SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number: 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.)
17571 Von Karman Avenue, Newport Beach, California 92614
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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.)
(TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED)
----------------------- -------------------------------------------
Common, par value $0.08 OTC-BULLETIN BOARD
Securities registered pursuant to Section 12(g) of the Act:
(TITLE OF EACH CLASS)
COMMON STOCK, PAR VALUE $0.08
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 has submitted electronically and
posted on its corporate Website, if any, every Interactive Date File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (paragraph
232.405 of this chapter) during the preceding 12 months (or for such shorter
Period that the registrant was required to submit and post such files).
Yes [_] No [_]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [_] Accelerated filer [_]
Non-accelerated filer [_] Smaller reporting company [X]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [_] No [X]
Indicate the number of shares outstanding of each of the registrant's common
stock, as of the latest practicable date: 6,660,839 shares of common
stock as of January 19, 2010.
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and Comprehensive
Income (unaudited) - Six and Three Months Ended
November 30, 2009 and 2008............................................1
Consolidated Balance Sheet (unaudited) -
November 30, 2009 and (audited) May 31, 2009 .......................2-3
Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended November 30, 2009 and 2008...........................4
Notes to Consolidated Financial Statements (unaudited) .............5-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data..........................................10
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........12
Item 4. Controls and procedures..............................................13
PART II Other Information....................................................14
Item 1. Legal Proceedings....................................................14
Item 1A. Risk Factors.........................................................14
Item 2. Unregistered Sales of Equity Securities & Use of Proceeds............14
Item 3. Defaults upon Senior Securities......................................14
Item 4. Submission of Matters to a Vote of Security Holders..................14
Item 5. Other Information....................................................14
Item 6. Exhibits.............................................................14
Signatures...........................................................15
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
Six Months Ended Three Months Ended
November 30, November 30,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Net sales ............................................. $ 2,248,401 $ 2,314,920 $ 1,099,880 $ 1,120,575
Cost of sales .................................... 1,655,447 1,448,977 883,363 787,761
------------ ------------ ------------ ------------
Gross profit ..................................... 592,954 865,943 216,517 332,814
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative 711,119 709,495 427,682 370,612
Research and development ......................... 183,315 116,460 95,034 69,472
------------ ------------ ------------ ------------
894,434 825,955 522,716 440,084
------------ ------------ ------------ ------------
Operating (loss) income ............................... (301,480) 39,988 (306,199) (107,270)
------------ ------------ ------------ ------------
Other Expense (income):
Interest income .................................. (9,457) (18,999) (3,869) (6,977)
Interest expense ................................. 7,109 17,454 3,676 7,783
Other income, net ................................ (1,360) -- (300) --
------------ ------------ ------------ ------------
(3,708) (1,545) (493) 806
------------ ------------ ------------ ------------
(Loss) income before income taxes .................... (297,772) 41,533 (305,706) (106,464)
Income tax expense (benefit) ......................... -- 3,737 -- (5,060)
------------ ------------ ------------ ------------
Net (loss) income .................................... (297,772) 37,796 (305,706) (103,016)
------------ ------------ ------------ ------------
Other comprehensive gain, net of tax
Unrealized comprehensive (loss) gain................ -- (1,212) -- (1,237)
Foreign currency translation ....................... (745) -- (401) --
------------ ------------ ------------ ------------
Comprehensive (loss) income .......................... $ (298,517) $ 36,584 $ (306,107) $ (104,253)
============ ============ ============ ============
Basic net (loss) income per common share.............. $ (0.04) $ .01 $ (0.05) $ (.02)
============ ============ ============ ============
Diluted net (loss) income per common share ........... . $ (0.04) $ .01 $ (0.05) $ (.02)
============ ============ ============ ============
Weighted average number of common and common
equivalent shares:
Basic ........................................... 6,632,830 6,607,745 6,634,641 6,628,376
============ =========== ============ ============
Diluted ......................................... 6,632,830 7,005,903 6,634,641 6,628,376
============ =========== ============ ============
The accompanying notes are an integral part of these statements.
1
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
November 30, May 31,
2009 2009
(unaudited) (audited)
----------- ----------
Assets
Current Assets
Cash and cash equivalents ................................................ $1,403,397 $1,595,823
Short-term investment .................................................... -- 100,000
Accounts receivable, less allowance for doubtful accounts of $72,251 &
$86,432, respectively................................................... 539,127 640,668
Inventories, net ......................................................... 1,948,234 1,999,463
Prepaid expenses and other ............................................... 107,142 115,717
Deferred tax asset - short-term .......................................... -- 103,000
---------- ----------
Total Current Assets ............................................... 3,997,900 4,554,671
Property and Equipment, net of accumulated depreciation and amortization ..... 565,787 366,819
Deferred Tax Asset - Long-term ............................................... 238,000 135,000
Other Assets ................................................................. 73,978 65,582
Intangible Assets ............................................................ 34,443 30,000
---------- ----------
$4,910,108 $5,152,072
========== ==========
The accompanying notes are an integral part of these statements.
2
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET - Continued
November 30, May 31,
2009 2009
(unaudited) (audited)
------------ ------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities ....................... $ 345,143 $ 263,998
Accrued compensation ........................................... 344,710 417,307
Equipment loan - short-term portion ............................ 43,604 42,254
------------ ------------
Total Current Liabilities ................................. 733,457 723,559
Loan for equipment purchase - long-term portion ..................... 58,424 80,527
Deferred rent liability ............................................. 40,250 --
Shareholders' Equity
Preferred stock no par value authorized 5,000,000 shares, none
issued and none outstanding at November 30, 2009 and
May 31, 2009 ................................................. -- --
Common stock, $0.08 par value authorized 25,000,000
shares, issued and outstanding 6,660,839 and 6,631,039
in November 30, 2009 and May 31, 2009 respectively ........... 532,867 530,482
Additional paid-in-capital ..................................... 17,529,109 17,502,986
Accumulated other comprehensive loss ........................... (2,471) (1,726)
Accumulated deficit ............................................ (13,981,528) (13,683,756)
------------ ------------
Total Shareholders' Equity .......................................... 4,077,977 4,347,986
------------ ------------
Total Liabilities and Equity ........................................ $ 4,910,108 $ 5,152,072
============ ============
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the six months ended November 30, 2009 2008
----------- -----------
Cash flows from operating activities:
Net (loss) income .................................................. $ (297,772) $ 37,796
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ................................. 51,073 42,673
Stock option expense .......................................... 18,674 18,674
Inventory reserve ............................................. (60,291) 40,779
Provision for losses on accounts receivable ................... (14,181) 5,138
Changes in current assets and liabilities:
Accounts receivable ......................................... 115,722 33,691
Inventories ................................................. 111,520 (269,691)
Prepaid expenses and other current assets ................... 179 40,242
Accounts payable and other accrued liabilities .............. 81,145 5,293
Accrued compensation ........................................ (72,597) (39,067)
Deferred rent liability ..................................... 40,250 --
----------- -----------
Net cash used in operating activities .............................. (26,278) (84,472)
----------- -----------
Cash flows from investing activities:
Increase in intangible assets ............................... (4,443) --
Maturity of short term investment ........................... 100,000 --
Purchases of property and equipment ......................... (250,041) (60,033)
----------- -----------
Net cash used in investing activities .............................. (154,484) (60,033)
----------- -----------
Cash flows from financing activities:
Repayment of shareholder loan ................................. -- (95,936)
Proceeds from sale of common stock ............................ -- (3,000)
Proceeds from exercise of warrants & stock options ............ 9,834 36,386
Payments on capital lease ..................................... -- (2,451)
Payments on loan for equipment purchase ....................... (20,753) (23,446)
----------- -----------
Net cash used in financing activities .............................. (10,919) (88,447)
----------- -----------
Effect of exchange rate changes on cash ............................ (745) (1,471)
----------- -----------
Net decrease in cash and cash equivalents .......................... (192,426) (234,423)
Cash and cash equivalents at beginning of period ................... 1,595,823 2,022,380
----------- -----------
Cash and cash equivalents at end of period ......................... $ 1,403,397 $ 1,787,957
=========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest ...................................................... $ 7,109 $ 17,856
=========== ===========
Income taxes .................................................. $ -- $ 105,000
=========== ===========
Change in unrealized holding gain on available-for-sale
securities..................................................... $ -- $ 259
=========== ===========
The accompanying notes are an integral part of these statements.
4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Significant Accounting Policies
Revenues from product sales are recognized at the time the product is
shipped, customarily FOB shipping point, at which point title passes. When
necessary an allowance is established for estimated returns as revenue is
recognized.
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 not 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.
The following table summarizes the Company's investment in a certificate of
deposit that is classified under short term investments, and is carried at fair
market value on the balance sheet at November 30, 2009 and May 31, 2009.
Fair Value Measurements at Reporting Date Using
Quoted Prices in Active Significant
Markets for Other Significant
Identical Assets Observable Inputs Unobservable Inputs
Description May 31, 2009 (Level 1) (Level 2) (Level 3)
------------ ------------ -------- -------------- ---------------
Short term investment
Certificate of Deposit $100,000 $100,000 $ -- $ --
-------- -------- -------------- ---------------
Total $100,000 $100,000 $ -- $ --
======== ======== ============== ===============
Quoted Prices in Active Significant
Markets for Other Significant
Identical Assets Observable Inputs Unobservable Inputs
Description November 30, 2009 (Level 1) (Level 2) (Level 3)
------------- ------------------ ----------- ------------- ---------------
Short term investment
Certificate of Deposit $ -- $ -- $ -- $ --
---------- ----------- ------------- ---------------
Total $ -- $ -- $ -- $ --
========== =========== ============= ===============
Effective for financial statements issued for fiscal years beginning
after November 15, 2007, Financial Accounting Standards Board Accounting
Standards Codification ("ASC") 820 Fair Value Measurements, defines fair value,
establishes a framework for measuring fair value, and expands disclosures about
fair value measurements. ASC 820 clarifies the definition of fair value as an
exit price, i.e., a price that would be received to sell, as opposed to acquire,
an asset or transfer a liability. ASC 820 emphasizes that fair value is a
market-based measurement. It establishes a fair value hierarchy that
distinguishes between assumptions developed based on market data obtained from
independent external sources and the reporting entity's own assumptions.
Further, ASC 820 specifies that fair value measurements should consider
adjustments for risk, such as the risk inherent in a valuation technique or its
inputs.
5
Options and warrants granted are assigned values according to current
market value, using the Black-Scholes model for option valuation. The term used
in the calculation of the options or warrants is the expected life of the
option, taking into consideration cancellations, exercises and expirations. A
discount rate equivalent to the expected life of the option is calculated using
Treasury constant maturity interest rates. For the options granted in fiscal
2008 and 2009 Biomerica used the simplified method (as defined in SAB 107) for
calculating the expected life of an option because estimating the expected life
is difficult based on historical data. The historical volatility of the stock is
calculated using weekly historical closing prices for the length of the vesting
period as reported by Yahoo Finance. For purposes of the ASC 718 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.
Historically we were in a loss position for tax purposes, and
established a valuation allowance against deferred tax assets, as we did not
believe it was likely that we would generate sufficient taxable income in future
periods to realize the benefit of our deferred tax assets. Although the Company
has achieved net income over the last four fiscal years, predicting future
taxable income is difficult, and requires the use of significant judgment.
Management re-evaluated its deferred tax asset at November 30, 2009 and
determined that it should remain at $238,000.
The Company has historically classified income from freight charges to
customers as sales, which has been offset by shipping and handling costs. The
income from freight for the six months ended November 30, 2009 and 2008,
respectively, was $47,239 and $53,179 and for the quarters then ended was
$22,951 and $28,307, respectively. The financial statements presented herein
show the income from shipping and handling as a component of sales for both
periods and the costs of shipping and handling as a component of cost of goods
sold.
Certain prior year amounts within the consolidated statement of cash
flows and consolidated statement of operations have been reclassified to conform
to current year presentation.
(1) In December 2004, the Financial Accounting Standards Board ("FASB") Issued
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (ASC 718). ASC 718 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. ASC 718 requires
compensation costs related to share-based payment transactions to be recognized
in the financial statement (with limited exceptions). The amount of compensation
cost is measured based on the grant-date fair value of the equity or liability
instruments issued. Compensation cost is recognized over the period that an
employee provides service in exchange for the award. As of the beginning of
fiscal 2007, June 1, 2006, the Company began using this method.
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 the six months ended November 30, 2009 and 2008, the Company expensed
$18,674 and $18,674, respectively, of stock option expense based on ASC 718 in
its financial statements. For the three months ended November 30, 2009 and 2008,
the Company expensed $15,393 and $15,391, respectively, of stock options expense
based on ASC 718 in its financial statements.
6
(2) The following summary presents the options granted, exercised, expired,
cancelled and outstanding as of November 30, 2009:
Weighted
Average
Number of Options and Warrants Exercise
Employee Non-employee Total Price
---------- ---------- ---------- --------
Outstanding
May 31, 2009 1,516,508 158,166 1,674,674 $ 0.77
Granted -- -- -- --
Exercised (29,800) -- (29,800) 0.33
Cancelled or expired (65,250) (124,000) (189,250) 2.47
---------- ---------- ---------- --------
Outstanding
November 30, 2009 1,421,458 34,166 1,455,624 $ 0.55
========== ========== ========== ========
(3) The information set forth in these condensed 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. All adjustments that were made are of normal recurring nature.
(4) The unaudited Consolidated Financial Statements and Notes are presented as
permitted by the requirements for Form 10-Q and do not contain certain
information included in our annual financial statements and notes. The
Consolidated Balance Sheet data as of May 31, 2009 was derived from audited
financial statements. The accompanying interim Consolidated Financial Statements
should be read in conjunction with the financial statements and related notes
included in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission (SEC) for the fiscal year ended May 31, 2009. The results of
operations for our interim periods are not necessarily indicative of results to
be achieved for our full fiscal year.
7
(5) Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of chemicals, biologicals and packaging materials.
Cost includes raw materials, labor, manufacturing overhead and purchased
products. Market is determined by comparison with recent purchases or net
realizable value. Such net realizable value is based on forecasts for sales of
the Company products in the ensuing years. The industry in which the Company
operates is characterized by technological advancement and change. Should demand
for the Company's products prove to be significantly less than anticipated, the
ultimate realizable value of the Company's inventories could be substantially
less than the amount shown on the accompanying consolidated balance sheet.
Inventories approximate the following:
November 30, May 31,
2009 2009
------------- -------------
Raw materials $ 661,000 $ 809,000
Work in progress 846,000 818,000
Finished products 546,000 537,000
Reserve for obsolete inventory ( 105,000) (165,000)
------------- --------------
Total $ 1,948,000 $ 1,999,000
============= ==============
Allowances for inventory obsolescence are recorded as necessary to reduce
obsolete inventory to estimated net realizable value or to specifically reserve
for obsolete inventory that the Company intends to dispose of.
(6) Earnings Per Share
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. The
following table excludes 73,117 options and warrants for the six months ended
November 30, 2009; 30,355 options and warrants for the three months ended
November 30, 2009 and 336,800 options and warrants for the quarter ended
November 30, 2008 which were deemed antidilutive.
Six Months Ended Three Months Ended
November 30, 2009 2008 2009 2008
------------------------------------------------------------------------------------------------------
Numerator:
Income from continuing operations $ (297,772) $ 37,796 $ (305,706) $ (103,016)
------------------------------------------------------------------------------------------------------
Numerator for basic and diluted net
income per common share $ (297,772) $ 37,796 $ (305,706) $ (103,016)
======================================================================================================
Denominator for basic net income
per common share 6,632,830 6,607,745 6,634,641 6,628,376
Effect of dilutive securities:
Options and warrants -- 398,158 -- --
------------------------------------------------------------------------------------------------------
Denominator for diluted net income
per common share 6,632,830 7,005,903 6,634,641 6,628,376
======================================================================================================
Basic net income per common share $ (0.04) $ 0.01 $ (0.05) $ (0.02)
======================================================================================================
Diluted net income per common share $ (0.04) $ 0.01 $ (0.05) $ (0.02)
======================================================================================================
(7) Recent Accounting Pronouncements
In May, 2009 the FASB issued ASC 855, 'Subsequent Events'. This statement
established general standards of accounting for disclosure of events that occur
after the balance sheet date but before financial statement are issued or are
available to be issued. It requires the disclosure date through which an entity
has evaluated subsequent events and the basis for that date. This would alert
all users of financial statements that an entity has not evaluated subsequent
events after that in the set of financial statements being present. This
statement is effective for interim and annual periods ending after June 15,
2009. The Company does not believe that the adoption of ASC 855 has had a
material on its financial statements.
8
The FASB issued ASC 105, "The FASB Accounting Standards Codification
(Codification) and the Hierarchy of Generally Accepted Accounting Principles - a
Replacement of Financial Statement No. 162". On the effective date of the
Statement, the FASB Accounting Standards Codification will become the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied by nongovernmental entities. This statement was effective
for financial statements issued for interim and periods ending after September
15, 2009. The Company does not believe that the adoption of ASC 105 has had a
material impact on its financial statements.
(8) Financial information about foreign and domestic operations and export
sales is as follows:
For the Six Months Ended
11/30/09 11/30/08
---------- ----------
Revenues from sales to unaffiliated customers:
United States $ 454,000 $ 394,000
Asia 547,000 496,000
Europe 1,196,000 1,340,000
South America 31,000 51,000
Middle East 17,000 22,000
Other 3,000 12,000
---------- ----------
$2,248,000 $2,315,000
========== ==========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
(9) 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 officers 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 November 30, 2009. 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 holds 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
indemnification provisions are 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 November 30, 2009.
(10) One October 14, 2009, the Company entered into an agreement to acquire the
technology and intellectual property related to certain products in order to
manufacture and sell such products. Under the terms of the agreement Biomerica,
Inc. will have the right to use, revise, modify and prepare derivative works
with respect to such licensed products and technology for a specified amount per
product. The other party to the agreement will have the right and license to
use, revise, modify and prepare derivative works from the products that
Biomerica develops or modifies as a result of the agreement.
(11) Subsequent Events
The Company has analyzed its operations subsequent to November 30, 2009 through
January 19, 2010, the date these financial statements were available for
issuance.
On December 10, 2009, the Company held its annual meeting of shareholders.
All directors nominated were elected. The stock option plan proposed by
the board of directors was not approved by the shareholders.
9
Item 2.
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 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 $2,248,401 for the first six
months of fiscal 2010 as compared to $2,314,920 for the same period in the
previous year. This represents a decrease of $66,519, or 2.9%. For the quarter
then ended net sales were $1,099,880 as compared to $1,120,575 for the same
period in the previous year. This represents a decrease of $20,695, or 1.8%. The
decrease in sales for the six months and quarter ended November 30, 2009 as
compared to 2008 was a result of lower sales of the EZ Detect product and lower
sales to one distributor in Europe.
For the six months ended November 30, 2009 as compared to 2008, cost of
sales increased from $1,448,977, or 62.6% of sales, to $1,655,447, or 73.6% of
sales. For the three month period then ended cost of sales increased from
$787,761, or 70.3% of sales, to $883,363, or 80.3% of sales. The major factor
that contributed to the increase in loss was the move of the Company's
operation. The move also affected the cost of goods for this quarter. While
product sales continued throughout the move phase, the normal level of
production decreased temporarily at the end of the quarter, correspondingly this
resulted in idle facility costs which were included within cost of sales. The
decrease in production levels at the end of the quarter also resulted in less
work in process and finished goods on hand at November 30, 2009, upon which
labor and overhead are applied. Also included in cost of sales is approximately
$19,000 of material cost for replacement of product that was replaced in
December, 2009. Other factors that affected cost of sales included higher wages,
inventory scrap and reserves, repairs and maintenance, CE mark expenses, lab
supplies and fixed costs in relationship to sales and the product mix of sales.
For the six months ended November 30, 2009 compared to 2008, selling,
general and administrative costs increased by $1,624, or 0.2%. For the three
months then ended these expenses increased by $57,070, or 15.4%. Included in the
six and three month expenses for fiscal 2010 were non-recurring moving expenses
of approximately $84,000, which was offset by lower accounting, commissions and
wages in fiscal 2009.
For the six months ended November 30, 2009 compared to 2008, research
and development increased by $66,855, or 57.4% and for the three months
increased by $25,562, or 36.8%. The increase for the six and three months was
primarily due to higher materials, supplies, and other expenses related to the
development of new products.
For the six months ended November 30, 2009, interest income decreased
from $18,999 to $9,457 and for the three months then ended decreased from $6,977
to $3,869. The decrease was due to lower interest rates on a lower amount of
cash investments. For the six months interest expense decrease from $17,454 to
$7,109 and for the three months decreased from $7,783 to $3,676 due to lower
interest rates on debt in addition to smaller balances owed.
10
LIQUIDITY AND CAPITAL RESOURCES
As of November 30, 2009, the Company had cash and current
available-for-sale securities in the amount of $1,403,397 and working capital of
$3,264,443.
During the six months ended November 30, 2009, the Company operations
used cash in the amount of $26,278 as compared $84,472 in the same period in the
prior fiscal year. Cash used in financing activities was $10,919 for the period
ended November 2009 as compared to cash used by financing activities for the six
months ended November 30, 2009 of $88,447. The difference was primarily due to
the repayment of the shareholder loan in the amount of $95,936 in fiscal 2009.
Purchases of property and equipment for fiscal 2010 were $250,041 as
compared to $60,033 in fiscal 2009. The increase in fiscal 2010 was primarily a
result of purchases of equipment and leasehold improvements for the company's
new location.
CRITICAL ACCOUNTING POLICIES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires us to make a number of estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements. Such estimates and
assumptions affect the reported amounts of revenues and expenses during the
reporting period. We base our estimates on historical experiences and on various
other assumptions that we believe to be reasonable under the circumstances.
actual results may differ materially from these estimates under different
assumptions and conditins. We continue to monitor significant estimates made
during the preparation of our financial statements. On an ongoing basis, we
evaluate estimates and assumptions based upon historical experience and various
other factors and circumstances. We believe our estimates and assumptions are
reasonable in the circumstances; however, actual results may differ from these
estimates under different future conditions.
We believe that the estimates and assumptions that are most important to the
portrayal of our financial condition and results of operations, in that they
require subjective or complex judgments, form the basis for the accounting bad
debts, inventory overhead application, and inventory reserve. We believe
estimates and assumptions related to these critical accounting policies are
appropriate under the circumstances; however, should future events or
occurrences result in unanticipated consequences, there could be a material
impact on our future financial conditions or results of operations. We suggest
that our significant accounting policies be read in conjunction with this
Management's Discussion and Analysis of Financial Condition and Selected
Financial Data.
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Please refer to the annual report on Form 10-KSB for the period ended
May 31, 2009 for an in-depth discussion of risk factors.
FACTORS THAT MAY AFFECT FUTURE RESULTS
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.
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Item 4. CONTROLS AND PROCEDURES
Our management evaluated the effectiveness of our disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the
period covered by this report. Our management recognizes that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurances of achieving their objectives and management is required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. The disclosure controls and procedures have been
designed to provide reasonable assurance of achieving their objectives and the
Chief Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective at the 'reasonable assurance'
level. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the disclosure controls and procedures were
effective to ensure that information required to be disclosed in the reports
that we file and submit under the Exchange Act is (1) recorded, processed,
summarized and reported within the time periods specified in the Commission's
rules and forms; and (2) accumulated and communicated to the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial
reporting identified in connection with the evaluation that occurred during our
last fiscal quarter that has materially affected, or that is reasonably likely
to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS. None.
Item 1A. RISKS AND UNCERTAINTIES.
You should read the following factors in conjunction with the factors
discussed elsewhere in this and our other filings with the Securities and
Exchange Commission and in materials incorporated by reference in these filings.
The following is intended to highlight certain factors that may affect the
financial condition and results of operations of Biomerica, Inc. and are not
meant to be an exhaustive discussion of risks that apply to companies such as
Biomerica, Inc. Like other businesses, Biomerica, Inc. is susceptible to
macroeconomic downturns in the United States or abroad, as were experienced in
fiscal year 2009, that may affect the general economic climate and performance
of Biomerica, Inc. or its customers.
Aside from general macroeconomic downturns, the additional material
factors that could effect 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 out 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 operations as a
whole; failure to manage the future expansion of our business could have a
material 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, some 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 resulted caused
by a number of factors, including business and industry conditions;
concentrations of sales with certain distributions could adversely affect the
results of the Company if the Company were to lose the sales of that distributor
and other factors beyond our control. All these factors make it difficult to
predict operating results for any particular period.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. None.
Item 3. DEFAULTS UPON SENIOR SECURITIES. None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
Item 5. OTHER INFORMATION. None.
Item 6. EXHIBITS.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
- Zackary S. Irani.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
- Janet Moore.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
- Zackary S. Irani.
32.2 Certification Pursuant to section 906 of the Sarbanes-Oxley Act
- Janet Moore.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: January 19, 2010
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------
Zackary S. Irani
Chief Executive Officer
15