UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 2002 COMMISSION FILE NUMBER: 0-8765
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BIOMERICA, INC.
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(Small Business Issuer in its Charter)
DELAWARE 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 MONROVIA AVENUE, NEWPORT BEACH, CA 92663
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number: (949) 645-2111
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Securities registered under Section 12(b) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
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NONE OTC-Bulletin Board
Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
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COMMON STOCK, PAR VALUE $0.08
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES[x] NO[_]
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of issuer's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X]
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State issuer's revenues for its most recent fiscal year: $8,598,000.
State the aggregate market value of the voting and non-voting stock held by non-
affiliates of the issuer (based upon 4,337,437 shares held by non-affiliates and
the closing price of $.56 per share for Common Stock in the over-the-counter
market as of May 31, 2002): $2,428,965.
Number of shares of the issuer's common stock, par value $0.08, outstanding as
of August 27 2002: 5,172,364.
DOCUMENTS INCORPORATED BY REFERENCE: The issuer's proxy statement for its 2002
Annual Meeting of Stockholders is incorporated into Part III hereof. Also
incorporated by reference is the Annual Report on Form 10-KSB for the fiscal
year ended May 31, 2002, for Lancer Orthodontics, Inc.
Transitional Small Business Disclosure Format YES [_] NO [X]
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2
PART I*
ITEM 1. DESCRIPTION OF BUSINESS
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THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE HARBOR"
FOR FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION CONTAINED HEREIN (AS WELL
AS INFORMATION INCLUDED IN ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE OR
TO BE MADE BY BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS
STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND SUCCESS
OF CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION INVOLVES
IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT ANTICIPATED
RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS MAY DIFFER MATERIALLY
FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF
BIOMERICA. THE POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS. THESE RISKS AND UNCERTAINTIES
ALSO INCLUDE THE SUCCESS OF THE COMPANY IN RAISING NEEDED CAPITAL, THE ABILITY
OF THE COMPANY TO MAINTAIN REQUIREMENTS TO BE LISTED ON NASDAQ, THE CONTINUAL
DEMAND FOR THE COMPANY'S PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE
MARKETPLACE, AVAILABILITY OF RAW MATERIALS, HEALTH CARE REGULATIONS AND THE
STATE OF THE ECONOMY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF, AND
THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.
BUSINESS
OVERVIEW
THE COMPANY
Biomerica, Inc. ("Biomerica", the "Company", "we" or "our") was
incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc. We
changed our corporate name in February 1983 to NMS Pharmaceuticals, Inc., and in
November 1987 to Biomerica, Inc. During fiscal 2002 we had three subsidiaries,
Lancer Orthodontics, Inc. ("Lancer"), an international manufacturer of
orthodontics products, Allergy Immuno Technologies, Inc.("AIT"), which is
engaged in providing specialized laboratory testing services and ReadyScript,
Inc. ("ReadyScript"), which developed a wireless handheld point of care system
for physicians, but which operations were discontinued during fiscal 2001. On
May 30, 2002, Biomerica sold its controlling interest in AIT. All subsidiaries
are majority-controlled subsidiaries.
In June 1999, we raised $2 million in equity to develop the infrastructure
of our e-health business, now incorporated as ReadyScript, Inc. From June 1999
until April 2001 we used the proceeds for developing an on-line drugstore and
ReadyScript's infrastructure (a wireless medication management system that
enables physicians to wirelessly transmit legible, pre-qualified
formulary-compliant prescription orders directly to the patient's choice of
pharmacy).
The Company adopted a formal plan in April 2001 to discontinue operations
of its ReadyScript subsidiary. The sale of some of the ReadySript assets is
being discussed with various parties. The subsidiary is being reported in the
financial statements as a discontinued operation because it is no longer an
operating entity. The Company adopted a formal plan in March, 2002, to
discontinue operations of AIT. On May 30, 2002, we sold 13,350,000 shares of AIT
common stock held by us, representing 98.1% of the shares we owned in AIT, to a
third party in exchange for $212,500. The operations of AIT are being reported
in the financial statements as discontinued operations. We continued to hold
255,575, or 1.4%, shares of AIT common stock.
3
OUR MEDICAL DEVICE BUSINESS
Our existing medical device business is conducted through two companies:
(1) Biomerica, Inc., engaged in the diagnostic products market and (2) Lancer
Orthodontics, Inc., engaged in the orthodontic products market.
BIOMERICA - DIAGNOSTIC PRODUCTS
Biomerica develops, manufactures, and markets medical diagnostic products
designed for the early detection and monitoring of chronic diseases and medical
conditions. The Company's medical diagnostic products are sold in three markets:
1) clinical laboratories, 2) physicians offices and 3) over-the-counter
(drugstores). Our diagnostic test kits are used to analyze blood or urine from
patients in the diagnosis of various diseases and other medical complications,
or to measure the level of specific hormones, antibodies, antigens or other
substances which may exist in the human body in extremely small concentrations.
Technological advances in medical diagnostics have made it possible to
perform diagnostic tests within the home and the physician's office, rather than
in the clinical laboratory. One of our main objectives has been to develop and
market rapid diagnostic tests that are accurate, employ easily obtained
specimens, and are simple to perform without instrumentation. Our
over-the-counter and professional rapid diagnostic products help to manage
existing medical conditions and may save lives through prompt diagnosis and
early detection. Until recently, tests of this kind required the services of
medical technologists and sophisticated instrumentation. Frequently, results
were not available until at least the following day. We believe that rapid point
of care tests are as accurate as laboratory tests when used properly, require no
instrumentation, give reliable results in minutes and can be performed with
confidence in the home or the physician's office. The majority of our
over-the-counter rapid tests are FDA cleared.
Our clinical laboratory diagnostic products include tests for thyroid
conditions, yeast infections, H. pylori, and others. These diagnostic test kits
utilize enzyme immunoassay or radioimmunoassay technology. Some of these
products have not yet been submitted for clearance by the FDA for diagnostic
use, but can be sold in various foreign countries.
LANCER ORTHODONTICS, INC. -- ORTHODONTIC PRODUCTS
Lancer is engaged in developing, manufacturing, and selling orthodontic
products. Its products are sold worldwide through a direct sales force and
distributors.
Lancer's product line includes preformed bands, direct bonding pads,
various brackets, buccal tubes, arch wires, lingual attachments and related
accessories. The foregoing are assembled to standard prescriptions or the
specifications of private label customers. Lancer also markets products which
are purchased and resold to orthodontists, including sealants, adhesives,
elastomerics, headgear cases, retainer cases, and orthodontic wire.
4
Most of Lancer's manufacturing and shipping operations are located in
Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more
effectively worldwide. Lancer maintains its headquarters in San Marcos,
California where it houses administration, engineering, sales and marketing, and
customer services.
DISCONTINUED OPERATIONS
The Company's fiscal 2002 and 2001 losses were partially the result of its
investment in ReadyScript. The ReadyScript subsidiary was a development-stage
enterprise and required the raising of a significant amount of capital to fund
its short-term working capital needs. The ReadyScript operations were
discontinued in May 2001. The net assets and operating results of ReadyScript
are shown separately in the accompanying consolidated financial statements as
discontinued operations and are held for sale.
On May 30, 2002, Biomerica received $212,500 for its interest in AIT and
recorded a gain of $224,481 on the sale. The gain from sale and loss from
operations are included in discontinued operations in the accompanying statement
of operations for the year ended May 31, 2002. Certain reclassifications have
been made to the 2001 balances to conform to the 2002 presentation for
discontinued operations.
PRODUCTION
All of our diagnostic test kits are processed and assembled at our
facilities in Newport Beach, California. Production of diagnostic tests can
involve formulating component antibodies and antigens in specified
concentrations, attaching a tracer to the antigen, filling components into
vials, packaging and labeling. We continually engage in quality control
procedures to assure the consistency and quality of our products and to comply
with applicable FDA regulations.
All manufacturing production is regulated by the FDA Good Manufacturing
Practices for medical devices. We have an internal quality control unit that
monitors and evaluates product quality and output. In addition, we employ a
qualified external quality assurance consultant who monitors procedures and
provides guidance in conforming with the Good Manufacturing Practices
regulations. We either produce our own antibodies and antigens or purchase these
materials from qualified vendors. We have alternate, approved sources for raw
materials procurement and we do not believe that material availability in the
foreseeable future will be a problem.
5
During fiscal 2002 Lancer converted its Mexican assets and obligations to
its own division, a Mexican corporation named Lancer Orthodontics de Mexico
(Lancer de Mexico). This division administers services previously provided by an
independent manufacturing contractor. A new lease was negotiated effective April
1, 2001, for the 16,000 square foot facility used for Lancer's Mexican
operations. Utility and Mexican vendor obligations have been converted to the
Lancer de Mexico name. This conversion will eliminate the expense of an
administrative fee and is expected to provide better control in meeting
obligations.
Should Lancer discontinue operations in Mexico, it is responsible for
accumulated employee seniority obligations as prescribed by Mexican law. At May
31, 2002, this obligation was approximately $365,000. Such obligation is
contingent in nature and accordingly has not been accrued in Lancer's financial
statements.
RESEARCH AND DEVELOPMENT
Biomerica is engaged in research and development to broaden its diagnostic
product line in specific areas. Research and development expenses include the
costs of materials, supplies, personnel, facilities and equipment. Lancer is
engaged in development programs to improve and expand its orthodontic products
and production techniques. Lancer consults frequently with practicing
orthodontists.
Research and development expenses incurred by Biomerica for the years ended
May 31, 2002 and 2001 aggregated approximately $160,000 and $322,000,
respectively. These expenses included approximately $4,000 and $72,000 for
fiscal 2002 and 2001, respectively, for Lancer's product development.
MARKETS AND METHODS OF DISTRIBUTION
Biomerica has approximately 300 current customers for its diagnostic
business, of which approximately 60 are distributors and the balance are
hospital and clinical laboratories, medical research institutions, medical
schools, pharmaceutical companies, chain drugstores, wholesalers and physicians'
offices.
We rely on unaffiliated distributors, advertising in medical and trade
journals, exhibitions at trade conventions, direct mailings and an internal
sales staff to market our diagnostic products. We target three main markets: (a)
clinical laboratories, (b) physicians' offices, and (c) over-the-counter drug
stores. Separate marketing plans are utilized in targeting each of the three
markets.
6
Lancer sells its products directly to orthodontists through company-paid
sales representatives in the United States. At the end of its fiscal year,
Lancer had seven sales representatives, all in the United States, all of whom
are employees of Lancer.
In selected foreign countries, Lancer sells its products directly to
orthodontists through its international marketing division. Lancer also sells
its products through distributors in certain foreign countries and to other
companies on a private label basis. Lancer has entered into a number of
distributor agreements whereby it granted the marketing rights to its products
in certain sales territories in Mexico, Central America, South America, Europe,
Canada, Australia, and Japan. The distributors complement the international
marketing department which was established in 1982 and currently employs three
people.
Lancer also markets products which are purchased and resold to
orthodontists, including sealants, adhesives, elastomerics, headgear cases,
retainer cases and orthodontic wire.
No customer accounted for 10% or more of Lancer's or Biomerica's sales in
the fiscal years ended May 31, 2002 and 2001.
BACKLOG
At May 31, 2002 and 2001 Biomerica had a backlog of $122,000 and $80,000
respectively. As of May 31, 2002 and 2001, Lancer had a backlog of $84,000 and
$167,000, respectively.
RAW MATERIALS
The principal raw materials utilized by us consist of various chemicals,
serums, reagents, radioactive isotopes and packaging supplies. Almost all of our
raw materials are available from several sources, and we are not dependent upon
any single source of supply or a few suppliers. At May 31, 2002, one company
accounted for 17.3% of accounts payable. No company accounted for more than 10%
of purchases for the years ended May 31, 2002 and 2001.
We maintain inventories of antibodies and antigens as components for our
diagnostic test kits. Due to a limited shelf life on some products such as the
RIA kits, finished kits are prepared as required for immediate delivery of
pending and anticipated orders. Sales orders are normally processed on the day
of receipt.
The principal raw materials used by Lancer in the manufacture of its
products include: stainless steel, which is available from several commercial
sources; nickel titanium, which is available from three sources; and lucolux
translucent ceramic, which is currently only available from one source, General
Electric, and is purchased on open account. Ceramic material similar to General
Electric's lucolux translucent ceramic is available from other sources. Lancer
had no difficulty in obtaining an adequate supply of raw materials during its
2002 fiscal year, and does not anticipate that there will be any interruption or
cessation of supply in the future.
7
COMPETITION
Immunodiagnostic products are currently produced by more than 100
companies, a majority of which are located within the United States. Biomerica
and its subsidiaries are not a significant factor in the market.
Our competitors vary greatly in size. Many are divisions or subsidiaries of
well-established medical and pharmaceutical concerns which are much larger than
Biomerica and expend substantially greater amounts than we do for research and
development, manufacturing, advertising and marketing.
The primary competitive factors affecting the sale of diagnostic products
are uniqueness, quality of product performance, price, service and marketing.
The prices for our products compare favorably with those charged by most of our
competitors.
We believe we compete primarily on the basis of our reputation for the
quality of our products, the speed of our test results, the unique niches we
fill in the market, our patent position, and our prompt shipment of orders. We
offer a broader range of products than many competitors of comparable size, but
to date have had limited marketing capability. We are working on expanding this
capability through strategic cooperations with larger companies and
distributors.
Lancer encounters intense competition in the sale of orthodontic products.
Lancer's management believes that Lancer's seven major competitors are: Unitek,
a subsidiary or division of 3M; "A" Company and Ormco, subsidiaries or divisions
of Sybron Dental Specialities; RMO Inc., a private company; American
Orthodontics, a private company; GAC, a private company; and Dentaurum, a
foreign company. Lancer estimates that these seven competitors account for
approximately 80% of the orthodontic products manufactured and sold in the
United States. Lancer's management also believes that each of these seven
competitors is larger than Lancer, has more diversified product lines and has
financial resources exceeding those of Lancer. While there is no assurance that
Lancer will be successful in meeting the competition of these seven major
competitors or other competitors, Lancer has, in the past, successfully competed
in the orthodontic market and has achieved recognition of both its name and its
products.
GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS
As part of our diagnostic business, we sell products that are legally
defined to be medical devices. As a result, we are considered to be a medical
device manufacturer, and as such are subject to the regulations of numerous
governmental entities. These agencies include the Food and Drug Administration
(the "FDA"), the United States Drug Enforcement Agency (the "DEA"),
Environmental Protection Agency, Federal Trade Commission, Occupational Safety
and Health Administration, U.S. Department of Agriculture ("USDA"), and Consumer
Product Safety Commission. These activities are also regulated by various
agencies of the states and localities in which our products are sold. These
regulations govern the introduction of new medical devices, the observance of
certain standards with respect to the manufacture and labeling of medical
devices, the maintenance of certain records and the reporting of potential
product problems and other matters.
8
The Food, Drug & Cosmetic Act of 1938 (the "FDCA") regulates medical
devices in the United States by classifying them into one of three classes based
on the extent of regulation believed necessary to ensure safety and
effectiveness. Class I devices are those devices for which safety and
effectiveness can reasonably be ensured through general controls, such as device
listing, adequate labeling, pre-market notification and adherence to the Quality
System Regulation ("QSR") as well as Medical Device Reporting (MDR), labeling
and other regulatory requirements. Some Class I medical devices are exempt from
the requirement of Pre-Market Approval ("PMA") or clearance. Class II devices
are those devices for which safety and effectiveness can reasonably be ensured
through the use of special controls, such as performance standards, post-market
surveillance and patient registries, as well as adherence to the general
controls provisions applicable to Class I devices. Class III devices are devices
that generally must receive pre-market approval by the FDA pursuant to a
pre-market approval application to ensure their safety and effectiveness.
Generally, Class III devices are limited to life-sustaining, life-supporting or
implantable devices. However, this classification can also apply to novel
technology or new intended uses or applications for existing devices. The
Company's products are either Class I or Class II medical devices.
If the FDA finds that the device is not substantially equivalent to a
predicate device, the device is deemed a Class III device, and a manufacturer or
seller is required to file a PMA application. Approval of a PMA application for
a new medical device usually requires, among other things, extensive clinical
data on the safety and effectiveness of the device. PMA applications may take
years to be approved after they are filed. In addition to requiring clearance or
approval for new medical devices, FDA rules also require a new 510(k) filing and
review period, prior to marketing a changed or modified version of an existing
legally marketed device, if such changes or modifications could significantly
affect the safety or effectiveness of that device. The FDA prohibits the
advertisement or promotion or any approved or cleared device for uses other than
those that are stated in the device's approved or cleared application.
Pursuant to FDA requirement, we have registered our manufacturing facility
with the FDA as a medical device manufacturer, and listed the medical devices we
manufacture. We are also subject to inspection on a routine basis for compliance
with FDA regulations. This includes the QSR, which, unless the device is a Class
I exempt device, requires that we manufacture our products and maintain our
documents in a prescribed manner with respect to issues such as design controls,
manufacturing, testing and validation activities. Further, we are required to
comply with other FDA requirements with respect to labeling, and the MDR
regulation which requires that we provide information to the FDA on deaths or
serious injuries alleged to have been associated with the use of our products,
as well as product malfunctions that are likely to cause or contribute to death
or serious injury if the malfunction were to recur. We believe that we are
currently in material compliance with all relevant QSR and MDR requirements.
In addition, our facility is required to have a California Medical Device
Manufacturing License. The license is not transferable and must be renewed
annually. Approval of the license requires that we be in compliance with QSR,
labeling and MDR regulations. Our license expires on March 16, 2003. We are also
registered with the Department of Health and Human Services, Public Health
Service of the FDA as a Device establishment. This registration expires on
February 28, 2003. We also hold two radioactive materials licenses from the
State of California (both expiring on June 20, 2003), and two permits from the
USDA, one expiring on January 28, 2003 and the other expiring on June 30, 2003.
These licenses are renewed periodically, and to date we have never failed to
obtain a renewal.
9
Through compliance with FDA and California regulations, we can market our
medical devices throughout the United States. International sales of medical
devices are also subject to the regulatory requirements of each country. In
Europe, the regulations of the European Union require that a device have a "CE
Mark" in order to be sold in EU countries. The directive goes into effect
beginning December 2003. The Company has begun the process of complying with the
"CE Mark" directives and believes it will be in full compliance by the time the
directive becomes effective. At present the regulatory international review
process varies from country to country. We, in general, rely upon our
distributors and sales representatives in the foreign countries in which we
market our products to ensure that we comply with the regulatory laws of such
countries. We believe that our international sales to date have been in
compliance with the laws of the foreign countries in which we have made sales.
Exports of most medical devices are also subject to certain FDA regulatory
controls.
Lancer is licensed to design, manufacture, and sell orthodontic appliances
and is subject to the Code of Federal Regulations, Section 21, parts 800-1299.
The FDA is the governing body that assesses and issues Lancer's license to
assure that it complies with these regulations. Lancer is currently licensed,
and its last assessment was in November 1997. Also, Lancer is registered and
licensed with the state of California's Department of Health Services.
Effective June 18, 1998, fifteen major European countries are requiring a
CE (European Community) certification to sell products within their countries.
In order to obtain this CE certification Lancer retained British Standards
Institution (BSI) to evaluate Lancer's quality system. Lancer's quality system
is imaged under International Standards Organization (ISO) 9002. ISO 9002 is an
internationally recognized standard in which companies establish their methods
of operation and commitment to quality. There are 20 clauses for which Lancer
has developed standard operating procedures in accordance with these ISO 9002
requirements.
EN 46002 is the medical device directive (MDD) for the European Community.
Strict standards and clauses within the MDD are required to be implemented to
sell within the European Community. In order for Lancer's medical devices to be
sold within the European Community with the CE Mark, Lancer must fully comply
with the EN 46002 requirements. Lancer has also constructed a technical file
that gives all certifications and risk assessments for Lancer's products as a
medical device (the "Product Technical Files").
With ISO 9002, EN 46002, and the Product Technical Files, Lancer applied
for and was granted certification under ISO 9002, EN 46002, and CE. With the CE
certification, Lancer is now permitted to sell its products within the European
Community. The international ISO 9002 and EN 46002 standards will become
obsolete in December 2003. As a result, Lancer is currently in the process of
updating its Quality Management System for conformance to the new ISO 9000:2000
international quality system standards, as well as the ISO 13485 standard for
medical devices. Compliance with and certification to both ISO 9000:2000 and ISO
13485 is expected in the Spring of 2003.
Biomerica has begun the process of obtaining CE certification and expects
to have it completed by the December 2003 deadline.
10
SEASONALITY OF BUSINESS
The business of the Company and its subsidiaries has not been subject to
significant seasonal fluctuations.
FOREIGN BUSINESS
All of our fixed assets, excluding some of Lancer's assets, are located
within southern California. The following table sets forth the dollar volume of
revenue attributable to sales to domestic customers and foreign customers during
the last two fiscal years for the Biomerica and its consolidated subsidiaries:
Year Ended May 31,
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2002 2001
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U.S. Customers $4,254,000/49.5% $4,599,000/52.0%
Asia 199,000/ 2.3% 221,000/ 2.5%
Europe 2,313,000/26.9% 2,207,000/25.0%
Middle East 449,000/ 5.2% 445,000/ 5.0%
Oceania 393,000/ 4.6% 318,000/ 3.6%
S. America 498,000/ 5.8% 558,000/ 6.3%
Other foreign 492,000/ 5.7% 491,000/ 5.6%
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Total Revenues $8,598,000/100% $8,839,000/100%
We recognize that our foreign sales could be subject to some special or
unusual risks which are not present in the ordinary course of business in the
United States. Changes in economic factors, government regulations and import
restrictions all could impact sales within certain foreign countries. Foreign
countries have licensing requirements applicable to the sale of diagnostic
products which vary substantially from domestic requirements; depending upon the
product and the foreign country, these may be more or less restrictive than
requirements within the United States. We cannot predict the impact that
conversion to the Euro in the European countries may have on Biomerica or
Lancer, if any.
Foreign diagnostic sales are made primarily through a network of over 60
independent distributors in approximately 40 countries.
INTELLECTUAL PROPERTY
We regard the protection of our copyrights, service marks, trademarks and
trade secrets as critical to our future success. We rely on a combination of
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect our proprietary rights in products and
services. We have entered into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
most of our vendors, fulfillment partners and strategic partners to limit access
to and disclosure of proprietary information. We cannot be certain that these
contractual arrangements or the other steps taken by us to protect our
intellectual property will prevent misappropriation of our technology. We have
11
licensed in the past, and expect that we may license in the future, certain of
our proprietary rights, such as trademarks or copyrighted material, to third
parties. While we attempt to ensure that the quality of our product brands is
maintained by such licensees, we cannot be certain that such licensees will not
take actions that might hurt the value of our proprietary rights or reputation.
BRANDS, TRADEMARKS, PATENTS
We registered the tradenames "Fortel," "Isletest," "Nimbus" and "GAP" with
the Office of Patents and Trademarks on December 31, 1985. Our unregistered
tradenames are "EZ-Detect," "CAST," "COT," "EquistiK," "FelistiK," "Tri-Level
Controls," "Tru-Level Controls," "T-Marker Controls," "AllerHalt," "Candiquant,"
"Candigen," "EZ-H.P." and "EZ-PSA." A trademark for "Aware" was issued and
assigned in January, 2002.
On April 4, 1989, Lancer was granted a patent on its CounterForce
design of a nickel titanium orthodontic archwire. On August 1, 1989, Lancer was
granted a patent on its bracket design used in the manufacturing of Sinterline
and Intrigue orthodontic brackets. On September 17, 1996, Lancer was granted a
patent on its method of laser annealing marking of orthodontic appliances. On
March 4, 1997, Lancer was granted a patent on an orthodontic bracket and method
of mounting. All of the patents are for a duration of 17 years. Lancer has
entered into license agreements expiring in 2006 whereby, for cash
consideration, the counter party has obtained the rights to manufacture and
market certain products patented by Lancer. Lancer has also entered into a
number of license and/or royalty agreements pursuant to which it has obtained
rights to certain of the products which it manufactures and/or markets. The
patents and agreements have had a favorable effect on Lancer's image in the
orthodontic marketplace and Lancer's sales.
Lancer has made a practice of selling its products under trademarks and of
obtaining protection for those trademarks in the United States and certain
foreign countries. Lancer considers these trademarks to be of importance in the
operation of its business.
The laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the U.S. Effective copyright, trademark and
trade secret protection may not be available in such jurisdictions. Our efforts
to protect our intellectual property rights may not prevent misappropriation of
our content.
12
EMPLOYEES
As of August 14, 2002, the Company and its subsidiaries employed 63 full-
time employees and 2 part-time employees in the United States. Lancer, through
its Mexican subsidiary, employees approximately 97 people. We also engage the
services of various outside Ph.D. and M.D. consultants as well as medical
institutions for technical support on a regular basis. We are not a party to any
collective bargaining agreement and have never experienced a work stoppage. We
consider our employee relations to be good.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
During fiscal 2002 the company entered into a lease of the existing
facilities of approximately 21,000 square feet of space in Newport Beach,
California for a four year term which expires October 31, 2005. Pursuant to the
lease we pay an annual base rent of $180,000 plus all real estate taxes and
insurance costs. During fiscal 2002 the Company paid a total of approximately
$179,000 in rent for approximately 21,000 square feet of space. The rent shall
escalate by 3% on September 1, 2003. These facilities were used for diagnostic
test kit research and development, manufacturing, marketing and administration.
The facilities are leased from Mrs. Ilse Sultanian and JSJ Management. Ms.
Janet Moore, an officer, director and shareholder of our Company, is a partner
in JSJ Management.
At May 31, 2002, future aggregate minimum lease payments for Biomerica are
as follows:
Years ending May 31
-------------------
2003 $163,248
2004 187,398
2005 188,748
2006 80,598
2007 1,674
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$621,666
On May 16, 2002, the Company signed a one-year sub-lease agreement for
1,392 square foot of office space, included in the above-described lease, for
the sum of $1,642 per month.
Lancer leases its main facility under a non-cancelable operating lease
expiring December 31, 2003, as extended, which requires monthly rentals that
increase annually, from $2,900 per month in 1994 to $6,317 per month in 2004.
The lease expense is being recognized on a straight-line basis over the term of
the lease. The excess of the expense recognized over the cash paid aggregates
$8,894 at May 31, 2002, and is included in accrued liabilities in the
accompanying balance sheet. Total rental expense for this facility for each of
the years ended May 31, 2002 and 2001 was approximately $69,000.
Lancer entered into a non-cancelable operating lease for its Mexico
facility which expires in March 2006 and requires average monthly rentals of
approximately $6,000. Total expense for this facility for the years ended May
31, 2002 and 2001, was approximately $69,000 and $74,000.
At May 31, 2002, future aggregate minimum lease payments for Lancer are as
follows:
Years ending May 31
-------------------
2003 $144,545
2004 114,659
2005 70,440
Thereafter 58,700
--------
Total $388,344
13
We believe that our facilities and equipment are in suitable condition and
are adequate to satisfy the current requirements of our Company and our
subsidiaries.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
-------------------------------------------------
Inapplicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------
During fiscal 2002 Biomerica's common stock was traded on the Nasdaq Small
Cap system under the symbol "BMRA". Since June 20, 2002, the Company's stock has
been traded on the OTC Bulletin Board under the symbol "BMRA.OB".
The following table shows the high and low bid prices for Biomerica's
common stock over the last two years based upon data reported by NASDAQ. Prices
shown represent quotations by dealers, and do not reflect markups, markdowns or
commissions, and may not reflect actual transactions.
Bid Prices
--------------------------------
High Low
-------------- ----------------
Quarter ended:
May 31, 2002............................. $0.70 $0.41
February 28, 2002........................ $0.74 $0.45
November 30, 2001........................ $1.13 $0.35
August 31, 2001.......................... $0.95 $0.52
May 31, 2001............................. $1.25 $0.656
February 29, 2001........................ $0.969 $0.313
November 30, 2000........................ $1.75 $0.75
August 31, 2000.......................... $1.875 $1.25
As of August 21, 2002, the number of holders of record of Biomerica's
common stock was approximately 1,019, excluding stock held in street name.
On April 10, 2002, the Company filed a Form S-4 for the proposed
registration of between 488,200 and 984,274 shares of Biomerica common stock.
The shares were to be issued for the purchase of the assets of the subsidiary
Lancer Orthodontics, Inc. Due to market conditions, both boards of directors
have agreed not to proceed with the proposed purchase and Biomerica requested in
July 2002 that the registration statement be withdrawn.
14
No dividends have been declared or paid by Biomerica. We intend to employ
all available funds for development of our business and, accordingly, do not
intend to pay cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 PROVIDES A "SAFE
HARBOR" FOR FORWARD-LOOKING STATEMENTS. CERTAIN INFORMATION CONTAINED HEREIN (AS
WELL AS INFORMATION INCLUDED IN ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE
OR TO BE MADE BY BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH
AS STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND SUCCESS
OF CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION INVOLVES
IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT ANTICIPATED
RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS MAY DIFFER MATERIALLY FROM
THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF
BIOMERICA. THE POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS,
FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS. THESE RISKS AND UNCERTAINTIES
ALSO INCLUDE THE SUCCESS OF THE COMPANY IN RAISING NEEDED CAPITAL, THE ABILITY
OF THE COMPANY TO MAINTAIN REQUIREMENTS TO BE LISTED ON NASDAQ, THE CONTINUAL
DEMAND FOR THE COMPANY'S PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE
MARKETPLACE, AVAILABILITY OF RAW MATERIALS, 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
We currently have one active subsidiary, Lancer Orthodontics, Inc.
("Lancer"), which is engaged in manufacturing, sales and development of
orthodontic products. We own approximately 31.63% of the outstanding stock of
Lancer. We exercise effective control of 50.1% over Lancer via voting agreements
with certain shareholders. As a result of our control and ownership, our
financial statements are consolidated with those of Lancer. Lancer is a public
company whose common stock is traded on the bulletin board system under the
symbol "LANZ,". On May 30, 2002, Biomerica sold its controlling interest in
Allergy Immuno Technologies, Inc. The operations of AIT for fiscal 2002 and 2001
are being reported as discontinued operations as a result of this sale.
The ReadyScript subsidiary was a development-stage enterprise and required
the raising of a significant amount of capital to fund its short-term working
capital needs. The ReadyScript operations were discontinued in May 2001. The
sale of some of the ReadyScript assets is being discussed with various parties.
The subsidiary is being reported in the financial statements as a discontinued
operation because it is no longer an operating entity.
15
Fiscal 2002 Compared to Fiscal 2001
Our consolidated net sales were $8,598,054 for fiscal 2002 compared to
$8,839,252 for fiscal 2001. This represents a decrease of $241,198, or 2.7% for
fiscal 2002. Of the total consolidated net sales for fiscal 2002, $6,022,331 is
attributable to Lancer, and $2,575,723 to Biomerica. Lancer's sales increased by
$94,728 while Biomerica showed a sales decrease of $335,926. The increase at
Lancer was primarily attributable to increased sales in the Middle East and
Mexico. The decrease in sales at Biomerica was due to the loss of a major
customer as well as lower sales of the EZ Detect product due to smaller
screening programs than the previous year.
Cost of sales in fiscal 2002 as compared to fiscal 2001 increased by
$19,544 or 0.3%. Lancer's cost of sales as a percentage of sales increased from
67.4% to 69.1% in fiscal 2002 as compared to fiscal 2001. The increase was
primarily attributable to increased sales to distributors and managed care
facilities which have a smaller gross margin. Biomerica had an increase in cost
of sales as a percentage of sales from 70.4% to 73.9% in fiscal 2002 as compared
to fiscal 2001. The increase was due to the Company recording an impairment
expense for the unamortized balance of a license in the amount of $100,320 which
is reflected in cost of sales in the accompanying statement of operations for
the year ended May 31, 2002.
Selling, general and administrative costs decreased in fiscal 2002 as
compared to fiscal 2001 by $250,804 or 8.1%. Lancer had a decrease of $199,619
in these costs due to decreases in labor costs, travel expenses and show costs.
Biomerica had a decrease in fiscal 2002 as compared to fiscal 2001 of $51,185,
primarily due to lower wages and related costs.
Research and development expense decreased in fiscal 2002 as compared to
fiscal 2001 by $162,363 or 50.4%. Of this, Lancer had a decrease of $67,663, as
a result of the transfer of personnel from product development to operations.
Biomerica had a decrease in research and development expenses of $94,700
primarily due to the lower wages and related costs due to less personnel in the
research and development department.
Interest expense net of interest income, increased in fiscal 2002 as
compared to fiscal 2001 by $14,928 or 58.7% due to borrowings against the line
of credit at Biomerica which was offset by a decrease in interest at Lancer of
$2,749.
Other expense, increased by $80,429 or 168.4% in fiscal 2002 as compared to
fiscal 2001. Of this, Lancer had an increase in other expense of $44,287 due to
investor relations costs and financing costs expensed associated with the line
of credit and exploring other financing options. Biomerica had decreases in
other income due to lower cash balances and therefore less interest income.
As of May 31, 2002, Biomerica had net tax operating loss carryforwards of
approximately $5,171,000 and investment tax and research and development credits
of approximately $62,000, which are available to offset future federal tax
liabilities. These carryforwards expire at varying dates from 2002 to 2022. As
of May 31, 2002, Biomerica had net operating tax loss carryforwards of
approximately $1,152,000 available to offset future state income tax
liabilities, which expire through 2012. As of May 31, 2002, Lancer had net
16
operating loss carryforwards of approximately $2,037,000 and business tax
credits of approximately $80,000 available to offset future Federal tax
liabilities. The Lancer federal carryforwards expire through 2021. As of May 31,
2002, Lancer had net tax opoerating loss carryforwards of approximately $185,000
and business tax credits of approximately $24,000 available to offset future
state income tax liabilities. The state carryforwards expire through the year
2011.
Liquidity and Capital Resources
As of May 31, 2002, we had cash and available for sale securities of
$331,809 (see Note 1 of Notes to Consolidated Financial Statements) and current
working capital of $3,246,030. Of the current working capital, $2,840,291 is
attributable to the Lancer subsidiary, which is restricted from distribution to
Biomerica as a result of Lancer's line of credit agreement. The Company's fiscal
2001 losses were substantially the result of its investment in ReadyScript,
which has been reported as a discontinued operation. During 2001, cash provided
by operations was $165,576. During 2002, the Company used cash flows from
operations of $131,073. During fiscal 2002, cash provided by investing
activities was $219,452, primarily due to the sale of stock of a subsidiary. The
Company generated cash flow from financing activities of $339,662 during fiscal
2001, primarily due to two private placements and a shareholder loan at
Biomerica and $228,779 during fiscal 2002 primarily due to the increase in
shareholder loan.
On an unconsolidated basis, the Company used cash in operating activities
of $313,475 in fiscal 2002 as compared to $935,492 in fiscal 2001. Net cash
provided by investing activities for the years ended May 31, 2002 and 2001 were
$222,839 and $82,265, respectively. Net cash provided by financing activities
was $291,328 for fiscal 2002 and $343,980 for fiscal 2001. See Note 12 to the
Notes to Consolidated Financial Statements.
The Company has suffered substantial recurring losses from operations over
the Last couple of years. The Company has funded its operations through debt and
equity Financings, and may have to do so in the future. ReadyScript operations
were discontinued in May 2001 and Allergy Immuno Technologies, Inc. was sold in
May 2002 (see Notes 2 and 13). ReadyScript and Allergy Immuno Technologies, Inc.
were contributors to the Company's losses. The Company has also obtained a line
of credit from a shareholder/officer which it has and will continue to rely on
to help fund operations. The Company has reduced operating costs through certain
cost reduction efforts and plans to concentrate on its core business in Lancer
and Biomerica to increase sales. Management believes that cash flows from
operations and its available credit coupled with reduced costs and anticipated
sales will enable the company to fund operations for at least the next twelve
months. There can be no assurances that the Company will be able to become
profitable, generate positive cash flow from operations or obtain the necessary
equity or debt financing to fund operations in the future.
During fiscal 2002 Lancer management negotiated a new line of credit with a
financial institution through October 24, 2003. The line of credit allows for
borrowings up to $400,000 and is limited to specified percentages of eligible
accounts receivable. The outstanding balance at May 31, 2002 was $65,669. The
unused portion available under the line of credit at May 31, 2002, was approx-
imately $229,000. Borrowings bear interest at prime plus 2.00% per annum, but no
lower than 8% (8.00% at May 31, 2002).
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 ratio of $2,100,000, which was met, and that receivables'
payments be sent to a controlled lockbox. In addition to interest, a management
fee of .25% of the average monthly outstanding loan balance and an unused
balance fee of .0425% on the average monthly unused portion available are
required. Lancer is not required to maintain compensating balances in connection
with this lending agreement.
Lancer's management believes that it will be able to finance Lancer's
operations through cash flow and available borrowings for the foreseeable
future.
17
Biomerica, Inc. entered into an agreement for a line of credit agreement 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% and is secured by Biomerica accounts receivable and
inventory. There was $375,000 outstanding under this line of credit at May 31,
2002. The line of credit has been extended until September 12, 2003. During 2002
and 2001, the Company incurred $19,661 and $1,051, respectively, in interest
expense related to the shareholder line of credit, all of which is accrued as of
May 31, 2002. The unused portion available under the line of credit at May 31,
2002, was approximately $135,000. As of August 29, 2002, the unused portion
available was $169,900. During fiscal 2002 a shareholder advanced the Company
$10,000. The loan bears an interest at 8%.
Pursuant to a decision by the Nasdaq Listing Qualifications Panel, the
Company's common stock was delisted from the Nasdaq Stock Market effective June
20, 2002, for failure to comply with the net tangible assets or shareholders'
equity requirements as set forth in Marketplace Rule 4310(c)(2)(B). The
Company's securities were immediately eligible to trade on The OTC Bulletin
Board and are traded under the symbol BMRA.OB.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Note 2 of the Notes to Consolidated Financial Statements
describes the significant accounting policies essential to the consolidated
financial statements. The preparation of these financial statements requires
estimates and assumptions that affect the reported amounts and disclosures.
We believe the following to be critical accounting policies as they require
more significant judgments and estimates used in the preparation of our
consolidated financial statements. Although we believe that our judgments and
estimates are appropriate and correct, actual future results may differ from our
estimates.
In general the critical accounting policies that may require judgments or
estimates relate specifically to the Allowance for Doubtful Accounts, Inventory
Reserves for Obsolescence and Declines in Market Value, Impairment of Long-Lived
Assets, Stock Based Compensation, and Income Tax Accruals.
We recognize product revenues when an arrangement exists, delivery has
occurred, the price is determinable and collection is reasonably assured.
Accordingly, we do not recognize revenue for estimated returns from all amounts
sold to these distributors until the right of exchange has expired.
The Allowance for Doubtful Accounts is established for estimated losses
resulting from the inability of our customers to make required payments. The
assessment of specific receivable balances and required reserves is performed by
management and discussed with the audit committee. We have identified specific
customers where collection is probable and have established specific reserves,
but to the extent collection is made, the allowance will be released.
Additionally, if the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
Reserves are provided for excess and obsolete inventory, which are
estimated based on a comparison of the quantity and cost of inventory on hand to
management's forecast of customer demand. Customer demand is dependent on many
factors and requires us to use significant judgment in our forecasting process.
We must also make assumptions regarding the rate at which new products will be
accepted in the marketplace and at which customers will transition from older
products to newer products. Once a reserve is established, it is maintained
until the product to which it relates is sold or otherwise disposed of, even if
in subsequent periods we forecast demand for the product.
In general, we are in a loss position for tax purposes, and have
established a valuation allowance against deferred tax assets, as we do not
believe it is likely that we will generate sufficient taxable income in future
periods to realize the benefit of our deferred tax assets. Predicting future
taxable income is difficult, and requires the use of significant judgment. At
May 31, 2002, all of our deferred tax assets were reserved. Accruals are made
for specific tax exposures and are generally not material to our operating
results or financial position, nor do we anticipate material changes to these
reserves in the near future.
18
FACTORS THAT MAY AFFECT FUTURE RESULTS
You should read the following factors in conjunction with the factors
discussed elsewhere in this and our other filings with the SEC and in materials
incorporated by reference in these filings. The following is intended to
highlight certain factors that may affect the financial condition and results of
operations of Biomerica, Inc. and are not meant to be an exhaustive discussion
of risks that apply to companies such as Biomerica, Inc. Like other businesses,
Biomerica, Inc. is susceptible to macroeconomic downturns in the United States
or abroad, as were experienced in fiscal year 2002, that may affect the general
economic climate and performance of Biomerica, Inc. or its customers.
RECENT ACCOUNTING PRONOUNCEMENTS:
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations", which eliminates the pooling method of accounting for business
combinations initiated after June 30, 2001. In addition, SFAS 141 addresses the
accounting for intangible assets and goodwill acquired in a business
combination. This portion of SFAS 141 is effective for business combinations
completed after June 30, 2001. The Company adopted SFAS 141 effective July 1,
2001.
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the
accounting for purchased goodwill and intangible assets. Under SFAS 142,
goodwill and intangible assets with indefinite lives will no longer be amor-
tized and will be tested for impairment annually. SFAS 142 is effective for
fiscal years beginning after December 15, 2001, with earlier adoption per-
mitted. The Company has not yet determined the impact on the Company's fin-
ancial position or results of operations as a result of the future adoption of
SFAS 142.
In August 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to all entities and
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or normal operation
of long-lived assets, except for certain obligations of lessees. This statement
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. Management has not yet determined the impact of the adoption of
FAS No. 143 on the Company's financial position or results of operations.
19
In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," or SFAS 144. SFAS No. 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively. The
Company does not expect SFAS 144 will have a material impact on the Company's
financial position or results of operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections," to update, clarify and
simplify existing accounting pronouncements. FASB Statement No. 4, which
required all gains and losses from debt extinguishment to be aggregated and, if
material, classified as an extraordinary item, net of related tax effect, was
rescinded. Consequently, FASB Statement No. 64, which amended FASB Statement No.
4, was rescinded because it was no longer necessary. We do not expect the
adoption of this statement to have a material effect on our financial
statements.
In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 addresses accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value when the liability
is incurred. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. We do not
expect the adoption of this statement to have a material effect on our financial
statements. 18
20
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Exhibit 99.1, "Biomerica, Inc. and Subsidiaries Consolidated Financial
Statements" is incorporated herein by this reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
---------------------------------------------------------------
Inapplicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
-------------------------------------------------------------------
This information is incorporated by reference to the Company's proxy
statement for its 2002 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2002.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
This information is incorporated by reference to the Company's proxy
statement for its 2002 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2002.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
This information is incorporated by reference to the Company's proxy
statement for its 2002 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
This information is incorporated by reference to the Company's proxy
statement for its 2002 Annual Meeting of Stockholders which will be filed not
later than 120 days after the end of the Company's fiscal year ended May 31,
2002.
21
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
-------------------------------------
(a) EXHIBITS
--------
EXHIBIT NO. DESCRIPTION
3.1 Certificate of Incorporation of Registrant filed with the
Secretary of the State of Delaware on September 22, 1971
(incorporated by reference to Exhibit 3.1 filed with Amendment
No. 1 to Registration Statement on Form S-1, Commission File
No. 2-83308).
3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
February 6, 1978 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form
S-1, Commission File No. 2-83308).
3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
February 4, 1983 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form
S-1, Commission File No. 2-83308).
3.4 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
January 19, 1987 (incorporated by reference to Exhibit 3.4
filed with Form 8 Amendment No. 1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1987).
3.5 Certificate of Amendment of Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
November 4, 1987 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form
S-1, Commission File No. 2-83308).
3.6 Bylaws of the Registrant (incorporated by reference to Exhibit
3.2 filed with Amendment No. 1 to Registration Statement on
Form S-1, Commission File No. 2-83308).
3.7 Certificate of Amendment of Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
December 20, 1994 (incorporated by reference to Exhibit 3.7
filed with Registrant's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1995).
3.8 First Amended and Restated Certificate of Incorporation Of
Biomerica, Inc. filed with the Secretary of State of Delaware
on August 1, 2000 (incorporated by reference to Exhibit 3.8
filed with the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended May 31, 2000).
4.1 Specimen Stock Certificate of Common Stock of Registrant
(incorporated by reference to Exhibit 4.1 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).
22
10.2 Lancer purchase agreement and warrants (incorporated by
reference to Exhibit 10.10 filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1989).
10.3 1999 Stock Incentive Plan of Registrant (incorporated by
reference to Exhibit 10.1 to Registration Statement on Form S-8
filed with the Securities and Exchange Commission on March 29,
2000).
10.4 1995 Stock Option and Common Stock Plan of Registrant
(incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on January 20, 1996).
10.5 1991 Stock Option and Restricted Stock Plan of Registrant
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on April 6, 1992).
10.6 Stock Purchase Agreement by and between Biomerica, Inc.,
RidgeRose Capital Partners, LLC and Zackary Irani and Janet
Moore dated June 11, 1999 (incorporated by reference to Exhibit
10.10 filed with Form 8-K on July 7, 1999).
10.7 Stock Purchase Agreement by and between Biomerica, Inc. and
Zackary Irani and Janet Moore dated June 11, 1999 (incorporated
by reference to Exhibit 10.11 filed with Form 8-K on July 7,
1999).
10.8 Back-end Processing Agreement by and between TheBigStore.com,
Inc. and Biomerica, Inc. and dated June 11, 1999 (incorporated
by reference to Exhibit 10.12 filed with Form 8-K on July 7,
1999).
10.9 Common Stock Purchase Warrant granted to TheBigStore.com, Inc.
dated June 11, 1999 (incorporated by reference to Exhibit 10.13
filed with Form 8-K on July 7, 1999).
10.10 Common Stock Purchase Warrant granted to RJM Consulting, LLC
dated June 11, 1999 (incorporated by reference to Exhibit 10.14
filed with Form 8-K on July 7, 1999).
10.11 Non-Qualified Option Agreement by and between Zackary Irani and
the Company dated June 10, 1999 (incorporated by reference to
Exhibit 10.15 filed with Form 8-K on July 7, 1999).
10.12 Non-Qualified Option Agreement by and between Janet Moore and
the Company dated June 10, 1999 (incorporated by reference to
Exhibit 10.16 filed with Form 8-K on July 7, 1999).
10.13 Non-Qualified Option Agreement by and between Philip Kaplan,
M.D. and the Company dated June 10, 1999 (incorporated by
reference to Exhibit 10.17 filed with Form 8-K on July 7,
1999).
10.14 Non-Qualified Option Agreement by and between Robert A.
Orlando, M.D., Ph.D. and the Company dated June 10, 1999
(incorporated by reference to Exhibit 10.18 filed Form 8-K on
July 7, 1999).
23
10.15 Strategic Marketing Agreement entered into as of the 2nd day of
September, 1999 by and between TheBigHub.com, Inc., a Florida
corporation and Biomerica, Inc. (incorporated by reference to
Exhibit 10.16 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.16 First Amendment to Back-End Processing Agreement entered into
as of September 2, 1999 whereby TheBigStore.com, Inc., a
Delaware corporation and Biomerica amend the Back-End Agreement
dated June 11, 1999 (incorporated by reference to Exhibit 10.17
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.17 Private Placement Memorandum of Biomerica, Inc. dated June 9,
1999 offering 400,000 shares of its Common Stock at $5.00 per
share (incorporated by reference to Exhibit 10.18 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).
10.18 Employment Agreement entered into as of August 30, 1999 by and
between the Internet division of Biomerica, Inc. and Steven J.
Goto (incorporated by reference to Exhibit 10.19 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).
10.19 Employment Offer Letter dated August 12, 1999 from Biomerica,
Inc. to Pete McKinley to join the Internet division of
Biomerica, Inc. (incorporated by reference to Exhibit 10.20
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.20 Employment Offer Letter dated August 12, 1999 from Biomerica,
Inc. to Richard Jay, Pharm.D. to join the Internet division of
Biomerica, Inc. (incorporated by reference to Exhibit 10.21
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.21 Amendment to Lease Extension/Lease Term effective January 1,
1999, whereby Lancer Orthodontics, Inc. and L&T Corporation, a
California corporation entered into an amendment and extension
to the terms of that certain lease agreement dated November 4,
1993 for the premises located at 253 Pawnee Street, Suite A,
San Marcos, California 92069 (incorporated by reference to
Exhibit 10.22 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.22 Sublease Agreement entered into by and between Eagleson de
California S.A. de C.V. and Lancer Orthodontics, Inc.
commencing on November 1, 1998 covering approximately 16,000
square feet located in the Industrial Park at Ave. Saturno No.
20 and of certain improvements constructed on the land as
detailed in that certain sublease between the parties dated
April 1, 1996 (incorporated by reference to Exhibit 10.23 filed
with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
24
10.23 Fifth Revision to Manufacturing Shelter Agreement effective
November 1, 1998, whereby Lancer Orthodontics, Inc. and
Eagleson Industries, Inc. revised and amended that certain
Manufacturing Shelter Agreement entered into on May 11, 1990,
revised on June 20, 1991, December 2, 1992, July 1, 1994 and
April 1, 1996 (incorporated by reference to Exhibit 10.24 filed
with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).
10.24 Technical Skills Consulting Agreement entered into on January
1, 1999 by and between Lancer Orthodontics, Inc. and Alejandro
Carnero, a non-resident alien, independent contractor and
citizen of the Republic of Mexico (incorporated by reference to
Exhibit 10.25 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.25 Product Development and Marketing Agreement entered into as of
August 3, 1998 by and between Lancer Orthodontics, Inc. and AG
Metals, Inc., a Nevada corporation (incorporated by reference
to Exhibit 10.26 filed with Registrant's Registration Statement
on Form SB-2, Commission No. 333-87231 filed on September 16,
1999).
10.26 Agreement between Lancer Orthodontics, Inc. and Gary Weikel, an
individual, incorporating by reference that certain Product
Development and Marketing Agreement of even date between Lancer
Orthodontics, Inc. and AG Metals, Inc. (incorporated by
reference to Exhibit 10.27 filed with Registrant's Registration
Statement on Form SB-2, Commission No. 333-87231 filed on
September 16, 1999).
10.27 Lease between Biomerica, Inc., JSJ Management and Ilse
Sultanian dated September 1, 2001.
10.28 Agreement between Biomerica, Inc. and Lancer Orthodontics, Inc.
for the acquisition of the remaining outstanding shares of
Lancer Orthodontics, Inc., common stock by Biomerica
(incorporated by reference to an exhibit filed with the S-4
filed on April 10, 2002).
16.1 Letter on Change of Certifying Accountant (incorporated by
reference to Exhibit A to Form 8-K filed with the Securities
and Exchange Commission on May 24, 1993).
16.2 Letter on change of certifying accountant (incorporated by
reference to Exhibit A to Form 10-QSB/A filed with the
Securities and Exchange Commission on April 14, 1999).
21.1 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21.1 to Form 10-KSB filed with the Securities and
Exchange Commission on September 14, 1999).
99.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbarnes-Oxley Act of 2002
signed by Zackary S. Irani, Chief Executive Officer.
99.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
P0ursuant to Section 906 of the Sarbanes-Oxley Act of 2002
signed by Janet Moore, Chief Financial Officer.
99.3 Biomerica, Inc. and Subsidiaries Consolidated Financial
Statements For The Years Ended May 31, 2002 and 2001 and
Independent Auditors' Report.
(b) Reports on Form 8-K
-------------------
Biomerica filed a report on Form 8-K with the Securities and Exchange
Commission on June 6, 2002.
25
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOMERICA, INC.
Registrant
By /s/ Zackary S. Irani
-----------------------------
Zackary S. Irani, Chief Executive
Officer
Dated: 8/29/02
-------
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature and Capacity
/s/ Zackary S. Irani Date: 8/29/02
------------------------------------
Zackary S. Irani
President, Director, Chief Executive
Officer
/s/ Janet Moore Date: 8/29/02
------------------------------------
Janet Moore, Secretary
Director, Chief Financial Officer
/s/ Robert Orlando Date: 8/29/02
------------------------------------
Robert Orlando, M.D., Ph.D.
Director
/s/ Carlos St. Aubyn Beharie Date: 8/29/02
------------------------------------
Carlos St. Aubyn Beharie
Director
/s/ David Burrows Date: 8/29/02
------------------------------------
David Burrows
Director
/s/ Francis R. Cano
------------------------------------ Date: 8/29/02
Francis R. Cano
Director
/s/ Allen Barbieri Date: 8/29/02
------------------------------------
Allen Barbieri
Director, Vice President Finance
26