)
Asia (14,000) (31,000)
Europe (26,000) (108,000)
South America (8,000) (25,000)
Other (34,000) (76,000)
------------ ------------
$(1,641,000) $(1,979,000)
============ ============
</TABLE>
(11) The Company must maintain a minimum bid price and certain
capitalization levels as required by the NASD Marketplace Rule 4310(c).
NASDAQ advised the Company on January 3, 2001, that it was not in
compliance with the minimum bid price and that the Company was being
afforded a ninety-day grace period, until April 3, 2001, to remedy this
deficiency. If the deficiency is not remedied by then the Company's
stock will trade under the Bulletin Board rather than on the NASDAQ
SmallCap Stock Market.
(12) During the six months ended November 30, 2000, the subsidiary, Lancer
Orthodontics, Inc., granted options to purchase 157,000 shares of its
common stock at an exercise price of $.875 to certain employees of it,
with one half vested immediately and the other half vesting one year
from the date of grant. The options have a term of five years.
(13) During the six months ended November 30, 2000, the subsidiary,
ReadyScript, Inc., granted options to purchase 1,574,287 shares of its
common stock at an exercise price of $.25 per share to certain
employees and directors. The options vest at different times over a
three year period with all options expiring five years from date of
grant.
(14) During the six months ended November 30, 2000, the Company sold 114,868
shares of its common stock at a price of $1.34 per share to various
employees and outside investors. Each investor also received one
warrant for each two shares purchased. The warrants have an exercise
price of $2.00 per share with one-half vesting immediately and the
other half vesting one year from date of grant. The warrants expire
five years from date of grant.
12
<PAGE>
(15) During the six months ended November 30, 2000, the Company issued
159,091 shares of its common stock for consulting services related to
the ReadyScript division.
(16) During the six months ended November 30, 2000, the Company issued 2,083
shares of its restricted common stock in lieu of cash.
(17) As of November 30, 2000, the Company had cash and available-for-sale
securities in the amount of $330,618 and working capital of $3,110,399.
Cash and working capital totaling $185,631 and $2,600,392,
respectively, relates to the Lancer subsidiary. Of the Company's
$2,031,974 net worth, 44%, or $893,367, 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 six-month 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. During the first quarter the Board of Directors
of the Company decided that the ReadyScript subsidiary would no longer
be funded by Biomerica, Inc. or its other subsidiaries. However,
subsequent to such decision an immaterial advance was forwarded to
ReadyScript as the Company decided it was in the best interest of the
Company to advance further funds in order to protect the investment
while outside funding is being sought. ReadyScript currently is trying
to raise additional capital through a private placement memorandum and
through the issuance of convertible debt. During the first six months
ReadyScript raised $805,000 in convertible debt and raised an
additional $30,000 subsequent to that. 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 $500,000 line of credit of which $0 was drawn at November
30, 2000.
13
<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 $4,253,732 for the six months
ended November 30, 2000 as compared to $3,770,328 for the same period in the
previous year. This represents an increase of $483,404, or 13%. For the quarter
then ended sales were $2,282,516 as compared to $1,945,744 for the same period
in the prior fiscal year. This represents an increase of $336,771, or 17%. The
increases for the two quarters were primarily attributable to sales increases at
Biomerica of the EZ Detect product and to other diagnostic products.
Cost of sales for the six months decreased as a percentage of sales
from 66.8% to 60.5% and for the three months decreased from 63.8% to 55.4%. Most
of the decrease was due to higher sales in relation to some fixed costs and
operational efficiencies.
Selling, general and administrative costs decreased by $344,667, or 12%
for the six months and increased by $12,813, or 1% for the three months ended
November 30, 2000. Lancer had decreased selling, general and administrative
costs of $107,804 for the six months and $36,581 for the three months due to a
decrease in labor costs and commissions.
Research and development increased by $432,419, or 131% for the six
months and $184,236, or 102% for the three months. Most of the increase was due
to the research and development of the handheld point-of-care-technology at
ReadyScript.
14
<PAGE>
Interest expense increased by $1,689 for the six months and $187 for
the three months 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.
The following is a breakdown of the income or losses for the six and
three month periods by company:
Six Months Three Months
------------ ------------
Biomerica diagnostics $ 30,753 $ 78,081
Lancer Orthodontics (52,821) (21,196)
Allergy Immuno Technologies (31,378) (16,202)
ReadyScript (1,465,665) (632,711)
------------ ------------
Total loss $(1,519,111) $ (592,028)
============ ============
At November 30, 2000, the Company retained a 30.78% interest of Lancer
Orthodontics, a 100% interest in Allergy Immuno Technologies and a 100% interest
ReadyScript. 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 November 30, 2000, the Company had cash and available-for-sale
securities in the amount of $330,618 and working capital of $3,110,399. Cash and
working capital totaling $185,631 and $2,600,392, respectively, relates to the
Lancer subsidiary. Of the Company's $2,031,974 net worth, 44%, or $893,367
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 six-month 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. During the first
quarter the Board of Directors of the Company decided that the ReadyScript
subsidiary would no longer be funded by Biomerica, Inc. or its other
subsidiaries. However, subsequent to such decision an immaterial advance was
forwarded to ReadyScript as the Company decided it was in the best interest of
the Company to advance further funds in order to protect the investment while
outside funding is being sought. ReadyScript currently is trying to raise
additional capital through a private placement memorandum and through the
issuance of convertible debt. During the first six months ReadyScript raised
$805,000 in convertible debt and raised an additional $30,000 subsequent to
that. 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 of which $0 was drawn at November 30, 2000.
15
<PAGE>
During the six months ended November 30, 2000, the Company used cash in
operations of $1,311,928, primarily as a result of losses at the ReadyScript
subsidiary. This compares to cash used in operations of $997,547 in the same
period in the prior fiscal year. The Company generated cash flow from financing
activities of $1,024,940 during the six months, primarily due to $805,000 in
convertible promissory notes entered into by the ReadyScript subsidiary. The
Company recorded an increase to additional paid-in capital of $288,091 as a
result of this conversion as described in the accompanying financial statements.
During the six months ended November 30, 1999, the Company generated cash flow
from financing activities of $1,930,698 as a result of the sale of common stock,
net of offering costs.
During the six months ended November 30, 2000, the Company sold 114,868
shares of its common stock at a price of $1.34 per share to various employees
and outside investors. Each investor also received one warrant for each two
shares purchased. The warrants have an exercise price of $2.00 per share with
one-half vesting immediately and the other half vesting one year from date of
grant. The warrants expire five years from date of grant.
During the six months ended November 30, 2000, the Company issued
159,091 shares of its common stock for consulting services related to the
ReadyScript division.
During the six months ended November 30, 2000, the Company issued 2,083
shares of its restricted common stock in satisfaction of a payable.
At November 30, 2000, Lancer had a $300,000 line of credit with a bank.
Borrowings are made at prime plus 1.25% (10.75% at November 30, 2000) and are
limited to specified percentages of eligible accounts receivable. The unused
portion available under the line of credit at November 30, 2000 was $80,000. The
line of credit expires on September 10, 2001. 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 November 30, 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. As of November 30, 2000, $0
had been drawn on that line of credit.
<PAGE>
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.
The Annual Meeting of the Company's stockholders was held on November
13, 2000. The only matter voted on was election of directors, as set forth in
the proxy statement dated September 28, 2000, as filed with the Securities and
Exchange Commission pursuant to Rule 14 under the Securities Exchange Act of
1934. The following summarizes the voting:
Name For Vote Withheld
---- --- -------------
Allen Barbieri 4,185,991 81,844
Dr. Carlos St. Aubyn Beharie 4,185,991 81,844
David Burrows 4,185,893 81,942
Dr. Francis Cano 4,185,893 81,942
Zackary Irani 4,186,143 81,844
Janet Moore 4,185,844 81,991
Dr. Robert Orlando 4,186,143 81,692
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.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 19, 2001
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------------
Zackary Irani
Chief Executive Officer
