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 February 28,AUGUST 31, 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2645573
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1533 Monrovia
17571 Von Karman Avenue, Newport Beach, California 92663Irvine, CA 92614
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (949) 645-2111
- --------------------------------------------------------------------------------
(Not applicable)1533 Monrovia Avenue, Newport Beach, CA 92663
- --------------------------------------------------------------------------------
(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 mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d)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 Registrantregistrant 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 filerAccelerated Filer [_] Accelerated filerFiler [_]
Non-accelerated filerNon-Accelerated Filer [_] Smaller reporting companyReporting 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 issuer's classes ofregistrant's common
stock, as of the latest practicable date: 6,631,039 shares of common stock, par
value $0.08, as of April 14,October 15, 2009.
BIOMERICA, INC.
INDEX
PART I
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations and
Comprehensive Income (unaudited) - Nine and Three Months Ended
February 28,August 31, 2009 and February 29, 2008...........................2008........................................ 1 & 2
Consolidated Balance Sheet (unaudited)
-
February 28, 2009August 31 and (audited) May 31, 2008...................... 2-32009............................ 3 & 4
Consolidated Statements of Cash Flows (unaudited) -
NineThree Months Ended February 28,August 31, 2009 and February 29, 2008......... 42008..................... 5
Notes to Consolidated Financial Statements (unaudited)............ 5-9 ......... 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Selected Financial Data.......................................10-12Data..................................... 11-13
Item 3. Quantitative and Qualitative Disclosures about Market Risk........Risk...... 13
Item 4. Controls and procedures...........................................procedures......................................... 14
PART II Other Information.................................................Information............................................... 15
Item 1. Legal Proceedings.................................................Proceedings............................................... 15
Item 1A. Risk Factors......................................................Factors.................................................... 15
Item 2. Unregistered Sales of Equity Securities & Use of Proceeds.........Proceeds....... 15
Item 3. Defaults upon Senior Securities...................................Securities................................. 15
Item 4. Submission of Matters to a Vote of Security Holders...............Holders............. 15
Item 5. Other Information................................................. 16Information............................................... 15
Item 6. Exhibits..........................................................Exhibits........................................................ 15
Signatures...................................................... 16
Signatures........................................................ 17
PART I - FINANCIAL INFORMATION
SUMMARIZED FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)
Nine Months Ended Three Months Ended
February 28, February 29, February 28, February 29,
2009 2008August 31,
2009 2008
----------- -----------
----------- -----------
Net sales ......................................................................................... $ 3,688,5241,148,521 $ 3,608,408 $ 1,373,604 $ 1,240,8091,194,345
Cost of sales ............................................ (2,148,364) (2,023,022) (699,387) (747,690)
----------- -----------........................... (772,084) (661,216)
----------- -----------
Gross profit ............................................. 1,540,160 1,585,386 674,217 493,119
----------- -----------............................ 376,437 533,129
----------- -----------
Operating Expenses:
Selling, general and administrative ...................... 1,081,304 1,044,288 371,809 302,368..... 283,437 338,883
Research and development ................................. 204,767 200,932 88,307 72,742................ 88,281 46,988
----------- -----------
----------- -----------
1,286,071 1,245,220 460,116 375,110
----------- -----------371,718 385,871
----------- -----------
Operating gainincome from continuing operations ..................... 254,089 340,166 214,101 118,009
----------- -----------............. 4,719 147,258
----------- -----------
Other Expense (Income)(income):
Interest income ......................... (5,588) (12,016)
Interest expense ......................................... 22,418 38,288 4,964 12,438
Interest income .......................................... (22,589) (26,990) (3,596) (7,446)........................ 3,433 9,671
Other income, ............................................. (34,540) (697,125) (34,534) 10
Other expense ............................................ 28,365 -- 28,365 --net ....................... (1,060) (6)
----------- -----------
----------- -----------
(6,346) (685,827) (4,801) 5,002
----------- -----------(3,215) (2,351)
----------- -----------
Income from operations before income taxes .................... 260,435 1,025,993 218,902 113,007................... 7,934 149,609
Income tax (benefit) expense .................................. (54,105) 13,405 (57,842) (10,837)
----------- -----------........................... -- 8,797
----------- -----------
Net income .................................................... 314,540 1,012,588 276,744 123,844
----------- ----------- ----------- -----------................................... $ 7,934 $ 140,812
=========== ===========
(continued)
1
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED) - Continued
Other comprehensive (loss) gain,income, net of tax:tax
Unrealized comprehensive (loss) gain on available
for saleavailable-for-sale securities and foreign............ $ -- $ 25
Foreign currency translation adjustment ................................... (1,168) 54,575 44 244
----------- ----------- ----------- -----------................................ (344) --
------------ -------------
Comprehensive income .......................................... $ 313,3727,590 $ 1,067,163 $ 276,788 $ 124,088
=========== =========== =========== ===========140,837
============ =============
Basic net income per common share ............................. $ .05 $ .17 $ .04.00 $ .02
=========== =========== =========== ======================= =============
Diluted net income per common share ........................... $ .05 $ .14 $ .04.00 $ .02
=========== =========== =========== ======================= =============
Weighted average number of common and common equivalent shares:
Basic .................................................... 6,631,039 6,061,285 6,615,453 6,173,817
=========== =========== =========== ===========6,587,114
============ =============
Diluted .................................................. 6,778,294 7,129,887 7,017,611 7,213,837
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
1
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
February 28, May 31,
2009 2008
(unaudited) (audited)
---------- ----------
Assets
Current Assets
Cash and cash equivalents ............................................ $1,529,073 $2,022,380
Short-term investment ................................................ 100,000 --
Available for-sale securities ........................................ 615 355
Accounts receivable, less allowance for doubtful accounts of
$43,342 & $84,206, respectively .................................... 829,798 614,330
Inventories, net ..................................................... 2,081,945 1,764,202
Prepaid expenses and other ........................................... 122,790 101,867
Deferred tax asset ................................................... 35,000 35,000
---------- ----------
Total Current Assets ........................................... 4,699,221 4,538,134
Property and Equipment, net of accumulated depreciation and amortization . 380,864 369,580
Deferred Tax Asset ....................................................... 135,000 135,000
Other Assets ............................................................. 58,486 64,997
---------- ----------
$5,273,571 $5,107,711
========== ==========6,757,754 7,096,130
============ =============
The accompanying notes are an integral part of these statements.
2
BIOMERICA, INC.
CONSOLIDATED BALANCE SHEET
- Continued
February 28,August 31, May 31,
2009 20082009
(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 ................................................. $ 402,279304,176 $ 473,539263,998
Accrued compensation ....................................... 475,673 487,115
Shareholder loan ........................................... -- 95,936
Capital lease.................................................. 387,602 417,307
Loan for equipment purchase - short-termshort term portion ......................... 435 4,180
Equipment loan - short-term portion ........................ 41,314 48,428
Line of credit ............................................. 2,175 --...................... 42,914 42,254
------------ ------------
Total Current Liabilities ............................. 921,876 1,109,198
Equipment loan - long-term portion ............................. 90,299 114,565........................................ 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 and 6,489,839
in February 28,at August 31, 2009
and May 31, 2008 respectively .......2009 .................................................... 530,482 519,186530,482
Additional paid-in-capital ................................. 17,462,876 17,407,096............................................ 17,506,267 17,502,986
Accumulated other comprehensive loss ....................... (8,566) (7,398)
Common stock subscribed .................................... -- 3,000.................................. (2,070) (1,726)
Accumulated deficit ........................................ (13,723,396) (14,037,936)................................................... (13,675,822) (13,683,756)
------------ ------------
Total Shareholders' Equity ....................................................................................... $ 4,261,3964,358,857 $ 3,883,9484,347,986
------------ ------------
Total Liabilities and Shareholders' Equity ..................................................................... $ 5,273,5715,163,146 $ 5,107,7115,152,072
============ ============
The accompanying notes are an integral part of these statements.
34
BIOMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
February 28, February 29,
For the ninethree months ended August 31, 2009 2008
----------- -----------
Cash flows from operating activities:
Net income .............................................................from continuing operations ............................... $ 314,5407,934 $ 1,012,588140,812
Adjustments to reconcile net income to net cash (used in) provided by operating
activities:
Depreciation and amortization ..................................... 65,055 47,845
Common stock, warrants and options issued for services rendered ... 30,690 14,837.................................. 23,285 21,048
Stock option expense ........................................... 3,281 3,283
Provision for losses on accounts receivable ....................... 17,136 46,268.................... 8,887 2,766
Inventory reserve .............................................. (8,583) 31,303
Changes in current assets and liabilities:
Accounts Receivable ............................................. (232,604) (206,147).......................................... 92,024 87,561
Inventories ..................................................... (317,743) (217,519).................................................. (49,619) (221,603)
Intangibles .................................................. (2,800) --
Prepaid expenses and other current assets ....................... (14,412) 9,003............................ (53,012) 4,352
Accounts payable and other accrued liabilities .................. (71,260) (264,511)............... 40,178 (4,380)
Accrued compensation ............................................ (11,442) (76,769)......................................... (29,705) (15,547)
----------- -----------
Net cash (used in) provided by operating activities .................... (220,040) 365,595........................... 31,870 49,595
----------- -----------
Cash flows from investing activities:
Investment in certificateMaturity of deposit ............................ (100,000)short term investment .............................. 100,000 --
Purchases of property and equipment ............................. (76,339) (226,828)............................ (24,914) (32,762)
----------- -----------
Net cash used inprovided by (used in) investing activities .................................. (176,339) (226,828)................. 75,086 (32,762)
----------- -----------
Cash flows from financing activities:
Repayment ofPaydown on shareholder loan ......................................................................... -- (95,936)
(39,086)
Proceeds from exerciseExercise of warrants & stock options ................ 36,386 96,545
Payments on capital lease ......................................... (3,745) (3,231)
Borrowings on loan for equipment purchaseand warrants ......................... -- 112,390
Payments on loan for equipment purchase ........................... (31,380) --27,000
Payment of common stock subscribed ................................ (3,000)............................. -- Borrowings3,000
Payments on linecapital lease ...................................... -- (1,204)
Payment of creditequipment loan ...................................... 2,175 --(10,270) (11,247)
----------- -----------
Net cash (used in) provided byused in financing activities .................... (95,500) 166,618............................... (10,270) (78,387)
----------- -----------
Effect of exchange rate changes on cash ................................ (1,428)Exchange Rate Changes in Cash ............................. (344) --
----------- -----------
Net (decrease) increase (decrease)in cash and cash equivalents ................... (493,307) 305,385................. 96,342 (61,554)
----------- -----------
Cash and cash equivalents at beginning of period ........................................... 1,595,823 2,022,380 516,900
----------- -----------
Cash and cash equivalents at end of period ....................................................... $ 1,529,0731,692,165 $ 822,2851,960,826
=========== ===========
Supplemental Disclosure of Cash FlowCash-Flow Information:
Cash paid during the periodquarter for:
Interest ....................................................... $ 3,608 $ 10,062
Taxes .......................................................... $ 22,558 $ 37,621
=========== ===========
Income taxes ...................................................... $ 122,500 $ 3,768-- --
=========== ===========
Supplemental Disclosure on non-cash investing & financing activity:
Change in unrealized holding gainof Non-Cash Investing and Financing
Activities:
Unrealized loss on available-for-sale securities ..................... $ 260-- $ 54,575(25)
=========== ===========
The accompanying notes are an integral part of these statements.
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
February 28, 2009
(1) ReferenceSignificant 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 Note 2deteriorate,
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 Notesquantity and cost of inventory on hand to
Consolidated Financial
Statements containedmanagement's forecast of customer demand. Customer demand is dependent on many
factors and requires us to use significant judgment in Biomerica, Inc.'s (the "Company") Annual Report on Form
10-KSBour 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 endedend 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 Summarycomponent of significant
accounting policies utilized bycost of goods
sold.
Certain prior year amounts within the Company.
(2)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-dategrant- 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 ninethree months ended February 28,August 31, 2009 and February 29, 2008 the Company expensed $30,690$3,281
and $14,837, respectively,$3,283 of stock option expense due to SFAS 123(R) in its financial
statements.
(3)statements, respectively.
(2) The following summary presents the options and warrants granted, exercised,
expired, cancelled and outstanding as of February 28,August 31, 2009:
Weighted
Average
Number of Options and Warrants Exercise
Employee Non-employee Total Price
---------- ---------- ---------- ----------
Outstanding
May 31, 2008 1,346,958 155,166 1,502,1242009 1,516,508 158,166 1,674,674 $ 0.760.77
Granted 268,500 -- 268,500 0.56-- -- --
Exercised (129,200) -- (129,200) 0.26-- -- --
Cancelled or expired (32,000) -- (32,000) 0.75(108,000) (74,000) (182,000) 2.56
---------- ---------- ---------- ----------
Outstanding
February 28,August 31, 2009 1,454,258 155,166 1,609,4241,408,508 84,166 1,492,674 $ 0.770.55
========== ========== ========== ==========
(4)(3) The information set forth in these condensed consolidated statements is
unaudited. The informationunaudited 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.
(5)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, 20082009 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-KSB10-K filed with the Securities and
Exchange Commission (SEC) for the fiscal year ended May 31, 2008.
5
(6) Aggregate cost exceeded market value2009. The results of
available-for-sale securities by
$7,040 and $7,398 at February 28, 2009 and May 31, 2008, respectively.
(7)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 biological chemicals.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 CompanyCompany'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:
February 28,August 31, May 31,
2009 2008
----------- -----------2009
-------------- --------------
Raw materials $ 819,835810,000 $ 687,959809,000
Work in progress 491,713 570,011921,000 818,000
Finished products 838,318 506,232483,000 537,000
-------------- --------------
Inventory Reserve for obsolete inventory (67,921) --
----------- -----------(156,000) (165,000)
Total $ 2,081,9452,058,000 $ 1,764,202
=========== ===========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.
(8)(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.
Nine Months Ended Three Months Ended
February 28, February 29, February 28, February 29,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 2008 2009 2008
- ------------------------------------------------------------------------------------------------------
Numerator:
Income from continuing operations $ 314,540 $ 1,012,588 $ 276,744 $ 123,844
- ------------------------------------------------------------------------------------------------------
Numerator for basic and diluted net
income per common share $ 314,540 $ 1,012,588 $ 276,744 $ 123,844
======================================================================================================
Denominator for basic net income
per common share 6,631,039 6,061,285 6,615,453 6,173,817
Effect of dilutive securities:
Options and warrants 147,255 1,068,602 402,158 1,040,020
- ------------------------------------------------------------------------------------------------------
Denominator for diluted net income
per common share 6,778,294 7,129,887 7,017,611 7,213,837
======================================================================================================
Basic net income per common share $ .05 $ .17 $ .04 $ .02
======================================================================================================
Diluted net income per common share $ .05 $ .14 $ .04 $ .02
======================================================================================================
(9) In December 2007, the FASB issued SFAS No. 141R, Business Combinations. SFAS
141R establishes a defined measurement period165, "Subsequent Events". This statement
established general standards of accounting for disclosure of events that governsoccur
after the time period
withinbalance 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 business combination must be reported. In addition,basis for that date. This would alert
all users of financial statements that an entity has not evaluated subsequent
events after that in the revised
standard significantly expands the scopeset of disclosure requirements. SFAS No.
141Rfinancial statements being presented. This
statement is effective for interim and annual periods beginningending after DecemberJune 15,
2008.2009. The Company does not believe that the adoption of SFAS No. 141R will have165 has had a
material impact on its financial statements.
6
In December 2007, theThe FASB issued SFAS No. 160, Noncontrolling Interest in
Consolidated168, "The FASB Accounting Standards Codification
(Codification) and the Hierarchy of Generally Accepted Accounting Principles- a
replacement of Financial Statements--an amendmentStatement No. 162". On the effective date of ARB No. 51.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 applies to all entities that prepare consolidatedis effective
for financial statements exceptissued for non-profit organizations, but will affect only those entities that have an
outstanding noncontrolling interest in one or more subsidiaries or that
deconsolidate a subsidiary. SFAS No. 160 was effective for annualinterim and periods beginningending after DecemberSeptember
15, 2008.2009. The Company does not believe that the adoption of SFAS No. 160168 will
have ana material impact on its financial statements.
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an Amendment of FASB Statement No. 133. This
Statement requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts of and
gains and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements. SFAS No. 161
was effective for financial statements issue years and interim periods beginning
after November 15, 2008. The Company does not believe that the adoption of SFAS
No. 161 has had an impact on its financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles. This Statement is intended to improve financial reporting
By identifying a consistent framework, or hierarchy, for selecting accounting
Principles to be used in preparing financial statements that are presented in
Conformity with U.S. generally accepted accounting principles for
nongovernmental Agencies. Statement 162 is effective 60 days following the SEC's
approval of The Public Company Accounting Oversight Board Auditing amendments to
AU Section 411, The Meaning of "Present Fairly in Conformity with Generally
Accepted Accounting Principles". The Company does not believe that Statement 162
will have a material effect on its financial statements.
In May 2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts. The new standard clarifies how FASB Statement No. 60,
Accounting and Reporting by Insurance Enterprises, applies to financial
guarantee insurance contracts issued by insurance enterprises. The Statement was
effective for financial statements issued for fiscal years beginning after
December 15, 2008, and all interim periods within those fiscal years. The
Company does not believe that the adoption of SFAS No. 163 will have an impact
on its financial statements.
(10)(8) Financial information about foreign and domestic operations and export sales
is as follows:
For the NineThree Months Ended
2/28/8/31/09 2/29/8/31/08
---------- ----------
Revenues from sales to unaffiliated customers:
United States $ 807,000229,000 $ 945,000191,000
Asia 739,000 614,000272,000 280,000
Europe 2,032,000 1,934,000617,000 680,000
South America 73,000 51,000
Oceania --18,000 35,000
Middle East 12,000 7,000
Other 1,000 Other 38,000 63,0001,000
---------- ----------
$3,689,000 $3,608,000$1,149,000 $1,194,000
========== ==========
No other geographic concentrations exist where net sales exceed 10% of
total net sales.
(11) In July 2007 the Board of Directors granted a stock option for 25,000
options to a new Company director. The options vested one half immediately and
then one quarter per year thereafter. The option is at the exercise price of
$.78 per share and expires in five years. Management assigned a value of $11,343
to this option.
In November 2007 the Board of Directors granted stock options for 16,000 options
to employees of the Company. The options vested one quarter immediately and then
will vest one quarter per year thereafter. The options are at the exercise price
of $1.30 and expire in five years. Management assigned a value of $12,589 to
these options.
During the year ended May 31, 2008, 557,625 options and warrants to purchase
Biomerica, Inc., common stock were exercised. The options and warrants were at
prices ranging from $0.20 to $0.73. The total proceeds to the Company were
$162,386.
79
In October 2008 the Board of Directors granted stock options for 100,000 options
to the outside directors of the Company. The options vested one quarter
immediately and then will vest one quarter per year thereafter. The options are
at the exercise price of $.75 and expire in ten years. Management assigned a
value of $58,834 to these options.
In January 2009 the Board of Directors granted stock options for 168,500 options
to various employees of the Company. The options vested one quarter immediately
and then will vest one quarter per year thereafter. The options are at the
exercise price of $.45 and expire in five years. Management assigned a value of
$38,270 to these options.
During the nine months ended February 28, 2009, 129,200 options and warrants to
purchase Biomerica, Inc., common stock were exercised. The options and warrants
were at prices ranging from $.25 to $.40. Total proceeds to the Company were
$36,386.
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 cancellation, 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 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.
(12) In July 2008, the Company paid off the principal and interest balance owed
on the shareholder note payable.
(13) The Company is actively looking to relocate facilities and as such may
incur additional costs to restore the current facilities to its original
condition. This amount has not been recognized within the interim financial
statements as of February 28, 2009 due to the inability to reasonably estimate
the fair value of such costs.
(14)(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 February 28,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 February 28,August 31, 2009.
8
(15)(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 June 2008September 2009 the Company incorporated in Mexico underbegan the nameprocess of Biomerica
de Mexico formoving to its new facility.
Management anticipates that the purpose of establishing its own mequiladora operation in
Mexico at some time in the future.
(16) In November 2008 the Company incorporated under the name of Biomerica
Europe GmbH in Germany for the purpose of operating and distributing some of its
products from that location in the future.
(17) Foreign Currency Translation
Assets and liabilitiesmajority of the Company's newly created international operations
are translatedpersonnel and assets
will be operating at period-end exchange rates. Income and expenses are translated
at average exchange rates prevailing during the year. For operations whose
functional currency is the local currency, translation adjustments are recorded
in the accumulated other comprehensive loss component of shareholder's equity.
During the nine months ended February 28,new location by early November 2009, the Company recorded $1,428 of
translation adjustments.
(18) On December 2, 2008 the Company signed an agreement to perform custom
manufacturing forwith a large diagnostics company in thesmall
amount of $25,000. One-half
of the fee was due to Biomerica thirty days after signing the agreement and is
included within other accrued liabilities as the revenue process is not yet
complete. Theoperation remaining $12,500 balance is due upon completion of the project.
(19) 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.
Fees associated with establishing the Line were $2,175 and these fees have been
charged to the Line. 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.
On February 13, 2009, the Company entered into a Small Business Bank Agreement
for a Business Loan for $133,000. Loan proceeds were disbursed in one single
funding on March 5, 2009. The loan was used for the purpose of paying off the
business loan, which had been established with Commercial Bank, for the purpose
of financing a significant fixed asset purchase. The fixed asset serves as
collateral for the loan.
The loan is payable in thirty-six monthly payments of $4,082.54. The interest
rate is 6.50% and the payments are to be made by automatic deduction from the
Company's Union Bank account. Initial fees for the loan were $740.
(20) Subsequent Events
On March 30, 2009 the Board of Directors granted stock options for 110,000
options to certain officers and/or directors. The options vested one quarter
immediately and then will vest one quarter per year thereafter. The options areshort-term at the exercise price of $.60 and expire in five years. Management assigned a
value of $35,938 to these options.
On March 27, 2009 the Company signed an Asset Purchase Agreement with a European
company for the purchase of certain technology related to the manufacture of
certain medical diagnostic tests. Consideration for this purchase was a nominal
deposit upon signing the agreement and a nominal transfer fee upon successful
commencement of production of the products. A royalty shall be paid for five
years beginning on the date of first sale of finished product derived from the
Purchased Assets.
On April 7 2009, the Company received CE approval for our kidney disease
self-test (urinary microalbumin).
9previous 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 $3,688,524$1,148,521 for the first
nine
monthsquarter of fiscal 20092010 as compared to $3,608,408$1,194,345 for the same period in the
previous year. This represents an increasea decrease of $80,116,$45,824 or 2.2%. For3.8% for the quarter
then ended net sales were $1,373,604August 31, 2009 as compared to $1,240,809the 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 previous year. This represents an increase of $132,795, or 10.7%.
The increase in sales for the quarter ended February 28, 2009 as compared to
February 29, 2008 was a result of increased sales to foreign distributors.
For the nine months ended February 28, 2009 as compared to February 29,
2008, cost of sales increased from $2,023,022, or 56.1% of sales, to $2,148,364,
or 58.2% of sales. For the three month period then ended cost of sales decreased
from $747,690, or 60.3% of sales, to $699,387, or 50.9% of sales. The increase
for the nine months was attributable to a variety of factors which included
higher wages and royalties as compared to the prior fiscal year.
The decrease
for the three months was a result of various factors, including the sale of
higher margin products in the third quarter of fiscal 2009 and a larger amount
of labor and overhead being capitalized into inventory. Capitalization of labor
and overhead can vary from quarter to quarter, as the allocation is based on a
rolling average of the value of materials used in production which vary based on
product mix and direct labor which typically remains constant over a six month
time frame.
For the nine months ended February 28, 2009 compared to February 29,
2008, selling, general and administrative costs increasedInterest income decreased by $37,016, or 3.5%.
For the three months then ended these expenses increased by $69,441, or 23.0%.
These increases were a result of a variety of factors which included higher
commissions, Sarbanes-Oxley consulting, trade show expense, wages, option
expense and startup costs for Biomerica Europe GmbH.
For the nine months ended February 28, 2009 compared to February 29,
2008, research and development increased by $3,835, or 1.9% and for the three
months increased by $15,565, or 21.4%. The increase for the nine and three
months was primarily$6,428 due to higher wages in fiscal 2009.
For the nine months ended February 28, 2009, other income of $34,540
was realized as compared to $697,125 in the prior year. For the three months
then ended, other income of $34,534 was realized as compared to $10 expense in
the prior fiscal year. The decrease for the nine months was a result of the
non-recurring sale of a marketable security in fiscal 2008 that had been carried
on the Company's books at a value of zero.
For the nine monthslower cash balances and
interest rates. Interest expense decreased from $38,288by $6,238 (64.5%) due to $22,418.
For the three months interest expense decreased from $12,438 to $4,964 as a
result of lower
interest rates and debt balances. For the nine months interest
income decreased from $26,990 to $22,589 and for the three months interest
income decreased from $7,446 to $3,596, primarily due to lower interest rates.
10
balances on loans.
LIQUIDITY AND CAPITAL RESOURCES
As of February 28,August 31 and May 31, 2009, the Company had cash and
current
available-for-sale securities in the amount of $1,529,688$1,692,165 and $1,595,823 and
working capital of $3,777,345.$3,802,237 and $3,831,112, respectively.
11
During the quarter ending February 28,ended August 31, 2009 the Company investedoperations
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
Certificatecertificate of Depositdeposit in the amount of $100,000 and the investment of $24,914
for $100,000, which is reflected onfixed assets in the balance sheetfirst quarter of fiscal 2010 as a short-term investment.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 Bankbank 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 Loanbusiness loan ("Loan") for $133,000.$133,000 and an
interest rate of 6.50%. Loan proceeds were disbursed in one single funding on
March 5, 2009. The loanLoan was used for the purpose of paying off thea business loan
which had been established with Commercial Bank for the
purpose of financing a significant fixed asset purchase.California. The fixed asset
serves as collateral for the loan. During the nine months ended February 28,The loan payable at August 31, 2009 the Company operations
used cashand May
31, 2009 relating to this equipment loan is $112,511 and $122,781, respectively.
The Loan is payable in the amountthirty-six monthly payments of $220,040 as compared to cash provided by operations
in the amount of $365,595 in the same period in the prior fiscal year. Cash used
in financing activities for the nine months ended February 28, 2009 was $95,500,
primarily due to the repayment of the shareholder loan in the amount of $95,936
as compared to cash provided by financing activities of $166,618 in fiscal 2008,
which was primarily due to $112,390 from the borrowings on the loan for
equipment purchase and $96,545 from the exercise of stock options and warrants.
Net cash used in investing activities during the nine months ended February 28,
2009 was $176,339 as compared to $226,828 in the same period in the prior fiscal
year. Cash used in investing for fiscal 2008 related solely to the purchase of
property and equipment, whereas, cash used in investing for the nine months
ended February 28, 2009 related to investment within a certificate of deposit
and purchases of property and equipment.approximately
$4,000.
CRITICAL ACCOUNTING POLICIES
The discussionpreparation 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 analysisassumptions 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, are based onin that they
require subjective or complex judgments, form the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Note 2 of the Notes to Consolidated Financial Statements
contained in the Company's annual report on Form 10KSBbasis for the period ended May
31, 2008, describesaccounting
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 essential to the
consolidated financial statements. The preparationbe read in conjunction with this
Management's Discussion and Analysis of these financial statements
requires estimatesFinancial Condition and assumptions that affect the reported amounts and
disclosures.
We believe the following to be critical accounting policies as they
require more significant judgments and estimates used in the preparation of our
consolidated financial statements. Although we believe that our judgments and
estimates are appropriate and correct, actual future results may differ from our
estimates.
In general the critical accounting policies that may require judgments
or estimates relate specifically to the Allowance for Doubtful Accounts,
Inventory Reserves for Obsolescence and Declines in Market Value, Impairment of
Long-Lived Assets, Stock Based Compensation and Income Tax Accruals.
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.
11Selected
Financial Data.
12
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.
We were in a loss position for tax purposes in prior years, and
established a partial valuation allowance against deferred tax assets, as we may
not be able to generate sufficient taxable income in future periods to realize
the entire benefit of our deferred tax assets. Although the Company has achieved
net income in the last three fiscal years, due to the fact that many factors can
influence profitability, management determined at May 31, 2008 that $170,000 of
the previously allowed for deferred tax assets should be released which resulted
an income tax benefit of $170,000 being recognized during fiscal 2008.
Predicting future taxable income is difficult, and requires the use of
significant judgment. Accruals are made for specific tax exposures and are
generally not material to our operating results or financial position, nor do we
anticipate material changes to these reserves in the near future. Management
re-evaluated this at February 28, 2009, and determined that the deferred tax
asset should remain at $170,000.
The consolidated financial statements reflect, for all periods
presented, the adoption of the classification or disclosure requirements
pursuant to Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping
and Handling Fees and Costs." 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 nine months ended February
28, 2009 and February 29, 2008, respectively, was $87,739 and $84,513 and for
the quarters then ended was $34,560 and $27,722. 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.
Please refer to the annual report on Form 10-KSB10-K for the period ended May
31, 20082009 for an in-depth discussion of risk factors.
12
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.
13
Item 4. CONTROLS AND PROCEDURES
DISCLOSURE 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. Inapplicable.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 2002,2009, 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 effectaffect 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 resultedresults 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.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. The 2008 Annual Meeting of the Company's stockholders was held on
December 3, 2008. Two matters were voted upon at the meeting, as set forth in
the proxy statement dated September 29, 2008, as filed with the Securities and
Exchange Commission pursuant to Rule 14 under the Securities Act of 1934 and
described below.
Proposal No. 1: Election of Directors
Name For Votes Withheld
Barbieri 5,504,358 146,688
Cano 5,503,658 147,388
Emerson 5,502,108 148,938
Irani 5,483,538 167,508
Moore 5,502,008 149,038
Roehm 5,503,508 147,488
All directors nominated were elected.
Proposal No. 2: Approval of the Company's 2008 Stock Incentive Plan
For 2,392,837 Against 282,235 Abstain 34,612
The Company's 2008 Stock Incentive Plan was not approved by a plurality of
votes.
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None.
Item 5. OTHER INFORMATION. None.
Item 6. EXHIBITS.
10.1 Union Bank Business Line of Credit and Business LoanStandard 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 sectionSection 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: April 14,October 15, 2009
BIOMERICA, INC.
By: /S/ Zackary S. Irani
-----------------------
Zackary S. Irani
Chief Executive Officer
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