UNITED STATES
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 AUGUST 31, 2009
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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, Irvine, CA 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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1533 Monrovia Avenue, Newport Beach, CA 92663
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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 $.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 whether the registrant (1) 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, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
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 Act).
Yes [_] No [X]
Indicate the number of shares outstanding of each of the registrant's common
stock, as of the latest practicable date: 6,631,039 shares of common stock, par
value $0.08, as of October 15, 2009.
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and
Comprehensive Income (unaudited) - Three Months Ended
August 31, 2009 and 2008........................................ 1 & 2
Consolidated Balance Sheet (unaudited)
August 31 and (audited) May 31, 2009............................ 3 & 4
Consolidated Statements of Cash Flows (unaudited) -
Three Months Ended August 31, 2009 and 2008..................... 5
Notes to Consolidated Financial Statements (unaudited) ......... 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data..................................... 11-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 13
Item 4. Controls and procedures......................................... 14
PART II Other Information............................................... 15
Item 1. Legal Proceedings............................................... 15
Item 1A. Risk Factors.................................................... 15
Item 2. Unregistered Sales of Equity Securities & Use of Proceeds....... 15
Item 3. Defaults upon Senior Securities................................. 15
Item 4. Submission of Matters to a Vote of Security Holders............. 15
Item 5. Other Information............................................... 15
Item 6. Exhibits........................................................ 15
Signatures...................................................... 16
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended
August 31,
2009 2008
----------- -----------
Net sales .................................... $ 1,148,521 $ 1,194,345
Cost of sales ........................... (772,084) (661,216)
----------- -----------
Gross profit ............................ 376,437 533,129
----------- -----------
Operating Expenses:
Selling, general and administrative ..... 283,437 338,883
Research and development ................ 88,281 46,988
----------- -----------
371,718 385,871
----------- -----------
Operating income from operations ............. 4,719 147,258
----------- -----------
Other Expense (income):
Interest income ......................... (5,588) (12,016)
Interest expense ........................ 3,433 9,671
Other income, net ....................... (1,060) (6)
----------- -----------
(3,215) (2,351)
----------- -----------
Income before income taxes ................... 7,934 149,609
Income tax expense ........................... -- 8,797
----------- -----------
Net income ................................... $ 7,934 $ 140,812
=========== ===========
(continued)
1
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED) - Continued
Other comprehensive income, net of tax
Unrealized gain on available-for-sale securities ............ $ -- $ 25
Foreign currency translation ................................ (344) --
------------ -------------
Comprehensive income .......................................... $ 7,590 $ 140,837
============ =============
Basic net income per common share ............................. $ .00 $ .02
============ =============
Diluted net income per common share ........................... $ .00 $ .02
============ =============
Weighted average number of common and common equivalent shares:
Basic .................................................... 6,631,039 6,587,114
============ =============
Diluted .................................................. 6,757,754 7,096,130
============ =============
The accompanying notes are an integral part of these statements.
2
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
August 31, May 31,
2009 2009
(unaudited) (audited)
---------- ----------
Assets
Current Assets
Cash and cash equivalents .............................................. $1,692,165 $1,595,823
Short term investment .................................................. -- 100,000
Accounts receivable, less allowance for doubtful accounts of $95,319
and $86,432, respectively ............................................. 539,757 640,668
Inventories, net ....................................................... 2,057,665 1,999,463
Prepaid expenses and other ............................................. 144,342 115,717
Deferred tax asset - short-term ........................................ 103,000 103,000
---------- ----------
Total Current Assets ............................................. 4,536,929 4,554,671
Property and Equipment, net of accumulated depreciation and amortization ... 368,448 366,819
Deferred Tax Asset - Long-term ............................................. 135,000 135,000
Intangible Asset ........................................................... 32,800 30,000
Other Assets ............................................................... 89,969 65,582
---------- ----------
$5,163,146 $5,152,072
========== ==========
The accompanying notes are an integral part of these statements.
3
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET - Continued
August 31, May 31,
2009 2009
(unaudited) (audited)
------------ ------------
Liabilities and Shareholders' Equity
Current Liabilities
Accounts payable and accrued liabilities .............................. $ 304,176 $ 263,998
Accrued compensation .................................................. 387,602 417,307
Loan for equipment purchase - short term portion ...................... 42,914 42,254
------------ ------------
Total Current Liabilities ........................................ 734,692 723,559
Loan for equipment purchase-long-term ...................................... 69,597 80,527
Shareholders' Equity
Preferred stock, no par value authorized 5,000,000 shares, issued
and none outstanding at August 31, 2009 and May 31, 2009 ............ -- --
Common stock, $0.08 par value authorized 25,000,000 shares, issued
and outstanding 6,631,039 at August 31, 2009
and May 31, 2009 .................................................... 530,482 530,482
Additional paid-in-capital ............................................ 17,506,267 17,502,986
Accumulated other comprehensive loss .................................. (2,070) (1,726)
Accumulated deficit ................................................... (13,675,822) (13,683,756)
------------ ------------
Total Shareholders' Equity ................................................. $ 4,358,857 $ 4,347,986
------------ ------------
Total Liabilities and Shareholders' Equity ................................. $ 5,163,146 $ 5,152,072
============ ============
The accompanying notes are an integral part of these statements.
4
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the three months ended August 31, 2009 2008
----------- -----------
Cash flows from operating activities:
Net income from continuing operations ............................... $ 7,934 $ 140,812
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .................................. 23,285 21,048
Stock option expense ........................................... 3,281 3,283
Provision for losses on accounts receivable .................... 8,887 2,766
Inventory reserve .............................................. (8,583) 31,303
Changes in current assets and liabilities:
Accounts Receivable .......................................... 92,024 87,561
Inventories .................................................. (49,619) (221,603)
Intangibles .................................................. (2,800) --
Prepaid expenses and other assets ............................ (53,012) 4,352
Accounts payable and other accrued liabilities ............... 40,178 (4,380)
Accrued compensation ......................................... (29,705) (15,547)
----------- -----------
Net cash provided by operating activities ........................... 31,870 49,595
----------- -----------
Cash flows from investing activities:
Maturity of short term investment .............................. 100,000 --
Purchases of property and equipment ............................ (24,914) (32,762)
----------- -----------
Net cash provided by (used in) investing activities ................. 75,086 (32,762)
----------- -----------
Cash flows from financing activities:
Paydown on shareholder loan .................................... -- (95,936)
Exercise of stock options and warrants ......................... -- 27,000
Payment of common stock subscribed ............................. -- 3,000
Payments on capital lease ...................................... -- (1,204)
Payment of equipment loan ...................................... (10,270) (11,247)
----------- -----------
Net cash used in financing activities ............................... (10,270) (78,387)
----------- -----------
Effect of Exchange Rate Changes in Cash ............................. (344) --
Net increase (decrease)in cash and cash equivalents ................. 96,342 (61,554)
----------- -----------
Cash and cash equivalents at beginning of period .................... 1,595,823 2,022,380
----------- -----------
Cash and cash equivalents at end of period .......................... $ 1,692,165 $ 1,960,826
=========== ===========
Supplemental Disclosure of Cash-Flow Information:
Cash paid during the quarter for:
Interest ....................................................... $ 3,608 $ 10,062
Taxes .......................................................... -- --
=========== ===========
Supplemental Disclosure of Non-Cash Investing and Financing
Activities:
Unrealized loss on available-for-sale securities .................. $ -- $ (25)
=========== ===========
The accompanying notes are an integral part of these statements.
5
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 May 31, 2009. Balance of short term
investments is $0 at August 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 $ -- $ --
=========== ================ ================ ================
Effective for financial statements issued for fiscal years beginning
after November 15, 2007, SFAS No. 157, Fair Value Measurements, defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. SFAS No. 157 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. SFAS No. 157 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, SFAS No. 157 specifies that fair value measurements should consider
adjustments for risk, such as the risk inherent in a valuation technique or its
inputs.
Options or 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 SFAS 123R 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.
6
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. Due
to the fact that many factors can influence profitability, management determined
at May 31, 2009, that an additional $68,000 of the deferred tax valuation
allowance should be released, which resulted in an income tax benefit of $58,000
being recognized during fiscal year end May 31, 2009. Management re-evaluated
this at August 31, 2009 and determined that the deferred tax asset 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 quarters ended August 31, 2009 and 2008,
respectively, was $24,289 and $24,872. 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 (SFAS No. 123R). SFAS 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 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 three months ended August 31, 2009 and 2008 the Company expensed $3,281
and $3,283 of stock option expense due to SFAS 123(R) in its financial
statements, respectively.
(2) The following summary presents the options and warrants granted, exercised,
expired, cancelled and outstanding as of August 31, 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 -- -- -- --
Cancelled or expired (108,000) (74,000) (182,000) 2.56
---------- ---------- ---------- ----------
Outstanding
August 31, 2009 1,408,508 84,166 1,492,674 $ 0.55
========== ========== ========== ==========
(3) The information set forth in these condensed consolidated statements is
unaudited and 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.
7
(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.
(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's 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:
August 31, May 31,
2009 2009
-------------- --------------
Raw materials $ 810,000 $ 809,000
Work in progress 921,000 818,000
Finished products 483,000 537,000
-------------- --------------
Inventory Reserve (156,000) (165,000)
Total $ 2,058,000 $ 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.
AUGUST 31,
2009 2008
--------------------------------------------------------------------------------
Numerator:
Income from continuing operations $ 7,934 $ 140,812
================================================================================
Denominator for basic net income
per common share 6,631,039 6,587,114
Effect of dilutive securities:
Options and warrants 126,715 509,016
--------------------------------------------------------------------------------
Denominator for diluted net income
per common share 6,757,754 7,096,130
================================================================================
Basic net income per common share $ .00 $ 0.02
================================================================================
Diluted net income per common share $ .00 $ 0.02
================================================================================
8
(7) Recent Accounting Pronouncements
In May, 2009 the FASB issued SFAS No. 165, "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 presented. This
statement is effective for interim and annual periods ending after June 15,
2009. The Company does not believe that the adoption of SFAS No. 165 has had a
material impact on its financial statements.
The FASB issued SFAS No. 168, "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 is effective
for financial statements issued for interim and periods ending after September
15, 2009. The Company does not believe that the adoption of SFAS No. 168 will
have a material impact on its financial statements.
(8) Financial information about foreign and domestic operations and export sales
is as follows:
For the Three Months Ended
8/31/09 8/31/08
---------- ----------
Revenues from sales to unaffiliated customers:
United States $ 229,000 $ 191,000
Asia 272,000 280,000
Europe 617,000 680,000
South America 18,000 35,000
Middle East 12,000 7,000
Other 1,000 1,000
---------- ----------
$1,149,000 $1,194,000
========== ==========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
9
(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 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 August 31, 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 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 August 31, 2009.
(10) Subsequent Events
The Company has analyzed its operations subsequent to August 31, 2009 through
October 15, 2009, the date these financial statements were available for
issuance.
In September 2009 the Company began the process of moving to its new facility.
Management anticipates that the majority of the Company's personnel and assets
will be operating at the new location by early November 2009, with a small
amount of the operation remaining for the short-term at the previous site.
10
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 $1,148,521 for the first
quarter of fiscal 2010 as compared to $1,194,345 for the same period in the
previous year. This represents a decrease of $45,824 or 3.8% for the quarter
ended August 31, 2009 as compared to the quarter ended August 31, 2008. The
decrease was primarily due to a decrease in clinical laboratory sales primarily
due to timing of orders.
Cost of sales in the first quarter of fiscal 2010 were $772,084, or
67.2% of sales as compared to $661,216, or 55.4% of sales in fiscal 2009. Cost
of sales as a percentage of sales in fiscal 2009 increased by 11.8%. The
increase in cost of goods was a result of a number of factors which included
higher capitalization of labor and overhead in fiscal 2009. In addition, fiscal
2010 included higher CE Mark expenses, outside services, wages, and repairs and
maintenance.
Selling, general and administrative costs decreased by $55,446, or
16.3% for the period ended August 31, 2009 as compared to the period ended
August 31, 2008. The decrease was primarily due to decreased accounting,
commissions and wages. Research and development increased by $41,293, or 87.8%
for period ended August 31, 2009 as compared to the period ended August 31,
2008, due to increased personnel and other expenses related to increased
research on new products.
For the three months ended August 31, 2009, other income of $1,060 was
realized as compared to $6 in the same period in the prior fiscal year.
Interest income decreased by $6,428 due to lower cash balances and
interest rates. Interest expense decreased by $6,238 (64.5%) due to lower
interest rates and balances on loans.
LIQUIDITY AND CAPITAL RESOURCES
As of August 31 and May 31, 2009, the Company had cash and
available-for-sale securities in the amount of $1,692,165 and $1,595,823 and
working capital of $3,802,237 and $3,831,112, respectively.
11
During the quarter ended August 31, 2009 the Company operations
provided cash of $31,870 as compared to $49,595 in the prior fiscal year. Cash
used by financing activities in fiscal 2010 was $10,270 as compared to $78,387
in fiscal 2009. The difference was primarily the result of payment of the
shareholder loan in fiscal 2009. Cash provided by investing activities in fiscal
2010 was $75,086 compared to cash used in investing activities in the same
period in fiscal 2009 of $32,762. This is primarily due to the maturity of a
certificate of deposit in the amount of $100,000 and the investment of $24,914
for fixed assets in the first quarter of fiscal 2010 as compared to an
investment in fixed assets in the amount of $32,762 in the prior fiscal year.
On February 13, 2009, the Company entered into a Small Business Banking
Agreement with Union Bank of California for a one year business line (the
"Line") of credit in the amount of $400,000. The interest rate for the line of
credit is the prime rate in effect on the first day of the billing period, as
published in the Wall Street Journal Prime West Coast Edition, plus a spread of
1.00%. Minimum monthly payments will be the sum of (i) the amount of interest
charge for the billing period, plus (ii) any amount past due, plus (iii) any
fees, late charges and/or out-of-pocket expenses assessed. If the Line is not
renewed as of the last day of the term of the Line, the entire unpaid balance of
the Line, including unpaid fees and charges will be due and payable. The Company
has granted the bank security interest in the assets of the Company as
collateral.
The Company must maintain for not less than thirty consecutive days in
every calendar year, a period in which all amounts due under the revolving
credit agreements with the bank are at a zero balance. The Company did not owe
anything on this line of credit as of August 31, 2009.
On February 13, 2009, the Company entered into a Small Business Bank
Agreement with Union Bank for a business loan ("Loan") for $133,000 and an
interest rate of 6.50%. Loan proceeds were disbursed in one single funding on
March 5, 2009. The Loan was used for the purpose of paying off a business loan
which had been established with Commercial Bank of California. The fixed asset
serves as collateral for the loan. The loan payable at August 31, 2009 and May
31, 2009 relating to this equipment loan is $112,511 and $122,781, respectively.
The Loan is payable in thirty-six monthly payments of approximately
$4,000.
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 experience 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 or conditions. 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
policies deemed to be most critical to us. These relate to revenue recognition,
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-K 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 assurance 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 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 out 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 results 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; unforeseen difficulties encountered in the move of
the Company's facilities in the second quarter of fiscal 2010. 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.
10.1 Standard Industrial/Commercial Single-Tenanc Lease for 17571 Von Karman
Avenue, Irvine, CA 92614.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: October 15, 2009
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------
Zackary S. Irani
Chief Executive Officer
16