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 February 28, 2006 Commission File No. 0-8765
----------------- ------
BIOMERICA, INC.
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(Exact name of registrant as specified in its charter)
Delaware 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia Avenue, Newport Beach, California 92663
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
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(Not applicable)
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(Former name, former address and former fiscal year, if
changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
Defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,766,681 shares of common
stock as of April 14, 2006.
1
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and
Comprehensive Loss (unaudited) - Three and Nine Months Ended
February 28, 2006 and 2005........................................3 & 4
Consolidated Balance Sheet (unaudited) -
February 28, 2006.................................................5 & 6
Consolidated Statements of Cash Flows (unaudited) -
Nine Months Ended February 28, 2006 and 2005......................7 & 8
Notes to Consolidated Financial Statements (unaudited).............9-22
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data.......................................23-24
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........25
Item 4. Controls and procedures..............................................25
PART II Other Information....................................................26
Item 1. Legal Proceedings....................................................26
Item 2. Changes in Securities and Use of Proceeds............................26
Item 3. Defaults upon Senior Securities......................................26
Item 4. Submission of Matters to a Vote of Security Holders..................26
Item 5. Other Information....................................................26
Item 6. Exhibits and Reports on Form 8-K.....................................26
Signatures...........................................................27
2
THE FOLLOWING CONSOLIDATED STATEMENT OF OPERATIONS HAS BEEN PREPARED ON
A PROSPECTIVE BASIS. THE DECONSOLIDATION OF LANCER ORTHODONTICS FROM BIOMERICA
OCCURRED DECEMBER 1, 2005. THEREFORE, THE NINE MONTHS ENDED FEBRUARY 28, 2006,
INCLUDE THE OPERATIONS FOR BIOMERICA DIAGNOSTICS FOR NINE MONTHS BUT ONLY SIX
MONTHS OF OPERATIONS FOR LANCER ORTHODONTICS. THE NINE MONTHS ENDED FEBRUARY 28,
2005, INCLUDE NINE MONTHS OF OPERATIONS OF BOTH BIOMERICA DIAGNOSTICS AND LANCER
ORTHODONTICS. THE THREE MONTHS ENDED FEBRUARY 28, 2006 INCLUDE ONLY THE RESULTS
OF OPERATIONS FOR BIOMERICA DIAGNOSTICS AND THE THREE MONTHS ENDED FEBRUARY 28,
2005 INCLUDE THREE MONTHS OF OPERATIONS OF BOTH BIOMERICA DIAGNOSTICS AND LANCER
ORTHODONTICS. PLEASE REFER TO THE FOLLOWING NOTE 1, WHICH GIVES A BREAKDOWN OF
THE RESULTS BY COMPANY.
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS (UNAUDITED)
(SEE NOTE 1)
Nine Months Ended Three Months Ended
February 28, February 28,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales ..................................................... $ 5,717,260* $ 6,691,509 $ 998,070* $ 2,344,536
Cost of sales ............................................ (3,820,715) (4,461,838) (649,468) (1,563,917)
----------- ----------- ----------- -----------
Gross profit ............................................. 1,896,545 $ 2,229,671 $ 348,602 $ 780,619
----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative ...................... 1,866,470 2,195,439 272,890 659,421
Research and development ................................. 193,360 203,816 38,779 61,309
----------- ----------- ----------- -----------
2,059,830 2,399,255 311,669 720,730
----------- ----------- ----------- -----------
Operating (loss) income from continuing operations ............ (163,285) (169,584) 36,933 59,889
----------- ----------- ----------- -----------
Other Expense (income):
Interest expense ......................................... 36,751 28,692 7,248 11,113
Other income, net ........................................ (45,575) (19,501) (730) 3,472
----------- ----------- ----------- -----------
(8,824) 9,191 6,518 14,585
----------- ----------- ----------- -----------
(Loss) income from continuing operations, before
minority interest in net loss of consolidated
subsidiaries and income taxes ............................... (154,461) (178,775) 30,415 45,304
Minority interest in net losses of consolidated subsidiary .... 251,670 127,270 -- 27,170
----------- ----------- ----------- -----------
Income (loss) from continuing operations,
before income taxes ......................................... 97,209 (51,505) 30,415 72,474
Income tax expense ............................................ 2,400 1,938 800 338
----------- ----------- ----------- -----------
Net income (loss) from continuing operations .................. 94,809 (53,443) 29,615 72,136
*THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. PLEASE REFER
TO NOTE 1 FOR A BREAKDOWN OF RESULTS BY COMPANY.
3
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS - Continued (UNAUDITED)
(SEE NOTE 1)
Nine Months Ended Three Months Ended
February 28, February 28,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Discontinued operations:
Income from discontinued operations, net ....................... -- 6,600 -- --
------------- ------------- ------------- -------------
Net income (loss) ................................................ 94,809 (46,843) 29,615 72,136
Other comprehensive loss, net of tax
Unrealized loss on available-for-sale
securities .................................................... (240,100) (12,904) (236,286) (5,462)
------------- ------------- ------------- -------------
Comprehensive (loss) income ...................................... $ (145,291) $ (59,747) $ (206,671) $ 66,674
============= ============= ============= =============
Basic net income (loss) per common share:
Net income (loss) from continuing operations ................ $ .01 $ (.01) $ .00 $ .01
Net income (loss) from discontinued operations .............. .00 .00 .00 .00
------------- ------------- ------------- -------------
Basic net income (loss) per common share ......................... $ .01 $ (.01) .00 $ .01
============= ============= ============= =============
Diluted net income (loss) per common share
Net income (loss) from continuing operations ................ $ .01 $ (.01) $ .00 $ .01
Net income (loss) from discontinued operations .............. .00 .00 .00 .00
------------- ------------- ------------- -------------
Diluted net income (loss) per common share ....................... $ .01 $ (.01) $ .00 $ .01
============= ============= ============= =============
Weighted average number of common and common equivalent shares: ..
Basic ....................................................... 5,753,831 5,752,431 5,753,912 5,752,431
============= ============= ============= =============
Diluted ..................................................... 6,617,955 5,752,431 6,604,035 6,568,121
============= ============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS. PLEASE REFER TO
NOTE 1 FOR A BREAKDOWN OF RESULTS BY COMPANY.
4
THE FOLLOWING BALANCE SHEET PRESENTS FINANCIAL INFORMATION AFTER THE
DECONSOLIDATION OF LANCER ORTHODONTICS FROM BIOMERICA.
BIOMERICA, INC.
BALANCE SHEET (UNAUDITED)
February 28,
2006
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Assets
Current Assets
Cash and cash equivalents ............................................. $ 47,176
Available for-sale securities ......................................... 400,286
Accounts receivable, less allowance for doubtful accounts of $10,750 .. 532,834
Inventories, net of reserve of $2,972 ................................. 1,166,778
Notes receivable ...................................................... 4,650
Prepaid expenses and other ............................................ 41,415
----------
Total Current Assets ............................................ 2,193,139
Inventory, non-current .................................................... 7,810
Property and Equipment, net of accumulated depreciation and amortization .. 122,854
Intangible assets, net of accumulated amortization ........................ 9,057
Other Assets .............................................................. 13,419
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$2,346,279
==========
The accompanying notes are an integral part of these statements.
5
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET - Continued (UNAUDITED)
February 28,
2006
------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities ...................... $ 677,778
Accrued compensation .......................................... 442,709
Current portion of shareholder loan ........................... 267,602
Net liabilities from discontinued operations .................. 104,579
------------
Total Current Liabilities ................................ 1,492,668
Shareholders' Equity
Common stock, $0.08 par value authorized 25,000,000 shares, ...
subscribed or issued and outstanding 5,753,831 .............. 460,313
Additional paid-in-capital .................................... 17,053,722
Accumulated other comprehensive loss .......................... (240,100)
Accumulated deficit ........................................... (16,420,324)
------------
Total Shareholders' Equity ......................................... 853,611
Total Liabilities and Equity ....................................... $ 2,346,279
============
The accompanying notes are an integral part of these statements.
6
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended February 28, 2006 2005
--------- ---------
Cash flows from operating activities:
Net income (loss) from continuing operations ........................... $ 94,809 $ (53,443)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization ..................................... 107,597 120,747
Minority interest in net loss of consolidated subsidiary .......... (251,670) (127,270)
Gain on sales of marketable securities ............................ -- (8,888)
Common stock, warrants and options issued for services rendered ... 3,739 10,712
Common stock issued by subsidiary for services rendered ........... -- 58,250
Provision for losses on accounts receivable ....................... 16,092 (61,414)
Loss on disposal of fixed assets .................................. 1,704 1,258
Provision for losses on inventory ................................. (714) --
Changes in current assets and liabilities:
Accounts receivable ............................................. (417,219) (181,100)
Inventories ..................................................... (311,394) (162,643)
Prepaid expenses and other current assets ....................... (22,098) 58,622
Accounts payable and other accrued liabilities .................. 340,800 126,772
Accrued compensation ............................................ 2,065 82,709
--------- ---------
Net cash used in operating activities .................................. (436,289) (135,688)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ............................... (247,577) (177,950)
Other assets ...................................................... -- (13,419)
--------- ---------
Net cash used in investing activities .................................. (247,577) (191,369)
--------- ---------
Cash flows from financing activities:
Sales of available for sale securities ............................ -- 8,888
Change in minority interest ....................................... 37,250 --
Decrease in shareholder loan ...................................... (33,485) --
Exercise of stock options ......................................... 398
Exercise of stock option at subsidiary ............................ -- 1,170
Increase in line of credit at subsidiary .......................... 65,000 195,415
Payments of capital leases at subsidiary .......................... (25,799) --
Private placement at subsidiary ................................... 469,800 --
--------- ---------
Net cash provided by financing activities .............................. 513,164 205,473
--------- ---------
Net cash used in discontinued operations ............................... -- (9,744)
--------- ---------
Net decrease in cash and cash equivalents .............................. (170,702) (131,328)
Net decrease in cash-reclassification of
Lancer Orthodontics Inc. to the cost method ........................ (134,003) --
Cash at beginning of period ............................................ 351,881 352,374
--------- ---------
Cash at end of period .................................................. $ 47,176 $ 221,046
========= =========
Supplemental Disclosure of Cash Flow Information
Cash Paid During The Year For:
Interest .......................................................... $ 36,751 $ 28,692
Income taxes ...................................................... $ 2,400 $ 1,938
========= =========
Supplemental disclosures on non-cash investing & financing activity
Change in unrealized holding loss on available-for-sale securities ... $(240,626) $ (12,904)
========= =========
Change in minority interest due to subsidiary stock issuance ......... $ (57,769) $ (26,872)
========= =========
Capital lease for purchase of fixed assets ........................... $ 360,593 $ --
========= =========
Increase in investment due to de-consolidation of Lancer ............. $ 632,732 $ --
========= =========
The accompanying notes are an integral part of these statements.
7
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended February 28, 2006 2005
----------- -----------
Changes due to de-consolidation of Lancer
Accounts Receivable .......................... $ 1,590,504 $ --
Inventories .................................. 1,838,698 --
Prepaid expenses and other current assets .... 90,676 --
Net fixed assets ............................. 1,197,310 --
Other ........................................ 48,821 --
----------- -----------
Subtotal assets ................................... 4,766,009 --
----------- -----------
Accounts payable and other accrued liabilities 899,483 --
Line of credit ............................... 240,000 --
Capital lease ................................ 334,794 --
Subscribed stock ............................. 85,850 --
Common stock ................................. 5,670,565 --
Accumulated deficit .......................... (2,330,680) --
----------- -----------
Subtotal liabilities & equity ..................... (4,900,012) --
----------- -----------
Net decrease in cash .............................. $ (134,003) $ --
=========== ===========
The accompanying notes are an integral part of these statements.
8
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
February 28, 2006
(1) Reference is made to Note 2 of the Notes to Consolidated Financial
Statements contained in Biomerica, Inc.'s (the "Company") Annual Report on Form
10-KSB for the fiscal year ended May 31, 2005, for a summary of significant
accounting policies utilized by the Company.
In Note 2 under the section entitled, "Principles of Consolidation", in
the description of the Company's consolidated subsidiaries, Lancer Orthodontics,
Inc., is listed. Historically, certain Biomerica board members who owned shares
of common stock of Lancer Orthodontics, Inc. had agreed to vote their shares of
Lancer common stock in the same manner as the Biomerica board voted its shares
of Lancer common stock for issues requiring the vote of Lancer's stockholders.
These agreements, when combined with Biomerica's ownership interests in Lancer,
resulted in Biomerica controlling over 50% of Lancer's voting securities and a
consolidation of Lancer's financial statements into Biomerica's financial
statements. As of December 1, 2005, the above-mentioned Biomerica board members
reserved their right no longer to vote their shares of Lancer in the same manner
as the Biomerica board votes Biomerica's shares of Lancer. Therefore, effective
as of December 1, 2005, Lancer's financial statements will no longer be
consolidated with those of Biomerica because Biomerica will no longer have
direct or indirect control of more than 50% of Lancer's common stock. As of
December 1, 2005, Biomerica holds less than 20% of Lancer's common stock and
therefore Biomerica's investment will be accounted for under the provision of
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", or carried at cost, as appropriate.
THE FOLLOWING TABLES PRESENTS ON A PRO FORMA BASIS A BREAKDOWN BY
COMPANY OF THE STATEMENT OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED
FEBRUARY 28, 2006 AND 2005. THE FIRST TABLE PRESENTS BIOMERICA ON A STAND-ALONE
BASIS FOR ALL PERIODS SHOWN. THIS IS FOLLOWED BY A BREAKDOWN BY COMPANY FOR THE
NINE MONTH PERIODS ENDED FEBRUARY 28, 2006 AND 2005. ALSO INCLUDED IS A
BREAKDOWN OF THE THREE MONTHS ENDED FEBRUARY 28, 2005. THE THREE MONTHS ENDED
FEBRUARY 28, 2006 IN THE STATEMENT OF OPERATIONS REPRESENTS BIOMERICA ON AN
UNCONSOLIDATED BASIS. THE PROFORMA STAND- ALONE RESULTS OF BIOMERICA (BELOW) ARE
PRESENTED AS IF THE DECISION TO NO LONGER VOTE THEIR SHARES OF LANCER IN THE
SAME MANNERS AS THE BIOMERICA BOARD VOTES BIOMERICA'S SHARES OF LANCER DISCUSSED
ABOVE OCCURRED MAY 31, 2005.
STAND-ALONE RESULTS FOR BIOMERICA (UNAUDITED)
Nine Months Ended Three Months Ended
February 28, February 28,
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales .......................................... $ 2,792,222 $ 2,329,117 $ 998,070 $ 872,996
Cost of sales ................................. (1,646,000) (1,398,084) (649,468) (525,115)
----------- ----------- ----------- -----------
Gross profit .................................. 1,146,222 931,033 348,602 347,881
----------- ----------- ----------- -----------
Operating Expenses:
Selling, general and administrative ........... 837,411 797,983 272,890 220,377
Research and development ...................... 150,890 131,060 38,779 39,430
----------- ----------- ----------- -----------
988,301 929,043 311,669 259,807
----------- ----------- ----------- -----------
Operating income from continuing operations ........ 157,921 1,990 36,933 88,074
----------- ----------- ----------- -----------
Other Expense (income):
Interest expense .............................. 22,295 23,780 7,248 7,900
Other income, net ............................. (28,259) (12,400) (730) (402)
----------- ----------- ----------- -----------
(5,964) 11,380 6,518 7,498
----------- ----------- ----------- -----------
(Loss) income from continuing operations, before
minority interest in net loss of consolidated
subsidiaries and income taxes ................... 163,885 (9,390) 30,415 80,576
Income tax expense ................................. 1,600 800 800 --
----------- ----------- ----------- -----------
Net income (loss) from continuing operations ....... 162,285 (10,190) 29,615 80,576
Income from discontinued operations, net ........... -- 6,600 -- --
----------- ----------- ----------- -----------
Net income (loss) .................................. $ 162,285 $ (3,590) $ 29,615 $ 80,576
=========== =========== =========== ===========
9
PRO FORMA STATEMENT OF OPERATIONS BY COMPANY (UNAUDITED)
Nine Months Ended
February 28, 2006
Lancer
Intercompany Pro-forma Biomerica
Actual Eliminations adjustments Stand-alone
----------- ----------- ----------- -----------
NET SALES $ 5,717,260 $(2,925,038) $ 2,792,222
COST OF SALES (3,820,715) $ (15,780)(1) 2,190,495 (1,646,000)
----------- ----------- ----------- -----------
GROSS PROFIT 1,896,545 $ (15,780) (734,543) 1,146,222
----------- ----------- ----------- -----------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMIN 1,866,470 (1,029,059) 837,411
RESEARCH AND DEVELOPMENT 193,360 (42,470) 150,890
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,059,830 (1,071,529) 988,301
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (163,285) (15,780) 336,986 157,921
OTHER EXPENSE (INCOME)
Interest expense 36,751 (14,456) 22,295
Other expense (income) (45,575) (15,780)(2) 33,096 (28,259)
----------- ----------- ----------- -----------
(8,824) (15,780)(2) 18,640 (5,964)
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS BEFORE INTEREST
IN NET INCOME (LOSS) OF CONSOLIDATED
SUBSIDIARIES AND INCOME TAXES (154,461) 318,346 163,885
MINORITY INTEREST IN NET LOSS (INCOME)
OF LANCER 251,670 (319,146)(3) -- --
67,476 (4) --
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS
BEFORE INCOME TAXES 97,209 (251,670) 318,346 163,885
----------- ----------- ----------- -----------
INCOME TAX EXPENSE 2,400 (800) 1,600
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 94,809 $ (251,670) $ 319,146 $ 162,285
=========== =========== =========== ===========
(1) To record the charge for rent by Lancer at the manufacturing facility in Mexico which was eliminated in
consolidation.
(2) To record the income from Biomerica received by Lancer for rent at the Mexico facility, which was
eliminated in consolidation.
(3) To de-consolidate Lancer's loss.
(4) Elimination of Biomerica's portion of Lancer's operations as if the termination of the voting agreement
occurred May 31, 2005.
10
PRO FORMA STATEMENT OF OPERATIONS BY COMPANY (UNAUDITED)
Nine Months Ended
February 28, 2005
Lancer
Intercompany Pro-forma Biomerica
Actual Eliminations adjustments Stand-alone
----------- ----------- ----------- -----------
NET SALES $ 6,691,509 ($4,362,392) $ 2,329,117
COST OF SALES (4,461,838) (25,875)(1) 3,089,629 (1,398,084)
----------- ----------- ----------- -----------
GROSS PROFIT 2,229,671 (25,875)(1) (1,272,763) 931,033
----------- ----------- ----------- -----------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMIN 2,195,439 (1,397,456) 797,983
RESEARCH AND DEVELOPMENT 203,816 (72,756) 131,060
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,399,255 (1,470,212) 929,043
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (169,584) (25,875)(1) 197,449 1,990
OTHER EXPENSE (INCOME)
Interest expense 28,692 (4,912) 23,780
Other expense (income) (19,501) (25,875)(2) 32,976 (12,400)
----------- ----------- ----------- -----------
9,191 (25,875)(2) 28,064 11,380
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS BEFORE INTEREST
IN NET INCOME (LOSS) OF CONSOLIDATED
SUBSIDIARIES AND INCOME TAXES (178,775) 169,385 (9,390)
MINORITY INTEREST IN NET LOSS (INCOME)
OF LANCER 127,270 (170,523)(3) -- --
43,253 (4)
----------- ----------- ----------- -----------
INTEREST IN NET INCOME OF CONSOLIDATED
SUBSIDIARIES - DISCONTINUED
OPERATIONS 6,600 6,600
INCOME TAX EXPENSE 1,938 (1,138) 800
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (46,843) $ (127,270) $ 170,523 $ (3,590)
=========== =========== =========== ===========
(1) To record the charge for rent by Lancer at the manufacturing facility in Mexico which was eliminated
in consolidation.
(2) To record the income from Biomerica received by Lancer for rent at the Mexico facility, which was
eliminated in consolidation.
(3) To de-consolidate Lancer's loss.
(4) Elimination of Biomerica's portion of Lancer's operations as if the termination of the voting
agreement occurred May 31, 2005.
11
PRO FORMA STATEMENT OF OPERATIONS BY COMPANY (UNAUDITED)
Three Months Ended
February 28, 2005
Lancer
Intercompany Pro-forma Biomerica
Actual Eliminations adjustments Stand-alone
----------- ----------- ----------- -----------
NET SALES $ 2,344,536 $(1,471,540) $ 872,996
COST OF SALES (1,563,917) (8,625)(1) 1,047,427 (525,115)
----------- ----------- ----------- -----------
GROSS PROFIT 780,619 (8,625)(1) (424,113) 347,881
----------- ----------- ----------- -----------
OPERATING EXPENSES:
SELLING, GENERAL AND ADMINISTRATIVE 659,421 (439,044) 220,377
RESEARCH AND DEVELOPMENT 61,309 (21,879) 39,430
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 720,730 (460,923) 259,807
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 59,889 (8,625)(1) 36,810 88,074
OTHER INCOME (EXPENSE)
Interest expense 11,113 (3,213) 7,900
Other expense (income) 3,472 (8,625)(2) 4,751 (402)
----------- ----------- ----------- -----------
14,585 (8,625)(2) 1,538 7,498
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS BEFORE INTEREST
IN NET INCOME (LOSS) OF CONSOLIDATED
SUBSIDIARIES AND INCOME TAXES 45,304 35,272 80,576
MINORITY INTEREST IN NET LOSS (INCOME) 27,170 (35,610)(3) --
OF LANCER 8,440 (4)
----------- ----------- ----------- -----------
Income (loss) from operations
Before income taxes 72,474 (27,170) 35,272 80,576
----------- ----------- ----------- -----------
INCOME TAX EXPENSE 338 (338) --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 72,136 $ (27,170) $ 35,610 $ 80,576
=========== =========== =========== ===========
(1) To record the charge for rent by Lancer at the manufacturing facility in Mexico which was eliminated in
consolidation.
(2) To record the income from Biomerica received by Lancer for rent at the Mexico facility, which was
eliminated in consolidation.
(3) To de-consolidate Lancer's loss.
(4) Elimination of Biomerica's portion of Lancer's operations as if the termination of the voting agreement
occurred May 31, 2005.
PRO FORMA STATEMENT OF OPERATIONS BY COMPANY (UNAUDITED)
(2) As of February 28, 2006, the Company had cash and available-for-sale
securities in the amount of $447,462 and working capital of $700,471. Of the
$447,462 in cash and available-for-sale securities, and $700,471 in working
capital, $396,466 relates to stock held in the former subsidiary, Lancer
Orthodontics. This stock is restricted and should the Company desire to sell
this stock on the open market, it may be subject to certain trading restrictions
as imposed by the Federal Securities Act of 1933. Of the total working capital,
negative working capital of $104,579 relates to the discontinued operation,
ReadyScript.
12
These consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has operating and
liquidity concerns due to historically reporting net losses and negative cash
flows from operations. Biomerica, Inc. entered into an agreement for a line of
credit agreement on September 12, 2000 with a shareholder whereby the
shareholder would loan to the Company, as needed, up to $500,000 for working
capital needs. The line of credit bore interest at 8%, was secured by accounts
receivable and inventory, and expired September 13, 2003. In March 2004 the
Company signed a note payable for the principal and interest due at that time of
$313,318 and agreed to a forbearance of any payments for the length of the
agreement. A warrant for 40,000 shares of restricted common stock exercisable at
a price of $.51 per share was awarded as compensation for the forbearance. The
note payable is secured by all of the Company's assets except for the Lancer
common stock owned by Biomerica. The note was due September 1, 2004. On November
19, 2004, the Company entered into an agreement entitled "Amendment of the Note,
Loan and Modification Agreement" and "Amended And Restated Promissory Note"
which were included as exhibits to the Form 10QSB filed April 14, 2004. The
Amendment of the Note, Loan And Modification Agreement was filed as an exhibit
to a Form 8K filed November 24, 2004. The agreement extended the maturity date
of the note until August 31, 2005 and allows for minimum payments of $4,000 per
month and additional contingent payments of up to $3,500 per month based on the
Company's quarterly performance. The collateral remains the same under the
Amendment. The agreement has since been extended for a one-year period and
therefore now expires August 31, 2006. There was $267,602 of outstanding
principal and $0 of interest payable under this note payable at February 28,
2006. As of April 14, 2006, the Company was not in compliance with the terms of
the above agreements. An additional contingent payment totaling $10,500 that was
due after the filing of the Company's Form 10QSB for the quarter ended August
31, 2005, and $10,500 that was due after the filing of the Company's Form 10QSB
for the quarter ended November 30, 2005 have not been paid.
The Company has suffered substantial recurring losses from operations
over the last several years. Biomerica 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 contributor to the
Company's losses in prior fiscal years. During the fiscal years ended May 31,
2005 and 2004, certain liabilities were forgiven and thus income from
discontinued operations for the years then ended was recorded. The subsidiary is
being reported in the financial statements as a discontinued operation because
it is no longer an operating entity.
In the last several years the Company has been focusing on reducing
costs where possible and concentrating on its core business to increase sales.
Management believes that cash flows from the current diagnostics operations is
sufficient to fund the diagnostics operations for at least the next twelve
months. Should the Company have a downturn in sales or unanticipated, increased
expenses, the result for the Company could be the inability to continue as a
going concern. The Company will continue to have limited cash resources.
Biomerica has no open or existing operating line of credit or loans on which it
can draw any new or additional debt financing.
Our independent registered public accounting firm has concluded that
there is substantial doubt as to the Company's ability to continue as a going
concern for a reasonable period of time, and have, therefore modified their
report for the year ended May 31, 2005 in the form of an explanatory paragraph
describing the events that have given rise to this uncertainty. The consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
During 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "ACCOUNTING FOR
STOCK-BASED COMPENSATION," which defines a fair value based method of accounting
for stock-based compensation. However, SFAS 123 allows an entity to continue to
measure compensation cost related to stock and stock options issued to employees
using the intrinsic method of accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES."
Entities electing to remain with the accounting method of APB 25 must make
pro forma disclosures of net (loss) income and (loss) earnings per share, as if
the fair value method of accounting defined in SFAS 123 had been applied. The
Company has elected to account for its stock-based compensation to employees
under APB 25.
In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "ACCOUNTING
FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE - AN AMENDMENT TO SFAS
NO. 123." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method on accounting for stock-based
employee compensation. The Company currently does not intend to adopt SFAS No.
123 and the implementation of SFAS No. 148 did not have a material effect on the
Company's consolidated financial position or results of operations.
13
The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the option vesting period. Adjustments are
made for options forfeited prior to vesting. The effect on compensation expense,
net loss, and net loss per share (basic and diluted) had compensation costs for
the Company's stock option plans been determined based on fair value on the date
of grant consistent with the provisions of SFAS 123 are as follows:
Nine Months Ended Three Months Ended
February 28, 2006 2005 2006 2005
-------- -------- -------- --------
Net income (loss) from continuing
operations, as reported $ 94,809 $(53,443) $ 29,615 $ 72,136
Plus: Stock-based employee compensation
expense included in reported net income (loss) 702 312 233 69
Less: Stock-based employee compensation
expense determined using fair value
based method (17,483) (22,960) (1,380) (8,731)
-------- -------- -------- --------
Net income (loss) from continuing operations,
pro forma $ 78,028 $(76,091) $ 28,468 $ 63,474
======== ======== ======== ========
Pro forma net income (loss) from
continuing operations
per share - basic $ .01 $ (0.01) $ .00 $ .01
======== ======== ======== ========
Pro forma net income (loss) from
continuing operations
per share - diluted $ .01 $ (0.01) $ .00 $ .01
======== ======== ======== ========
(3) The following summary presents the options granted, exercised, expired, and
outstanding as of February 28, 2006:
Weighted
Average
Number of Options and Warrants Exercise
Employee Non-employee Total Price
---------- ---------- ---------- --------
Outstanding
May 31, 2005 1,427,808 174,829 1,602,637 $ .90
Granted 141,000 -- 141,000 .52
Exercised (14,250) -- (14,250) .27
Expired (235,688) (37,246) (272,934) 1.47
Cancelled (27,050) -- (27,050) .56
---------- ---------- ---------- --------
Outstanding
February 28, 2006 1,291,820 137,583 1,429,403 $ 0.77
========== ========== ========== ========
(4) The information set forth in these consolidated 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 the consolidated 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.
(5) Consolidated 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.
(6) Reference is made to Note 3 of the Notes to Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 2005, for a description of the investments in
affiliates and consolidated subsidiaries. As of December 1, 2005, the financials
of Lancer have not been consolidated with those of Biomerica. Please refer to
footnote 23 contained herein.
14
(7) Reference is made to Notes 5 & 10 of the Notes to Consolidated Financial
Statements contained in the Company's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 2005, for information on commitments and
contingencies.
(8) Aggregate cost exceeded market value of available-for-sale securities by
approximately $3,834 at February 28, 2006.
(9) 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.
The following table illustrates the required disclosure of the reconciliation of
the numerators and denominators of the basic and diluted EPS computations.
For the Nine Months Ended February 28, 2006
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Numerator
Income from continuing
operations .......................... $ 94,809 5,753,831 $ .01
------------ ------------ ------------
$ 94,809 5,753,831 $ .01
------------ ------------ ------------
Effect of dilutive securities:
Options and warrants ..................... 864,024
Diluted EPS -
Income attributable to common share
holders .............................. $ 94,809 6,617,955 $ .01
============ ============ ============
For the Nine Months Ended February 28, 2005
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Loss from continuing
operations ...................... $ (53,443) 5,752,431 $ (.01)
Gain (loss) from discontinued
operations ..................... 6,600 .00
------------ ------------ ------------
$ ($46,843) 5,752,431 $ (.01)
============ ============ ============
Diluted EPS -
Loss attributable to common share
holders ........................ $ (46,843) 5,752,431 $ (.01)
============ ============ ============
For the Three Months Ended February 28, 2006
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Income from continuing
operations ...................... $ 29,615 5,753,912 $ .00
------------ ------------ ------------
$ 29,615 5,753,912 $ .00
------------ ------------ ------------
Effect of dilutive securities........... 850,204
Diluted EPS -
Gain attributable to common share -
holders ........................ $ 29,615 6,604,035 $ .00
============ ============ ============
15
For the Three Months Ended February 28, 2005
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------ ------------
Basic EPS -
Gain from continuing
operations ...................... $ 72,136 5,752,431 $ .01
------------ ------------ ------------
$ 72,136 5,752,431 $ .01
------------ ------------ ------------
Effect of dilutive securities........... 815,690
Diluted EPS -
Gain attributable to common share -
holders ........................ $ 72,136 6,568,121 $ .01
============ ============ ============
(10) In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities". In December 2003, FIN 46 was replaced by FASB
Interpretation No. 46R, "Consolidation of Variable Interest Entities." FIN 46R
clarifies some of the provisions of FIN 46 and exempts certain entities from its
requirements. FIN 46R was effective at the end of the first interim period
ending March 15, 2004. Entities that have adopted FIN 46 prior to this date can
continue to apply provisions of FIN 46 until the effective date of FIN 46R or
early election of FIN 46R. This interpretation clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
relating to consolidation of certain entities. FIN No. 46 requires
identification of the Company's participation in variable interests entities
("VIEs"), which are defined as entities with a level of invested equity that is
not sufficient to fund future activities to permit them to operate on a
stand-alone basis, or whose equity holders lack certain characteristics of a
controlling financial interest. For entities identified as VIEs, FIN No. 46 sets
forth a model to evaluate potential consolidation based on an assessment of
which party to the VIE, if any, bears a majority of the exposure to its expected
losses, or stands to gain from a majority of its expected returns. FIN No. 46
also sets forth certain disclosures regarding interests in VIE that are deemed
significant, even if consolidation is not required. The adoption of FIN No. 46
did not have a material impact on the Company's financial position or results of
operations.
In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets- An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the exchange. The provisions of SFAS No. 153 are effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application was permitted and companies must apply the standard
prospectively. The adoption of this standard is not expected to have a material
effect on the Company's results of operations or financial position.
In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123R). FAS No. 123R revised SFAS No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R will require compensation costs related to share-based
payment transactions to be recognized in the financial statement (with limited
exceptions). The amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the award.
In March 2005, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 107 ("SAB No. 107"), Share-Based Payment,
providing guidance on option valuation methods, the accounting for income tax
effects of share-based payment arrangements upon adoption of SFAS No. 123R, and
the disclosures in MD&A subsequent to the adoption. The Company will provide SAB
No. 107 required disclosures upon adoption of SFAS No. 123R on June 1, 2006 and
is currently evaluating the impact the adoption of the standard will have on the
Company's financial condition, results of operations, and cash flows.
16
In April 2005, the Securities and Exchange Commission adopted a new
rule that amends the compliance dates for SFAS No. 123R. The Statement requires
that compensation cost relating to share-based payment transactions be
recognized in financial statements and that this cost be measured based on the
fair value of the equity or liability instruments issued. SFAS No. 123R covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. The Company will adopt SFAS No. 123R on June 1,
2006 and is currently evaluating the impact the adoption of the standard will
have on the Company's results of operations.
In June 2005, the FASB issued SFAS No. 154, Accounting Changes and
Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The
Statement applies to all voluntary changes in accounting principle, and changes
the requirements for accounting for and reporting of a change in accounting
principle. SFAS No. 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impractical. APB Opinion No. 20 previously required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
SFAS No.154 improves the financial reporting because its requirements enhance
the consistency of financial reporting between periods. The Company does not
believe the adoption of this standard will have an impact on its results of
operations.
In February 2006, the FASB issued FAS No. 155, Accounting for Certain Hybrid
Financial Instruments-an amendment of FASB Statements No. 133 and 140 ("FAS No.
155"). This statement resolves issues addressed in FAS No. 133 Implementation
Issue No. D1, Application of Statement 133 to Beneficial Interest in Securitized
Financial Assets. FAS No. 155: (a) permits fair value remeasurement for any
hybrid financial instrument that contains an embedded derivative that otherwise
would require bifurcation; (b) clarifies which interest-only strips and
principal-only strips are not subject to the requirements of FAS No. 133; (c)
establishes a requirement to evaluate beneficial interests in securitized
financial assets to identify interests that are freestanding derivatives or that
are hybrid financial instruments that contain an embedded derivative requiring
bifurcation; (d) clarifies that concentrations of credit risk in the form of
subordination are not embedded derivatives; and, (e) eliminates restrictions on
a qualifying special-purpose entity's ability to hold passive derivative
financial instruments that pertain to beneficial interests that are or contain a
derivative financial instrument. FAS No. 155 also requires presentation within
the financial statements that identifies those hybrid financial instruments for
which the fair value election has been applied and information on the income
statement impact of the changes in fair value of those instruments. The Company
is required to apply FAS No. 155 to all financial instruments acquired, issued
or subject to a remeasurement event beginning June 1, 2007. The Company does not
expect the adoption of FAS No. 155 to have a material impact on the Company's
financial statements.
(11) Financial information about consolidated foreign and domestic operations
and export sales is as follows. The period ended February 28, 2006, includes
nine months of sales for Biomerica and six months of sales for Lancer. The
period ended February 28, 2005 shows consolidated numbers for the nine months
ended February 28, 2005, as well as a breakdown by company:
For the nine months ended 2/28/06: Consolidated Lancer Biomerica
------------ ------------ ------------
Revenues from sales to unaffiliated customers:
United States $ 2,286,000 ($1,584,000) $ 702,000
Asia 267,000 (23,000) 244,000
Europe 2,010,000 (678,000) 1,332,000
South America 441,000 (379,000) 62,000
Oceania 427,000 (17,000) 410,000
Other 286,000 (244,000) 42,000
------------ ------------ ------------
$ 5,717,000 ($2,925,000) $ 2,792,000
============ ============ ===========
For the nine months ended 2/28/05: Consolidated Lancer Biomerica
------------ ------------ ------------
Revenues from sales to unaffiliated customers:
United States $ 2,915,000 ($2,245,000) $ 670,000
Asia 184,000 (26,000) 158,000
Europe 2,065,000 (1,260,000) 805,000
South America 299,000 (260,000) 39,000
Oceania 493,000 (226,000) 267,000
Other 736,000 (346,000) 390,000
------------ ------------ ------------
$ 6,692,000 ($4,363,000) $ 2,329,000
============ ============ ============
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
17
(12) During fiscal 2005, Biomerica granted 169,000 stock options to purchase
shares of common stock at an exercise price of $.33 to select employees and
consultants of the Company. The options vest over four years, and have a term of
five years. Management assigned a value of $3,500 to these options. These
options were granted under the Company's existing 1995 and 1999 Stock Option and
Restricted Stock Plan.
During fiscal 2005, Biomerica granted 75,000 stock options to purchase
shares of common stock at an exercise price of $.40 to outside directors and the
President. The options vest over four years, and have a term of five years.
Management assigned a value of $0 to these options.
During fiscal 2006 an employee of the Company exercised a stock option
for 750 shares at the purchase price of $.20 per share and 750 shares at the
purchase price of $.33 per share. The total proceeds to the Company was $398.
Options for an additional 12,750 shares were exercised at the end of February
2006. Of these shares, 9,000 were at the purchase price of $.20 per share and
3,750 were at a price of $.33 per share. The proceeds to the Company for these
options was $3037.50. These shares have been classified as Common Stock
Subscribed as of February 28, 2006, since they had not been issued as of that
date.
In June 2005 the Company granted 111,000 stock options to purchase
shares of common stock at an exercise price of $.53 to several of the Company's
officers. The options vest over four years and have a term of five years.
Management assigned a value of $0 to these options.
On September 14, 2005, the Company granted 10,000 stock options to
purchase shares of common stock at an exercise price of $.47 to an employee of
the Company. The options vest over four years and have a term of five years.
Management assigned a value of $0 to these options.
On February 28, 2006, the Company granted 20,000 stock options to purchase
Shares of common stock at an exercise price of $.48 to employees of the Company.
The options vest over four years and have a term of five years. Management
assigned a value of $0 to these options.
On February 28, 2006, the Board of Directors approved a private placement
to raise from $50,000 to $150,000 at a purchase price of $.50 per share. One
warrant per every three shares purchased shall be issued. The warrants will be
at an exercise price of $.65 and expire five years from date of grant.
Options and warrants granted to employees are assigned values of $0 if
the options are granted at current market value as quoted on Yahoo Finance as of
the date of grant. If options or warrants are granted at a price which is below
market value, the option or warrant is assigned a value according to the amount
per share it is below market value times the number of shares granted. Options
or shares granted to non-employees are assigned values according to current
market value, using the Black-Sholes model for option valuation. The term used
in the calculation of the options or warrants is the life of the option. A
discount rate equivalent to five-year (or other life of the option or warrant)
Treasury constant maturity interest rates is utilized. The historical volatility
of the stock is calculated using weekly historical closing prices for the prior
year as reported by Yahoo Finance. For purposes of the SFAS 123 footnote
disclosure, the Black-Scholes Model is also used for calculating employee
options and warrants valuations.
When shares are issued for services or other non-cash consideration,
fair value is measured using the current market value on the day of the Board of
Directors approval of such issuance.
Effect of Sale of Stock at Subsidiary (for the period of June 1, 2005 through
November 30, 2005)
During the years ended May 31, 2005 and 2004 the Company recognized a
reduction in its additional paid in capital in the amount of $31,494 and
$112,719, respectively, resulting from a decrease in its ownership percentage of
Lancer as a result of Lancer's sale of common stock.
During the quarter ended August 31, 2005 the Company recognized a
reduction in its additional paid in capital in the amount of $50,185 resulting
from a decrease in its ownership percentage of Lancer as a result of Lancer
issuing shares of common stock during the quarter.
During the quarter ended November 30, 2005 the Company recognized a
decrease in its additional paid in capital in the amount of $7,584 resulting
from a decrease in its ownership percentage of Lancer as a result of Lancer's
sale of common stock.
During the quarter ended February 28, 2006, the Company recognized an
increase in its accumulated other comprehensive loss in the amount of $236,266
which was a result of the write-down of the stock which the Company owns in
Lancer Orthodontics. This occurred because the Company de-consolidated its
financials from Lancer, as discussed in Note 1, and the investment was written
down to current market value as reported on Yahoo Finance (Lancer is traded on
the Pink Sheets under the symbol LANZ.PK). Previous to that time, the investment
was eliminated in consolidation.
18
Subsidiary Options, Warrants and Stock Activity (for the period of June 1, 2005
through November 30, 2005)
During the first quarter of fiscal 2006, the Chief Executive Officer of
Lancer was granted a stock option for 100,000 shares of Lancer common stock at
the purchase price of $.65 per share. The options are exercisable one quarter
per year, with the first quarter exercisable immediately, and have a term of
five years.
During the first quarter of fiscal 2006, a total of 20,000 shares
valued at $13,000 and 11,538 shares valued at $7,500 were accrued to be issued
to the Chief Executive Officer/Director and Chairman of the Board, respectively,
of Lancer for services rendered. Neither Director is taking a cash salary.
During the second quarter of fiscal 2006, a total of 20,000 shares
valued at $13,000 and 5,769 shares valued at $3,750 were accrued to be issued to
the Chief Executive Officer/Director and Chairman of the Board, respectively, of
Lancer for Services rendered.
In the first quarter of fiscal 2006 Lancer conducted a private
placement, the purpose of which was to raise funds to proceed with the terms of
the Lingualcare agreement. Lancer sold 592,000 shares of restricted common stock
at the price of $.65 per share. Total gross proceeds to Lancer were $384,800.
The stock was sold primarily to management and directors of Lancer (the
directors are also directors of Biomerica). This private placement further
reduced Biomerica's direct control and ownership percentage in Lancer.
During September 2005 Lancer sold an additional 130,769 shares of
restricted common stock at a price of $.65 per share, as part of the private
placement. Total gross proceeds were approximately $85,000. The stock was sold
to a director of Lancer and Biomerica.
(13) Reportable business segments for the nine months and three months ended
February 28, 2006 and 2005 are as follows. THE NINE MONTH FIGURES FOR FISCAL
2006 INCLUDE ONLY SIX MONTHS OF SALES FOR LANCER ORTHODONTICS SINCE
DECONSOLIDATION OCCURRED AT THE BEGINNING OF THE THIRD QUARTER (SEE NOTE 1). THE
THREE MONTH FIGURES FOR FISCAL 2006 ONLY INCLUDE SALES FOR BIOMERICA.
Nine Months Three Months
Ended February 28, Ended February 28,
----------------------- ----------------------
2006 2005 2006 2005
---------- ---------- --------- ----------
Domestic sales:
Orthodontic products $1,584,000 $2,245,000 $ -- $ 682,000
========== ========== ========= ==========
Medical diagnostic products $ 702,000 $ 670,000 $ 323,000 $ 271,000
========== ========== ========= ==========
Foreign sales:
Orthodontic products $1,341,000 $2,117,000 $ -- $ 789,000
========== ========== ========= ==========
Medical diagnostic products $2,090,000 $1,660,000 $ 675,000 $ 603,000
========== ========== ========= ==========
Nine Months Three Months
Ended February 28, Ended February 28,
-------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales:
Orthodontic products $ 2,925,000 $ 4,362,000 $ -- $ 1,471,000
Medical diagnostic products 2,792,000 2,330,000 998,000 874,000
----------- ----------- ----------- -----------
Total $ 5,717,000 $ 6,692,000 $ 998,000 $ 2,345,000
=========== =========== =========== ===========
Operating (loss) income:
Orthodontic products $ (321,000) $ (198,000) $ -- $ (37,000)
Medical diagnostic products 158,000 28,000 37,000 97,000
----------- ----------- ----------- -----------
Total $ (163,000) $ (170,000) $ 37,000 $ 60,000
=========== =========== =========== ===========
Gain (loss) from discontinued segment:
ReadyScript $ -- $ 6,600 $ -- $ --
----------- ----------- ----------- -----------
Total $ -- $ 6,600 $ -- $ --
=========== =========== =========== ===========
19
As of February 28,
2006 2005
---------- ----------
Domestic long-lived assets:
Orthodontics products $ -- $ 555,000
Medical diagnostic products 103,000 118,000
---------- ----------
Total $ 103,000 $ 673,000
========== ==========
Foreign long-lived assets:
Orthodontics products $ -- $ 102,000
Medical diagnostic products 20,000 15,000
---------- ----------
Total $ 20,000 $ 117,000
========== ==========
Total assets:
Orthodontic products -- $4,208,000
Medical diagnostic products 2,346,000 1,632,000
---------- ----------
Total $2,346,000 $5,840,000
========== ==========
Capital expenditures:
Orthodontics products $ 575,000 $ 149,000
Medical diagnostic products 33,000 29,000
---------- ----------
Total $ 608,000 $ 178,000
========== ==========
The net sales as reflected above consist of sales of unaffiliated
customers only as there were no significant intersegment sales during the nine
months ended February, 2006 and 2005.
(14) In April 2003, Lancer de Mexico entered into a manufacturing subcontractor
agreement with Biomerica, Inc., to provide manufacturing services in Mexicali,
Mexico. The agreement requires reimbursement from Biomerica for discrete
expenses such as payroll, shipping, and customs fees; the lease is $2,335 and
service fees are approximately $2,900 per month.
(15) On July 29, 2005, Biomerica entered into an agreement for the research,
development and transfer of certain technology. The total of the project is
estimated to be $55,000.
(16) On August 20, 2005, the Company and the holder of the Note payable-
shareholder agreed to the extension of the note due date until September 1,
2006, at the same terms and conditions as the previous agreement.
(17) In July 2005, Lancer signed a large contract manufacturing agreement with
an orthodontic reseller, wherein the reseller has committed to purchase at least
$960,000 of product from Lancer during the period of July 1, 2005 to October 1,
2006.
(18) Under its bylaws, the Company has agreed to indemnify its officers and
directors for certain events or occurrences arising as a result of the officer
or director's serving in such capacity. The term of the indemnification period
is for the officer's or director's lifetime. The maximum potential amount of
future payments the Company could be required to make under these
indemnification agreements is unlimited. However, the Company has a directors
and officer liability insurance policy that limits its exposure and enables it
to recover a portion of any future amounts paid.
As a result of its insurance policy coverage, the Company believes the estimated
fair value of these indemnification agreements is minimal and has no liabilities
recorded for these agreements as of February 28, 2006. The Company enters into
indemnification provisions under (i) its agreements with other companies in its
ordinary course of business, typically with business partners, contractors, and
customers, landlords and (ii) its agreements with investors. Under these
provisions the Company generally indemnifies and hold harmless the indemnified
party for losses suffered or incurred by the indemnified party as a result of
the Company's activities or, in some cases, as a result of the indemnified
party's activities under the agreement. These indemnification provisions often
include indemnifications relating to representations made by the Company with
regard to intellectual property rights. These indemnification provisions
generally survive termination of the underlying agreement. The maximum potential
amount of future payments the Company could be required to make under these
indemnification provisions is unlimited. The Company has not incurred material
costs to defend lawsuits or settle claims related to these indemnification
agreements. As a result, the Company believes the estimated fair value of these
agreements is minimal. Accordingly, the Company has no liabilities recorded for
these agreements as of February 28, 2006. As a result of the Company's
deconsolidation of Lancer which occurred December 1, 2005, both companies will
now be required to purchase their own Directors' and Officers' insurance, rather
than have a combined policy.
20
(19) In August and September 2005 Lancer entered into three equipment finance
leases for the purchase of manufacturing equipment for the Lingualcare project
(these replace the agreements entered into July 21, 2005). The lease payments
began in September and October and have a total of $424,574 due and minimum
payments per month of $8,845. The term of the leases is forty-eight months.
These agreements have varying financing terms. Biomerica has no financial
responsibility with respect to these leases.
(20) The Biomerica facilities lease expired October 31, 2005. Management is
currently negotiating an extension of that lease.
(21) 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.
The preparation of these consolidated 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 recognition of revenue, the Allowance for
Doubtful Accounts, Inventory Reserves for Obsolescence and Declines in Market
Value, Impairment of Long-Lived Assets, Stock Based Compensation and Deferred
Income Tax Valuation and Allowances.
We recognize product revenues when an arrangement exists, delivery has occurred,
the price is determinable and collection is reasonably assured.
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 February 28,
2006, 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.
We have provided a full valuation reserve related to our substantial deferred
tax assets. In the future, if sufficient evidence of our ability to generate
sufficient future taxable income in certain tax jurisdictions becomes apparent,
we may be required to reduce our valuation allowances, resulting in income tax
benefits in our consolidated statement of operations. We evaluate the
realizability of the deferred tax assets and assess the need for valuation
allowance quarterly. The utilization of the net operating loss carryforwards
could be substantially limited due to restrictions imposed under federal and
state laws upon a change of ownership.
(22) Risks and Uncertainties
License Agreements - Certain of the Company's sales of products are governed by
license agreements with outside third parties. All of such license agreements to
which the Company currently is a party, are for fixed terms which will expire
after ten years from the commencement of the agreement or upon the expiration of
the underlying patents. After the expiration of the agreements or the patents,
the Company is free to use the technology that had been licensed. There can be
no assurance that the Company will be able to obtain future license agreements
as deemed necessary by management. The loss of some of the current licenses or
the inability to obtain future licenses could have an adverse affect on the
Company's financial position and operations. Historically, the Company has
successfully obtained all the licenses it believed necessary to conduct its
business.
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Distribution - The Company has entered into various exclusive and non-exclusive
distribution agreements (the "Agreements") which generally specify territories
of distribution. The agreements range in term from one to five years. The
Company may be dependent upon such distributors for the marketing and selling of
its products worldwide during the terms of these agreements. Such distributors
are generally not obligated to sell any specified minimum quantities of the
Company's product. There can be no assurance of the volume of product sales that
may be achieved by such distributors.
Government Regulations - The Company's products are subject to regulation by the
FDA under the Medical Device Amendments of 1976 (the "Amendments"). The Company
has registered with the FDA as required by the Amendments. There can be no
assurance that the Company will be able to obtain regulatory clearances for its
current or any future products in the United States or in foreign markets.
European Community - The Company is required to obtain certification in the
European Community to sell products in those countries. The certification
requires the Company to maintain certain quality standards. The Company has been
granted certification on certain products. The Company recently had its yearly
CE Mark Surveillance Audit and has been notified that it has been recommended
for recertification. There is no assurance that the Company will be able to
retain its certification in future years.
Risk of Product Liability - Testing, manufacturing and marketing of the
Company's products entail risk of product liability. The Company currently has
product liability insurance. There can be no assurance, however, that the
Company will be able to maintain such insurance at a reasonable cost or in
sufficient amounts to protect the Company against losses due to product
liability. An inability to maintain such insurance at a reasonable cost or in
sufficient amounts could prevent or inhibit the commercialization of the
Company's products. In addition, a product liability claim or recall could have
a material adverse effect on the business or financial condition of the Company.
(23) Historically, certain Biomerica board members who owned shares of common
stock of Lancer Orthodontics, Inc. had agreed to vote their shares of Lancer
common stock in the same manner as the Biomerica board voted its shares of
Lancer common stock for issues requiring the vote of Lancer's stockholders.
These agreements, when combined with Biomerica's ownership interests in Lancer,
resulted in Biomerica controlling over 50% of Lancer's voting securities and a
consolidation of Lancer's financial statements into Biomerica's financial
statements. As of December 1, 2005, the above-mentioned Biomerica board members
reserved their right no longer to vote their shares of Lancer in the same manner
as the Biomerica board votes Biomerica's shares of Lancer. Therefore, effective
as of December 1, 2005, Lancer's financial statements will no longer be
consolidated with those of Biomerica because Biomerica will no longer have
direct or indirect control of more than 50% of Lancer's common stock. As of
December 1, 2005, Biomerica holds less than 20% of Lancer's common stock and
therefore Biomerica's investment in Lancer will be accounted for under the
provision of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", or carried at cost, as appropriate.
Subsequent Events
In March 2006 the FDA conducted a routine inspection of the Company. The
FDA noted five observations which need correction. Management of the Company has
made a commitment to correct all of these observations within six weeks and does
not anticipate any difficulty in being able to comply with this commitment.
22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA
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 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
Nine and Three Months Comparison for the period ended February 28, 2006
versus 2005
IN THE NINE-MONTH PERIOD IN FISCAL 2006, THE LANCER ORTHODONTICS' FINANCIALS
WERE ONLY CONSOLIDATED WITH THOSE OF BIOMERICA FOR SIX OF THE NINE MONTHS,
WHEREAS THEY WERE INCLUDED FOR NINE MONTHS IN THE NINE-MONTH PERIOD IN FISCAL
2005. THE THREE-MONTH PERIOD ENDED FEBRUARY 28, 2006 DID NOT INCLUDE ANY SALES
OF LANCER, WHEREAS THE PRIOR YEAR INCLUDED THREE MONTHS OF SALES FOR LANCER.
Consolidated net sales for Biomerica were $5,717,260 for the nine
months ended February, 2006 as compared to $6,691,509 for the same period in the
prior fiscal year. This represents a decrease of $974,249, or 14.6% for the nine
month period. The overall decrease in sales from February 28, 2005 compared to
February 28, 2006 is a result of the deconsolidation of Lancer as of December 1,
2005. On a stand-alone basis, the sales of Biomerica increased from $2,329,117
to $2,792,222, or $463,105 (20.0%) for the nine months ended February 28, 2006
as compared to 2005. For the three months ended February 28, 2006 and 2005,
sales decreased by $1,346,466, or 57.4%. The overall decrease in sales for the
three months then ended is a result of the deconsolidation of Lancer as of
December 1, 2005. On a stand-alone basis, Biomerica sales increased from
$872,996 to $998,070, or $125,074 (14.3%). Sales increased due to higher sales
to foreign distributors, as well as increased sales of certain product lines.
For the nine months of fiscal 2006 compared to 2005, cost of sales as a
percentage of sales increased slightly from 66.7% of sales to 66.8% of sales.
For the nine months of fiscal 2006 compared to 2005, Biomerica on a stand-alone
basis had a decrease from 60.0% to 58.9%. On a stand-alone basis for the
three-month period of fiscal 2006 compared to fiscal 2005, cost of goods as a
percentage of sales increased from 60.2% to 65.1%. The increase is attributable
to some non-recurring expenses and yearly expenses that occurred in the quarter
ended February 28, 2006.
Selling, general and administrative costs decreased by $328,969, or
15.0% for the nine months ended 2006. The overall decrease in selling, general
and administrative costs from February 28, 2005 to 2006 is a result of the
deconsolidation of Lancer as of December 1, 2005. On a stand-alone basis the
selling, general and administrative expenses of Biomerica increased by
$39,428, or 4.9%. For the three- month period ended February 28, 2006 selling
and administrative costs decreased by $386,531, or 58.6%. The decrease was due
to the deconsolidation of Lancer as of December 1, 2005. Therefore, in the prior
fiscal year, Lancer costs were included in selling, general and administrative,
however during fiscal 2006, there were no costs from Lancer during the quarter
ended February 28, 2006. On a stand-alone basis, selling, general and
administrative expenses of Biomerica increased by $52,513 for the quarter ended
February 28, 2006. The increases at Biomerica for the nine and three month
periods were attributable to increases in accounting, wages and commissions.
Research and development expenses decreased by $10,456, or 5.1%, for
the nine months ended February 28, 2006. The overall decrease in research and
development expenses from February 28, 2005 to 2006 is a result of the
deconsolidation of Lancer as of December 1, 2005. On a stand-alone basis, the
research and development expenses of Biomerica increased by $19,830, primarily
due to a research contract in this fiscal year. For the three- months ended
February 28, 2006 consolidated research and development expenses decreased by
$22,530 (36.7%). On a stand-alone basis, the research and development expenses
of Biomerica decreased by $651 for the quarter ended February 28, 2006.
23
For the nine months ended February 28, 2006, other income increased
from $19,501 to $45,575, compared to same period in the prior year. On a
stand-alone basis, Biomerica's other income increased by $15,859 due to the
non-sale income realized from a contract with a customer. For the three months
ended February 28, 2006, other income increased by $4,202. On a stand-alone
basis Biomerica's other income increased by $328 for the quarter ended February
28, 2006.
Interest expense increased by $8,059 (28.1%) for the nine months ended
February 28, 2006 compared to the previous year. On a stand-alone basis,
Biomerica had decreased interest expense of $1,485 due to payment of the
principal on the shareholder note payable. For the three months ended February
28, 2006 interest expense decreased by $3,865. On a stand-alone basis
Biomerica's interest expense decreased from $7,900 to $7,248 for the quarter
ended February 28, 2006 due to payment of principal on the shareholder loan.
Please refer to Note 3 in the Notes to the Consolidated Financial
Statements in the Company's report on Form 10-KSB for the year ended May 31,
2005, for a more in-depth discussion of subsidiaries.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28, 2006, the Company had cash and available-for-sale
securities in the amount of $447,462 and working capital of $700,471. Of the
$447,462 in cash and available-for-sale securities and $700,471 in working
capital, $396,466 relates to stock held in the former subsidiary, Lancer
Orthodontics. This stock is restricted and should the Company desire to sell
this stock on the open market, it may be subject to certain trading restrictions
as imposed by the Federal Securities Act of 1933. Of the total working capital,
negative working capital of $104,579 relates to the discontinued operation,
ReadyScript.
Biomerica, Inc. entered into an agreement for a line of credit
agreement on September 12, 2000 with a shareholder whereby the shareholder would
loan to the Company, as needed, up to $500,000 for working capital needs. The
line of credit bore interest at 8%, was secured by accounts receivable and
inventory, and expired September 13, 2003. In March 2004 the Company signed a
note payable for the principal and interest due at that time of $313,318 and
agreed to a forbearance of any payments for the length of the agreement. A
warrant for 40,000 shares of restricted common stock exercisable at a price of
$.51 per share was awarded as compensation for the forbearance. The note payable
is secured by all the Company's assets except for the Lancer common stock owned
by Biomerica. The note was due September 1, 2004. On November 19, 2004, the
Company entered into an agreement entitled "Amendment of the Note, Loan and
Modification Agreement" and "Amended And Restated Promissory Note" which were
included as exhibits to the Form 10QSB filed April 14, 2004. The Amendment of
the Note, Loan And Modification Agreement was filed as an exhibit to a Form 8K
filed November 24, 2004. The agreement extended the maturity date of the note
until August 31, 2005 and allows for minimum payments of $4,000 per month and
additional contingent payments of up to $3,500 per month based on the Company's
quarterly performance. Collateral remains the same under The Amendment. The
agreement has since been extended for a one-year period and therefore it now
expires August 31, 2006. There was $267,602 of outstanding principal and $0 of
interest payable under this note payable at February 28, 2006. As of April 14,
2006, the Company was not in compliance with the terms of the above agreements.
Additional contingent payments totaling $10,500 per quarter that were due after
the filing of the Company's Form 10QSB for the quarters ended November 20, 2005
and August 31, 2005, have not been paid.
The February, 2005, cash flow analysis was performed on a consolidated
basis, whereas the February, 2006, figures are on a deconsolidated basis. Please
refer to the supplemental in the cash flow statement which shows the effect of
the deconsolidation on the cash flow for the nine months ended February 28,
2006.
On a stand-alone basis Biomerica purchased fixed assets in the amount of
$33,079 for the nine months ended February 28, 2006 and paid back the
shareholder loan in the amount of $33,485.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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 and are not meant to be an exhaustive discussion of
risks that apply to companies such as Biomerica. Like other businesses,
Biomerica is susceptible to macroeconomic downturns in the United States or
abroad, that may affect the general economic climate and performance of
Biomerica or its' customers. Aside from general macroeconomic downturns, the
additional material factors that could affect future financial results include,
but are not limited to: Terrorist attacks and the impact of such events;
diminished access to raw materials that directly enter into our manufacturing
process; shipping labor disruption or other major degradation of the ability to
ship our products to end users; inability to successfully control our margins
which are affected by many factors including competition and product mix;
protracted shutdown of the U.S. Border due to an escalation of terrorist or
counter terrorist activity; any changes in our business relationships with
international distributors or the economic climate they operate in; any event
that has a material adverse impact on our foreign manufacturing operations may
adversely affect our operation as a whole; failure to manage the future
expansion of our business could have an adverse affect on our revenues and
profitability; possible costs in complying with government regulations and the
delays in receiving required regulatory approvals or the enactment of new
adverse regulations or regulatory requirements; numerous competitors, most of
which have substantially greater financial and other resources than we do;
potential claims and litigation brought by patients or medical professionals
alleging harm caused by the use of or exposure to our products; quarterly
variations in operating results caused by a number of factors, including
business and industry conditions and other factors beyond our control. All of
these factors make it difficult to predict operating results for any particular
period.
Item 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer (the
Company's principal executive officer and principal financial officer,
respectively) have concluded, based on their evaluation as of February 28, 2006,
that the design and operation of the Company's "disclosure controls and
procedures" (as defined in rules 13a-15(e) under the Securities Exchange Act of
1934, as amended ("Exchange Act") are effective to ensure that information
required to be disclosed by the Company in the reports filed or submitted by the
Company under the Exchange Act is accumulated, recorded, processed, summarized
and reported to the Company's management, including the Company's principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding whether or not disclosure is required.
During the quarter ended February 28, 2006, there were no changes in
the Company's "internal controls over financial reporting" (as defined in Rule
13a-15(f) under the Exchange Act) that have materially affected, or are
reasonably likely to materially affect, the Company's internal controls over
financial reporting.
25
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. A Form 8-K was filed on
December 1, 2005 by Biomerica. It describes the deconsolidation of the Lancer
subsidiary.
(a) Exhibits
31.1 Certification of CEO pursuant to Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO pursuant to Rules 13a-14(a) and 15d-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of CFO Pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
26
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 14, 2006
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------
Zackary S. Irani
Chief Executive Officer
27