FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended August 31, 2001 Commission File No. 0-8765
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BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
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(Not applicable)
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(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,050,920 shares of common
Stock as of October 13, 2001.
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and Comprehensive Loss
(unaudited) - Three Months Ended August 31, 2001 and 2000.........2 & 3
Consolidated Balance Sheet (unaudited) - August 31, 2001..........4 & 5
Consolidated Statements of Cash Flows (unaudited)
Three Months Ended August 31, 2001 and 2000...........................6
Consolidated Statement of Changes in Shareholders' Equity
(unaudited) - Three Months Ended August 31, 2001......................7
Notes to Consolidated Financial Statements.........................8-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data.......................................12-14
PART II Other Information....................................................15
Signatures...........................................................16
i
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
Three Months Ended
August 31,
2001 2000
------------ ------------
Net sales .................................................... $ 1,942,712 $ 1,969,990
Cost of sales ........................................... 1,456,393 1,306,755
------------ ------------
Gross profit ............................................ 486,319 663,235
------------ ------------
Operating Expenses:
Selling, general and administrative ..................... 812,018 757,042
Research and development ................................ 57,835 100,982
------------ ------------
869,853 858,024
------------ ------------
Operating loss from continuing operations .................... (383,534) (194,789)
------------ ------------
Other Expense (income):
Interest expense ........................................ 6,210 5,207
Other income, net ....................................... (5,641) (11,629)
------------ ------------
569 (6,422)
------------ ------------
Loss from continuing operations, before minority interest
in net loss of consolidated subsidiaries and income taxes (384,103) (188,367)
Minority interest in net losses of consolidated subsidiaries . 95,341 71,156
------------ ------------
Loss from continuing operations, before income taxes ......... (288,762) (117,211)
Income tax expense ........................................... 800 800
------------ ------------
Net loss from continuing operations .......................... (289,562) (118,011)
2
Discontinued operations:
Loss from discontinued operations, net ..................... (14,632) (809,073)
------------ ------------
Net loss ..................................................... (304,194) (927,084)
Other comprehensive gain (loss), net of tax
Unrealized gain (loss) on available-for-sale securities .... (3,702) (8,554)
------------ ------------
Comprehensive loss ......................................... $ (307,896) $ (935,638)
============ ============
Basic net loss per common share:
Net loss from continuing operations ..................... $ (.06) $ (.02)
Net loss from discontinued operations ................... (.00) (.18)
------------ ------------
Basic net loss per common share .............................. $ (.06) $ (.20)
============ ============
Diluted net loss per common share:
Net loss from continuing operations ..................... $ (.06) $ (.02)
Net loss from discontinued operations ................... (.00) (.18)
------------ ------------
Diluted net loss per common share ............................ $ (.06) $ (.20)
============ ============
Weighted average number of common and common
equivalent shares:
Basic and diluted ....................................... 5,043,760 4,576,554
============ ============
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
August 31,
2001
-----------
Assets
Current Assets
Cash and cash equivalents ........................................... $ 149,364
Available for-sale securities ....................................... 32,628
Accounts receivable, less allowance for doubtful accounts of $190,500 1,536,570
Inventories, net .................................................... 2,992,705
Notes receivable .................................................... 18,394
Prepaid expenses and other .......................................... 89,157
-----------
Total Current Assets .......................................... 4,818,818
Inventory, non-current .................................................. 15,000
Property and Equipment, net of accumulated depreciation and amortization 290,912
Intangible assets, net of accumulated amortization ...................... 273,876
Other Assets ............................................................ 28,531
-----------
$5,427,137
===========
The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
August 31,
2001
-------------
Liabilities and Shareholders' Equity
Current Liabilities
Line of credit ............................................. $ 160,000
Accounts payable and accrued liabilities ................... 1,248,124
Accrued compensation ....................................... 244,655
Net liabilities from discontinued operations ............... 399,122
-------------
Total Current Liabilities ............................. 2,051,901
Shareholder loan ................................................ 225,000
Minority interest ............................................... 1,951,615
Shareholders' Equity
Common stock, $0.08 par value authorized 25,000,000 shares,
subscribed or issued and outstanding 5,050,920 ........... 404,073
Additional paid-in-capital ................................. 16,880,575
Accumulated other comprehensive loss ....................... (13,991)
Accumulated deficit ........................................ (16,072,036)
-------------
Total Shareholders' Equity ...................................... 1,198,621
-------------
Total Liabilities and Equity .................................... $ 5,427,137
=============
The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the quarter ended August 31, 2001 2000
---------- ----------
Cash flows from operating activities:
Net loss from continuing operations .............................. $(289,562) $(118,011)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization ............................... 50,899 49,143
Realized gain on sale of available for-sale securities ...... (977) (6,412)
Minority interest in net loss of consolidated
Subsidiaries .............................................. (95,341) (71,156)
Common stock issued for services rendered ................... - 180,000
Provision for losses on accounts receivable ................. (2,059) -
Warrants and options issued for services rendered ........... 23,453 29,902
Changes in current assets and liabilities:
Accounts Receivable ....................................... (9,256) 78,486
Inventories ............................................... (126,749) 30,451
Prepaid expenses and other current assets ................. 265 369
Accounts payable and other accrued liabilities ............ 317,159 83,690
Accrued compensation ...................................... (18,622) (52,390)
---------- ----------
Net cash used in operating activities ............................ (150,790) (204,072)
---------- ----------
Cash flows from investing activities:
Sale of available for-sale securities ....................... 6,217 22,181
Decrease in notes receivable ................................ - 1,700
Purchases of property and equipment ......................... - (5,424)
Other assets ................................................ 11,007 13,336
Purchases of intangible assets .............................. - (16,038)
---------- ----------
Net cash provided by investing activities ........................ 17,224 15,755
---------- ----------
Cash flows from financing activities:
Increase in shareholder loan ............................... 130,000 -
Private placement net of offering costs ..................... 10,199 -
Exercise of stock options ................................... - 3,225
Increase in line of credit .................................. 20,000 40,000
---------- ----------
Net cash provided by financing activities ........................ 160,199 43,225
---------- ----------
Net cash used in discontinued operations ......................... (13,568) (259,973)
---------- ----------
Net increase in cash and cash equivalents ........................ 13,065 (405,065)
Cash at beginning of period ...................................... 136,299 615,057
---------- ----------
Cash at end of period ............................................ $ 149,364 $ 209,992
========== ==========
The accompanying notes are an integral part of these statements.
6
BIOMERICA, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED AUGUST 31, 2001
Common Stock
Common Stock Subscribed
--------------------------- ---------------------------
Accumulated
Number Additional Other
of Paid-in Comprehensive Accumulated
Shares Amount Capital Shares Amount Loss (Deficit) Total
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
May 31, 2001 4,890,679 $ 391,254 $ 16,748,968 146,075 $ 110,774 $ (10,289) $(15,767,842) $ 1,472,865
Compensation
expense in
connection with
options and
warrants granted 23,453 23,453
Change in
unrealized
gain on available
for sale securities (3,702) (3,702)
Common stock
issued for
private placement 140,241 11,219 89,754 (126,075) (90,774) 10,199
Net loss (304,194) (304,194)
------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
Balance at
August 31, 2001 5,030,920 $ 402,473 $ 16,862,175 20,000 $ 20,000 $ (13,991) $(16,072,036) $ 1,198,621
============= ============= ============= ============= ============= ============= ============= =============
7
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
August 31, 2001
(1) Reference is made to Note 2 of the Notes to Financial Statements
contained in the Company's Annual Report on Form 10-KSB for the fiscal
year ended May 31, 2001, 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, 2001, 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, 2001, for information on commitments and
contingencies.
(6) Aggregate cost of available-for-sale securities exceeded aggregate
market value by approximately $13,991 at August 31, 2001.
(7) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards (SFAS) No. 128,
EARNINGS PER SHARE ("EPS"). SFAS No. 128 requires dual presentation of
basic EPS and diluted EPS on the face of all income statements issued
after December 15, 1997 for all entities with complex capital
structures. Basic EPS is computed as net income divided by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares
issuable through stock options, warrants and other convertible
securities.
8
The following table illustrates the required disclosure of the
reconciliation of the numerators and denominators of the basic and
diluted EPS computations.
For the Three Months Ended August 31, 2001
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss from continuing
operations ...................... $ (289,562) - $ (.06)
Loss from discontinued
operations ..................... (14,632) - (.00)
------------ ------------ ------------
(304,194) 5,043,760 (.06)
Diluted EPS -
Loss attributable to common share -
Holders plus assumed conversions . $ (304,194) 5,043,760 $ (.06)
============ ============ ============
For the Three Months Ended August 31, 2000
----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss from continuing
operations ...................... $ (118,011) - $ (.02)
Loss from discontinued
operations ...................... (809,073) - (.18)
------------ ------------ ------------
(927,084) 4,576,554 (.20)
Diluted EPS -
Loss attributable to common share -
Holders plus assumed conversions . $ (927,084) 4,576,554 $ (.20)
============ ============ ============
Loss attributable to common share -
Holders plus assumed conversions . $ (927,084) 4,576,554 $ (.20)
============ ============ ============
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The statement will require recognition of
all derivatives as either assets or liabilities on the balance sheet at fair
value. The statement is effective for the company's fiscal year 2002, as
deferred by SFAS No. 137, but early adoption is permitted. Management has
completed an evaluation of the effects of this statement and does not believe
that it will have a material effect on the company's financial statements.
9
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements." The
effective date of the bulletin was delayed according to SAB No. 101A and SAB No.
101B and will be effective for the company's fourth quarter of fiscal year 2001.
Management believes that its current revenue recognition policies comply with
SAB No. 101.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44 ("FIN 44"),"Accounting for Certain Transactions involving
Stock Compensation." The adoption of this Interpretation did not have a material
impact on the consolidated results of operations or financial position of the
Company.
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 does not expect SFAS 141 will have a material impact on
the Company's financial position or results of operations.
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 amortized and will be
tested for impairment annually. SFAS 142 is effective for fiscal years beginning
after December 15, 2001, with earlier adoption permitted. The Company does not
expect that SFAS 142 will have a material impact on the Company's financial
position or results of operations as a result of the future adoption of SFAS
142.
(8) Financial information about foreign and domestic operations and export
sales is as follows:
For the Three Months Ended
8/31/01 8/31/00
------- -------
Revenues from sales to
unaffiliated customers:
United States $973,000 $981,000
Asia 41,000 84,000
Europe 477,000 500,000
South America 171,000 135,000
Other 281,000 270,000
---------- ----------
$1,943,000 $1,970,000
========== ==========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
For the Three Months Ended
8/31/01 8/31/00
------- -------
Operating profit (loss):
United States $ (167,000) $ (124,000)
Asia (29,000) (14,000)
Europe (59,000) (24,000)
South America (18,000) (5,000)
Other (111,000) (28,000)
----------- -----------
$ (384,000) $ (195,000)
=========== ===========
10
(9) The Company has been notified by Nasdaq that it has failed to maintain
the listing requirement that its minimum bid price be $1.00 or more and
that it must regain compliance by October 4, 2001 or it will be subject
to delisting. On September 27, 2001, Nasdaq implemented an
across-the-board moratorium on minimum bid and public float
requirements. This moratorium will suspend the requirements until
January 2, 2002, thereby extending the Company's October 4, 2001,
deadline until January 2, 2002. On September 24, 2001, the Company was
notified by Nasdaq that it was not in compliance with Marketplace Rule
4310(c)(2)(B), which requires the Company to have a minimum of
$2,000,000 in net tangible assets or $2,500,000 in shareholders' equity
or a market capitalization of $35,000,000 or $500,000 of net income for
the most recently completed fiscal year or two of the three most
recently completed fiscal years. The Company has provided Nasdaq with
its plan to achieve and sustain compliance.
(10) 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.
ReadyScript was a primary contributor to the Company's losses. The
Company also plans to reduce operating costs through certain cost
reduction efforts and concentrate on its core business in Lancer and
Biomerica to increase sales. 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.
(11) At August 31, 2001, Lancer had a $300,000 line of credit with a bank.
Borrowings are made at prime plus 1.25% (7.75% at August 31, 2001) and
are limited to specified percentages of eligible accounts receivable.
The unused portion available under the line of credit at August 31,
2001 was $140,000. The line of credit was 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 lending agreement. Lancer was in
violation of certain of its debt covenants at August 31, 2001. The line
of credit expired on September 30, 2001. As of the date of this filing,
Lancer has been approved under a line of credit with a new lender,
however, the final documents have not yet been executed.
Biomerica, Inc. entered into a line of credit agreement on September
12, 2001 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, 2002. The unused portion of the line of credit at August
31, 2001, was $275,000.
11
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. 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
Consolidated net sales for Biomerica were $1,942,712 for the first
quarter of fiscal 2002 as compared to $1,969,990 for the same period in the
previous year. This represents a decrease of $27,278, or 1%. Of the total
consolidated net sales for fiscal 2002, $1,434,788 is attributable to Lancer,
$15,514 to AIT and $492,410 to Biomerica. Lancer sales increased by $103,689
over the previous fiscal year primarily due to increases in both international
and domestic sales. Biomerica sales decreased by $113,427 primarily due to
slowing of order intake for the quarter, however, order intake has increased
during the second quarter as compared to the first quarter of this fiscal year.
AIT had a sales decrease of $17,540 due to a special testing project AIT
performed for a pharmaceutical company in fiscal 2001 only.
Cost of sales increased by $149,638, or 11.5%. Lancer's cost of sales
as a percentage of sales increased from 69.5% to 75.1%. This increase was
attributable to higher expenses in the Mexicali manufacturing plant partially as
a result of moving out of a Mequiladora operation into a wholly -owned Mexican
subsidiary. Biomerica's costs increased from 59.6% of sales to 73.2% due to
lower sales in relation to fixed costs. AIT had an increase in cost of goods
from 69.8% of sales to 125.7% of sales due to lower sales in relation to fixed
costs.
Selling, general and administrative costs increased by $54,976, or
7.3%. Lancer had increased selling, general and administrative costs of $15,940
due to increased marketing costs. Biomerica had an increase of $47,008, which
was primarily due to a credit in the prior year to professional fees. AIT had a
decrease of $7,172 due to decreased legal and accounting costs associated with
the filing of AIT's Form 10-SB and Form 10-KSB in the prior period.
12
Research and development decreased by $43,147, or 42.7%. Lancer had a
decrease in research and development costs of $36,240 due to the
reclassification of labor costs to cost of sales. Biomerica had decreased costs
of $6,907 primarily due to lower wages and related costs.
Interest expense increased by $1,003 compared to the previous year due
to increased borrowings at Lancer and Biomerica.
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, 2001, for a
more in-depth discussion of subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31, 2001, the Company had cash and available-for-sale
securities in the amount of $181,992 and working capital of $2,766,917. Cash and
working capital totaling $112,219 and $2,588,233, respectively, relates to the
Lancer subsidiary. Lancer's line of credit restricts Biomerica's ability to draw
on Lancer's resources and, as such, said cash, working capital and equity are
not available to Biomerica. Biomerica, Inc. and its subsidiaries, 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.
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. ReadyScript was a primary contributor
to the Company's losses. The Company also plans to reduce operating costs
through certain cost reduction efforts and concentrate on its core business in
Lancer and Biomerica to increase sales. 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 the quarter ended August 31, 2001, the Company used cash in
operations of $150,790. This compares to cash used in operations of $204,072 in
the same period in the prior fiscal year.
The Company has been notified by Nasdaq that it has failed to maintain
the listing requirement that its minimum bid price be $1.00 or more and that it
must regain compliance by October 4, 2001 or it will be subject to delisting. On
September 27, 2001, Nasdaq implemented an across-the-board moratorium on minimum
bid and public float requirements. This moratorium will suspend the requirements
until January 2, 2002, thereby extending the Company's October 4, 2001, deadline
until January 2, 2002. On September 24, 2001, the Company was notified by Nasdaq
that it was not in compliance with Marketplace Rule 4310(c)(2)(B), which
requires the Company to have a minimum of $2,000,000 in net tangible assets or
$2,500,000 in shareholders' equity or a market capitalization of $35,000,000 or
$500,000 of net income for the most recently completed fiscal year or two of the
three most recently completed fiscal years. The Company has provided Nasdaq with
its plan to achieve and sustain compliance.
13
At August 31, 2001, Lancer had a $300,000 line of credit with a bank.
Borrowings are made at prime plus 1.25% (7.75% at August 31, 2001) and are
limited to specified percentages of eligible accounts receivable. The unused
portion available under the line of credit at August 31, 2001 was $140,000. The
line of credit was 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 lending agreement. Lancer was in violation of certain of its debt
covenants at August 31, 2001. The line of credit expired on September 30, 2001.
As of the date of this filing, Lancer has been approved under a new line of
credit with a new lender, however the final documents have not yet been
executed.
Biomerica, Inc. entered into a line of credit agreement on September
12, 2001 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, 2002. The unused portion of the line of credit at August
31, 2001, was $275,000.
WE MAY FACE INTERRUPTION OF PRODUCTION AND SERVICES DUE TO INCREASED
SECURITIES MEASURES IN RESPONSE TO TERRORISM:
Our business depends on the free flow of products and services through
the channels of commerce. Recently, in response to terrorists' activities and
threats aimed at the United States, transportation, mail, financial and other
services have been slowed or stopped altogether. Further delays or stoppages in
transportation, mail, financial or other services could have a material adverse
effect on our business, results of operations and financial condition.
Furthermore, we may experience an increase in operating costs, such as costs for
transportation, insurance and security as a result of the activities and
potential activities. We may also experience delays in receiving payments from
payers that have been affected by the terrorist activities and potential
activities. The U.S. economy in general is being adversely affected by the
terrorist activities and potential activities and any economic downturn could
adversely impact our results of operations, impair our ability to raise capital
or otherwise adversely affect our ability to grow our business.
14
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. Inapplicable.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES. Inapplicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Inapplicable.
Item 5. OTHER INFORMATION. Inapplicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K. None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 22, 2001
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------------
Zackary Irani
Chief Executive Officer
16