Edgar Filing: BIOMERICA INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED MAY 31, 2003 COMMISSION FILE NUMBER: 0-8765
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BIOMERICA, INC.
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(Small Business Issuer in its Charter)

DELAWARE 95-2645573
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1533 MONROVIA AVENUE, NEWPORT BEACH, CA 92663
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(Address of principal executive offices) (Zip Code)

Issuer's Telephone Number: (949) 645-2111
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Securities registered under Section 12(b) of the Exchange Act:
(Title of each class) (Name of each exchange on which registered)
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NONE OTC-Bulletin Board

Securities registered under Section 12(g) of the Exchange Act:
(Title of each class)
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COMMON STOCK, PAR VALUE $0.08

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained herein, and will not be contained, to the best of issuer's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes No X
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State issuer's revenues for its most recent fiscal year: $9,059,938.

State the aggregate market value of the voting and non-voting stock held by
non-affiliates of the issuer (based upon 4,748,660 shares held by non-
affiliates and the closing price of $0.25 per share for Common Stock in the
over-the-counter market as of Nov. 30, 2003): $1,187,165.

Number of shares of the issuer's common stock, par value $0.08, outstanding as
of August 27, 2003: 5,742,431.

DOCUMENTS INCORPORATED BY REFERENCE: none

Transitional Small Business Disclosure Format YES NO X
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PART I*

ITEM 1. DESCRIPTION OF BUSINESS
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BUSINESS

OVERVIEW

THE COMPANY

Biomerica, Inc. ("Biomerica", the "Company", "we" or "our") was
incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc.
We changed our corporate name in February 1983 to NMS Pharmaceuticals, Inc.,
and in November 1987 to Biomerica, Inc. During fiscal 2003 we had two
subsidiaries, Lancer Orthodontics, Inc. ("Lancer"), an international
manufacturer of orthodontics products, and ReadyScript, Inc. ("ReadyScript"),
which developed a wireless handheld point of care system for physicians, but
which operations were discontinued during fiscal 2001. On May 30, 2002,
Biomerica sold its controlling interest in a third subsidiary, Allergy Immuno
Technologies (AIT). All subsidiaries are majority-controlled subsidiaries.

Lancer is engaged in the design, manufacture and distribution of
orthodontic products. During 2002, Lancer issued 37,595 additional shares to
Biomerica as reimbursement for expenses paid on Lancer's behalf. The Company
valued these shares at $8,271. Biomerica's direct ownership percentage of Lancer
is 31.12% and its direct and indirect (via agreements with certain shareholders)
voting control over Lancer is greater than 50% as of May 31, 2003. The parties
to the voting agreements consist of the Biomerica directors.

In June 1999, we raised $2 million in equity to develop the infrastructure of
our e-health business, now incorporated as ReadyScript, Inc. From June 1999
until April 2001 we used the proceeds for developing an on-line drugstore and
ReadyScript's infrastructure (a wireless medication management system that
enables physicians to wirelessly transmit legible, pre-qualified
formulary-compliant prescription orders directly to the patient's choice of
pharmacy).

The Company adopted a formal plan in April 2001 to discontinue operations
of its ReadyScript subsidiary. Management is currently responding
to any inquiries about the possible purchase of the ReadyScript technology and
has presented the ReadyScript technology to companies which might use such
technology, but does not have a buyer at the current time. Management will
continue to offer the technology for sale, but believes that the chances of
selling it at this time are unlikely due to technological changes in the
marketplace and lack of support available from ReadyScript. These assets have
not been valued on the balance sheet since they were obtained through research
and development, which was expensed at the time it was incurred. Biomerica has
not recognized any losses in revenues as a result of the decision to discontinue
the ReadyScript operation because it was a development-stage company with no
revenues. Certain assets were written off during the closure and subsequent to
then which were recorded as losses in the consolidated financial statements. The
subsidiary is being reported in the financial statements as a discontinued
operation because it is no longer an operating entity.

The Company adopted a formal plan in March, 2002, to discontinue operations
of AIT. Biomerica was issued 808,558 shares of AIT common stock in April of 2002
for liabilities it assumed from AIT. The shares were valued at $.015 per share
since the stock had been trading at that time between $.01 and $.02 per share.
On May 30, 2002, we sold 13,350,000 shares of AIT common stock held by us,
representing 98.1% of the shares we owned in AIT, to a third party in exchange
for $212,500, which management believes approximated fair market value at the
time of the sale. A non-interest bearing loan was transferred to the purchaser
of the AIT shares as part of the sale. Biomerica assumed the assets and
liabilities of AIT with the exception of the note evidencing the loan. The
amount of the transferred loan to the purchaser of AIT was $225,282. The note
was due on demand and no payments were made on the note. The operations of AIT
were being reported in fiscal 2002 in the financial statements as discontinued
operations. During fiscal 2003 there were no operations of AIT reported in
discontinued operations. We retained 255,575 shares of AIT common stock and sold
13,350,000 shares since that was the amount of shares that the purchaser wanted
to buy. In June 2002 the Company agreed to the transfer of 75,000 of those
shares of AIT common stock to a company in lieu of $10,000 cash for services
rendered.

Prior to the transaction Biomerica assumed all assets and liabilities of
AIT, which included cash ($803), inventory ($2,600), patents ($9,608), accounts
payable ($27,463),net receivables ($1,375), prepaids ($747) and net fixed assets
($213). There were no other terms in the agreement which were material. AIT was
the holder of a 10,000 share option in Hollister- Stier, a privately held
company. Based on information received from Hollister-Stier regarding valuation
of the options, these options were transferred to Biomerica in exchange for the
reduction of a note payable to Biomerica by $108,100.

OUR MEDICAL DEVICE BUSINESS

Our existing medical device business is conducted through two companies:
(1) Biomerica, Inc., engaged in the human diagnostic products market and (2)
Lancer Orthodontics, Inc., engaged in the orthodontic products market.

BIOMERICA - DIAGNOSTIC PRODUCTS

Biomerica develops, manufactures, and markets medical diagnostic products
designed for the early detection and monitoring of chronic diseases and medical
conditions. The Company's medical diagnostic products are sold in three markets:
1) clinical laboratories, 2) physicians offices and 3) over- the-counter
(drugstores). Our diagnostic test kits are used to analyze blood or urine from
patients in the diagnosis of various diseases and other medical complications,
or to measure the level of specific hormones, antibodies, antigens or other
substances which may exist in the human body in extremely small concentrations.

Technological advances in medical diagnostics have made it possible to
perform diagnostic tests within the home and the physician's office, rather than
in the clinical laboratory. One of our main objectives has been to develop and
market rapid diagnostic tests that are accurate, employ easily obtained
specimens, and are simple to perform without instrumentation. Our
over-the-counter and professional rapid diagnostic products help to manage
existing medical conditions and may save lives through prompt diagnosis and
early detection. Until recently, tests of this kind required the services of
medical technologists and sophisticated instrumentation. Frequently, results
were not available until at least the following day. We believe that rapid point
of care tests are as accurate as laboratory tests when used properly, require no
instrumentation, give reliable results in minutes and can be performed with
confidence in the home or the physician's office. The majority of our
over-the-counter rapid tests are FDA cleared.

Our clinical laboratory diagnostic products include tests for thyroid
conditions, yeast infections, H. pylori, and others. These diagnostic test kits
utilize enzyme immunoassay or radioimmunoassay technology. Some of these
products have not yet been submitted for clearance by the FDA for diagnostic
use, but can be sold in various foreign countries.

During fiscal 2002 we introduced the Aware Breast Self-Examination Pad,
which is a patented, FDA-cleared polyurethane pad containing a silicone
lubricant. The pad is designed to enhance the sense of touch by reducing
friction between the fingers and the skin. The pad is packaged with an
instructional video which teaches the proper techniques for performing breast
self-examination. The target markets for the product include retail, catalog,
multi-level marketing channels, and the medical community.

During fiscal 2003 we entered into an agreement with Sangui Bio Tech, Inc.,
whereby we acquired intellectual assets along with ancillary tangible assets
such as fixed assets and inventory. The intellectual assets consisted of five
clinical laboratory products. Two Sangui employees became employees of
Biomerica.

LANCER ORTHODONTICS, INC. -- ORTHODONTIC PRODUCTS

Lancer is engaged in developing, manufacturing, and selling orthodontic
products. Its products are sold worldwide through a direct sales force and
distributors.

Lancer's product line includes preformed bands, direct bonding pads, buccal
tubes, arch wires, lingual attachments and related accessories were used by
orthodontics and dentists in treating their patients. The foregoing are
assembled to standard prescriptions or the specifications of private label
customers. Lancer also markets products which are purchased and resold to
orthodontists, including sealants, adhesives, elastomerics, headgear cases,
retainer cases, orthodontic wire and preformed arches.

Most of Lancer's manufacturing and shipping operations are located in
Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more
effectively worldwide. Lancer maintains its headquarters in San Marcos,
California where it houses administration, engineering, sales and marketing, and
customer services.

DISCONTINUED OPERATIONS

The Company's fiscal 2003 and 2002 losses were partially the result of its
investment in ReadyScript. The ReadyScript subsidiary was a development- stage
enterprise and required the raising of a significant amount of capital to fund
its short-term working capital needs. The ReadyScript operations were
discontinued in May 2001. The net liabilities and operating results of
ReadyScript are shown separately in the accompanying consolidated financial
statements as discontinued operations.

On May 30, 2002, Biomerica received $212,500 for its interest in AIT and
recorded a gain of $224,481 on the sale. The gain from sale and loss from
operations are included in discontinued operations in the accompanying statement
of operations for the year ended May 31, 2002.

LIQUIDITY AND GOING CONCERN

These consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has operating and
liquidity concerns due to historically reporting net losses and negative cash
flows from operations. Biomerica's shareholder's line of credit (Note 6) expires
on September 13, 2003 and will not be renewed. The unpaid principal and interest
will be converted into a note payable bearing interest at 8% and payable in
monthly installments over four years.

Biomerica has suffered substantial recurring losses from operations over
the last couple of years. Biomerica has funded its operations through debt and
equity financings, and may have to do so in the future. ReadyScript operations
were discontinued in May 2001 and Allergy Immuno Technologies, Inc. was sold in
May 2002 (see Notes 3 and 13). ReadyScript and Allergy Immuno Technologies, Inc.
were contributors to the Company's losses. In the fiscal year 2003, the Company
reduced operating costs through certain cost reduction efforts and plans to
concentrate on its core business in Lancer and Biomerica to increase sales.
Additional cost reductions were made in the first quarter of fiscal 2004.
Management believes that cash flows from operations coupled with reduced costs
and anticipated increased sales will enable the Company to fund operations for
at least the next twelve months. Should the Company be unable to reduce costs
adequately or should the Company be unable to secure additional financing, the
result for the Company could be the inability to continue as a going concern.

The Company will continue to have limited cash resources. Although the
Company's management recognizes the imminent need to secure additional financing
there can be no assurance that the Company will be successful in consummating
any such transaction or, if the Company does consummate such a transaction, that
the terms and conditions of such financing will not be unfavorable to us.

Our independent certified public accountants have concluded that these
factors, among others, raise substantial doubt as to the Company's ability to
continue as a going concern for a reasonable period of time, and have, therefore
modified their report in the form of an explanatory paragraph describing the
events that have given rise to this uncertainty. The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.

PRODUCTION

Most of our diagnostic test kits are processed and assembled at our
facilities in Newport Beach, California. During fiscal 2003 we established a
manufacturing facility in Mexicali, Mexico, in a building that we share with
Lancer Orthodontics. We are in the process of moving some of the manufacturing
to that facility. We subcontract with Lancer to provide labor and other
services. Production of diagnostic tests can involve formulating component
antibodies and antigens in specified concentrations, attaching a tracer to the
antigen, filling components into vials, packaging and labeling. We continually
engage in quality control procedures to assure the consistency and quality of
our products and to comply with applicable FDA regulations.

All manufacturing production is regulated by the FDA Good Manufacturing
Practices for medical devices. We have an internal quality control unit that
monitors and evaluates product quality and output. In addition, we employ a
qualified external quality assurance consultant who monitors procedures and
provides guidance in conforming with the Good Manufacturing Practices
regulations. We either produce our own antibodies and antigens or purchase these
materials from qualified vendors. We have alternate, approved sources for raw
materials procurement and we do not believe that material availability in the
foreseeable future will be a problem.

During fiscal 2002, the Lancer facility in Mexico was incorporated as
Lancer Orthodontics de Mexico ("Lancer de Mexico"), a wholly-owned subsidiary of
Lancer. This subsidiary now administers services previously provided by an
independent manufacturing contractor. A lease was negotiated effective April 1,
2001, for the 16,000 square foot facility already in use for Lancer's Mexican
operations. Mexican utility and vendor obligations were also converted to the
Lancer de Mexico name. This conversion eliminated the expense of an
administrative fee and is expected to provide better control in meeting future
obligations. The conversion had no material effect on manufacturing operations.
The potential impact for the use of Lancer's own facility, in terms of a
corporate entity with legal standing in Mexico, is that over a fiscal year
Lancer would save approximately $100,000 in service fees over a Mexican
contracted corporate entity.

Should Lancer discontinue operations in Mexico, it is responsible for
accumulated employee seniority obligations as prescribed by Mexican law. At May
31, 2003, this obligation was approximately $401,000. Such obligation is
contingent in nature and accordingly has not been accrued in either company's
financial statements.

RESEARCH AND DEVELOPMENT

Biomerica is engaged in research and development to broaden its diagnostic
product line in specific areas. Research and development expenses include the
costs of materials, supplies, personnel, facilities and equipment. Lancer is
engaged in development programs to improve and expand its orthodontic products
and production techniques. Lancer consults frequently with practicing
orthodontists. The dental amalgam development was terminated because of poor
sales. This termination did not impact other expenses or revenues.

Consolidated research and development expenses incurred by Biomerica for
the years ended May 31, 2003 and 2002 aggregated approximately $263,000 and
$160,000, respectively. Lancer is also engaged in, and intends to continue
development programs directed toward improving its orthodontics products and
production techniques. Of the above expenses approximately $107,000 and $4,000
for fiscal 2003 and 2002, respectively, are for Lancer's product development.

MARKETS AND METHODS OF DISTRIBUTION

Biomerica has approximately 400 current customers for its diagnostic
business, of which approximately 60 are distributors and the balance are
hospital and clinical laboratories, medical research institutions, medical
schools, pharmaceutical companies, chain drugstores, wholesalers and physicians'
offices.

We rely on unaffiliated distributors, advertising in medical and trade
journals, exhibitions at trade conventions, direct mailings and an internal
sales staff to market our diagnostic products. We target three main markets: (a)
clinical laboratories, (b) physicians' offices, and (c) over-the-counter drug
stores. Separate marketing plans are utilized in targeting each of the three
markets.

Lancer sells its products directly to orthodontists through company-paid
sales representatives in the United States. At the end of its fiscal year,
Lancer had six sales representatives, all in the United States, all of whom are
employees of Lancer. We believe that all Lancer products sold in the U.S. comply
with FDA regulations.

In selected foreign countries, Lancer sells its products directly to
orthodontists through its international marketing division. Lancer also sells
its products through distributors in certain foreign countries and to other
companies on a private label basis. Lancer has entered into a number of
distributor agreements whereby it granted the marketing rights to its products
in certain sales territories in Mexico, Central America, South America, Europe,
Canada, Australia, and Japan. The distributors complement the international
marketing department which was established in 1982 and currently employs three
people in the United States and one in Mexico.

Lancer also markets products which are purchased and resold to
orthodontists, including sealants, adhesives, elastomerics, headgear cases,
retainer cases and orthodontic wire.

On a consolidated basis no customer accounted for 10% or more of the
consolidated sales in the fiscal years ended May 31, 2003 and 2002. No customer
accounted for 10% or more of Lancer Orthodontics' sales. On an unconsolidated
basis Biomerica has two customers who each account for greater than 10% of its
sales.

BACKLOG

At May 31, 2003 and 2002 Biomerica had a backlog of approximately $110,000
and $122,000 respectively. As of May 31, 2003 and 2002, Lancer had a backlog of
approximately $35,000 and $84,000, respectively. Lancer had decreased backorders
in fiscal 2003 compared to fiscal 2002. The change in Lancer's backlog was
attributable to improved planning (better forecasting of demand and softened
summer demand).

RAW MATERIALS

The principal raw materials utilized by us consist of various chemicals,
serums, reagents, radioactive isotopes and packaging supplies. Almost all of our
raw materials are available from several sources, and we are not dependent upon
any single source of supply or a few suppliers. No company accounted for more
than 10% of purchases for the years ended May 31, 2003 and 2002.

We maintain inventories of antibodies and antigens as components for our
diagnostic test kits. Due to a limited shelf life on some products such as the
RIA kits, finished kits are prepared as required for immediate delivery of
pending and anticipated orders. Sales orders are normally processed on the day
of receipt.

The principal raw materials used by Lancer in the manufacture of its
products include: stainless steel, which is available from several commercial
sources; nickel titanium, which is available from three sources; and lucolux
translucent ceramic, which is currently only available from one source, General
Electric, and is purchased on open account. Ceramic material similar to General
Electric's lucolux translucent ceramic is available from other sources. Lancer
had no difficulty in obtaining an adequate supply of raw materials during its
2003 fiscal year, and does not anticipate that there will be any interruption or
cessation of supply in the future.

COMPETITION

Immunodiagnostic products are currently produced by more than 100
companies, a majority of which are located within the United States. Biomerica
and its subsidiaries are not a significant factor in the market.

Our competitors vary greatly in size. Many are divisions or subsidiaries of
well-established medical and pharmaceutical concerns which are much larger than
Biomerica and expend substantially greater amounts than we do for research and
development, manufacturing, advertising and marketing.

The primary competitive factors affecting the sale of diagnostic products
are uniqueness, quality of product performance, price, service and marketing.
The prices for our products compare favorably with those charged by most of our
competitors.

We believe we compete primarily on the basis of our reputation for the
quality of our products, the speed of our test results, the unique niches we
fill in the market, our patent position, and our prompt shipment of orders. We
offer a broader range of products than many competitors of comparable size, but
to date have had limited marketing capability. We are working on expanding this
capability through strategic cooperation with larger companies and distributors.

Lancer encounters intense competition in the sale of orthodontic products.
Lancer's management believes that Lancer's six major competitors
are: Unitek, a subsidiary or division of 3M; Ormco, a subsidiary or division of
Sybron Dental Specialities; RMO Inc., a private company; American Orthodontics,
a private company; GAC, a division of Dentsply; and Dentaurum, a foreign
company. Lancer estimates that these six competitors account for approximately
70-80% of the orthodontic products manufactured and sold in the United States.
Lancer's management also believes that each of these six competitors is larger
than Lancer, has more diversified product lines and has financial resources
exceeding those of Lancer. While there is no assurance that Lancer will be
successful in meeting the competition of these six major competitors or other
competitors, Lancer has, in the past, successfully competed in the orthodontic
market and has achieved wide recognition of both its name and its products.

GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS

As part of our diagnostic business, we sell products that are legally
defined to be medical devices. As a result, we are considered to be a medical
device manufacturer, and as such are subject to the regulations of numerous
governmental entities. These agencies include the Food and Drug Administration
(the "FDA"), the United States Drug Enforcement Agency (the "DEA"),
Environmental Protection Agency, Federal Trade Commission, Occupational Safety
and Health Administration, U.S. Department of Agriculture ("USDA"), and Consumer
Product Safety Commission. These activities are also regulated by various
agencies of the states and localities in which our products are sold. These
regulations govern the introduction of new medical devices, the observance of
certain standards with respect to the manufacture and labeling of medical
devices, the maintenance of certain records and the reporting of potential
product problems and other matters.

The Food, Drug & Cosmetic Act of 1938 (the "FDCA") regulates medical
devices in the United States by classifying them into one of three classes based
on the extent of regulation believed necessary to ensure safety and
effectiveness. Class I devices are those devices for which safety and
effectiveness can reasonably be ensured through general controls, such as device
listing, adequate labeling, pre-market notification and adherence to the Quality
System Regulation ("QSR") as well as Medical Device Reporting (MDR), labeling
and other regulatory requirements. Some Class I medical devices are exempt from
the requirement of Pre-Market Approval ("PMA") or clearance. Class II devices
are those devices for which safety and effectiveness can reasonably be ensured
through the use of special controls, such as performance standards, post-market
surveillance and patient registries, as well as adherence to the general
controls provisions applicable to Class I devices. Class III devices are devices
that generally must receive pre-market approval by the FDA pursuant to a
pre-market approval application to ensure their safety and effectiveness.
Generally, Class III devices are limited to life-sustaining, life-supporting or
implantable devices. However, this classification can also apply to novel
technology or new intended uses or applications for existing devices. The
Company's products are primarily either Class I or Class II medical devices. The
following is a breakdown of the Biomerica products by class:

Class I - Fortel(TM)Ovulation test, EZ-LH(TM)Rapid Ovulation test, Strep A Rapid
Test

Class II - GAP(tm) IgG H. Pylori ELISA kit, IgG, T3 EIA kit, T4 EIA kit, TSH
ELISA kit, Anti-thyroglobulin ELISA kit, anti-TPO ELISA kit, Free T4 ELISA kit,
Neo-TSH RIA kit, PTH (intact) ELISA kit, Calcitonin ELISA kit, Erythropoietin
ELISA kit, ACTH ELISA kit, Fortel Ultra Midstream (OTC and plastic stick),
EZ-HCG(tm) Rapid Pregnancy test (professional and dipstick), EZ Detect(tm) Fecal
Occult Blood test (Physician's dispenser pack), EZ-PSA Rapid test
(professional), Aware(tm) Breast Self-Examination, drugs of abuse rapid tests,
EZ-HP Professional, PTH (intact) IRMA kit

Class III - GAP(tm) IgM H. Pylori ELISA kit, GAP(tm) IgA H. Pylori ELISA kit,
Isletest(tm) GAD ELISA kit, Isletest(tm) ICA ELISA kit, Isletest(tm) IAA ELISA
kit, Allerquant(tm) IgG Food Allergy ELISA kit, Allerquant(tm) Med90G,
Allerquant(tm) 14 Foods, Custom Food Allergy Kit, Candiquant(tm) IgG ELISA kit,
Candiquant(tm) IgM ELISA kit, Candiquant(tm) IgA ELISA kit, Free Alpha Subunit
RIA kit, EZ-HP OTC.

If the FDA finds that the device is not substantially equivalent to a
predicate device, the device is deemed a Class III device, and a manufacturer or
seller is required to file a PMA application. Approval of a PMA application for
a new medical device usually requires, among other things, extensive clinical
data on the safety and effectiveness of the device. PMA applications may take
years to be approved after they are filed. In addition to requiring clearance or
approval for new medical devices, FDA rules also require a new 510(k) filing and
review period, prior to marketing a changed or modified version of an existing
legally marketed device, if such changes or modifications could significantly
affect the safety or effectiveness of that device. The FDA prohibits the
advertisement or promotion or any approved or cleared device for uses other than
those that are stated in the device's approved or cleared application.

Pursuant to FDA requirement, we have registered our manufacturing facility
with the FDA as a medical device manufacturer, and listed the medical devices we
manufacture. We are also subject to inspection on a routine basis for compliance
with FDA regulations. This includes the Quality System Requirements, which,
requires that we manufacture our products and maintain our documents in a

prescribed manner with respect to issues such as design controls, manufacturing,
testing and validation activities. Further, we are required to comply with other
FDA requirements with respect to labeling, and the Medical Device Reporting
(MDR) regulation which requires that we provide information to the FDA on deaths
or serious injuries alleged to have been associated with the use of our
products, as well as product malfunctions that are likely to cause or contribute
to death or serious injury if the malfunction were to recur. We believe that we
are currently in material compliance with all relevant QSR and MDR requirements.

In addition, our facility is required to have a California Medical Device
Manufacturing License. The license is not transferable and must be renewed
annually. Approval of the license requires that we be in compliance with QSR,
labeling and MDR regulations. Our license expires on March 16, 2004. We are also
registered with the Department of Health and Human Services, Public Health
Service of the FDA as a Device establishment. This registration expires on
December 31, 2004. We also hold two radioactive materials licenses from the
State of California (both expiring on June 20, 2008), and one permit from the
USDA, expiring on August 25, 2004. These licenses are renewed periodically, and
to date we have never failed to obtain a renewal.

Through compliance with FDA and California regulations, we can market our
medical devices throughout the United States. International sales of medical
devices are also subject to the regulatory requirements of each country. In
Europe, the regulations of the European Union require that a device have a "CE
Mark" in order to be sold in EU countries. The directive goes into effect
beginning December 7, 2003. The Company has completed most of the process for
complying with the "CE Mark" directives, In Vitro Directive 98/79/EC, ISO 13485
for medical devices, and Medical Device Directive 93/42/EEC, and believes it
will be in full compliance by the December 7, 2003 deadline. At present the
regulatory international review process varies from country to country. We, in
general, rely upon our distributors and sales representatives in the foreign
countries in which we market our products to ensure that we comply with the
regulatory laws of such countries. We believe that our international sales to
date have been in compliance with the laws of the foreign countries in which we
have made sales. Exports of most medical devices are also subject to certain FDA
regulatory controls.

The following products are FDA-cleared and may be sold to clinical
laboratories, physician laboratories and/or retail outlets in the United States
as well as internationally:

T3 EIA KIT
T4 EIA KIT
TSH ELISA KIT
Anti-thyroglobulin ELISA kit
Anti-TPO ELISA Kit
Free T4 EIA Kit
Neo TSH RIA Kit
GAP IgG H. Pylori ELISA Kit
PTH (Intact) ELISA Kit
Calcitonin ELISA Kit
Erythropoietin ELISA Kit
ACTH ELISA Kit
Midstream Pregnancy Test
EZ-HCG Rapid Pregnancy Test
EZ-LH(tm) Rapid Ovulation Test
EZ Detect(tm) Fecal Occult Blood Test (Physician's package, OTC package)
Strep A Rapid Test
AWARE(tm) Breast Self-Examination Kit
Drugs-of-Abuse Rapid Tests

The following products are not FDA-cleared. These are sold internationally
and can be sold in the U.S. "FOR RESEARCH ONLY":

GAP(tm) IgM H. Pylori ELISA Kit
GAP(tm) IgA H. Pylori ELISA Kit
PTH (intact) RIA Kit
Isletest(tm) GAD ELISA Kit
Isletest(tm) ICA ELISA Kit
Isletest(tm) IAA ELISA Kit
Allerquant(tm) IgG Food Allergy ELISA Kit (90-foods, 14-foods, custom kits)
Candiquant(tm) IgG, IgM, and IgA ELISA Kits for Candida Albicans antibodies
Free Alpha Subunit RIA kit
Fortel(tm) Ultra Midstream Pregnancy Test
Fortel(tm) Ovulation Test
EZ-PSA Rapid Test

Lancer is licensed to design, manufacture, and sell orthodontic appliances
and is subject to the Code of Federal Regulations, Section 21, parts 800-1299.
The FDA is the governing body that assesses and issues Lancer's license to
assure that it complies with these regulations. Lancer is currently licensed,
and its last assessment was in November 1997. Also, Lancer is registered and
licensed with the state of California's Department of Health Services. The
Company believes that all Lancer products sold in the U.S. comply with FDA
regulations.

Effective June 18, 1998, fifteen major European countries are requiring a
CE (European Community) certification to sell products within their countries.
In order to obtain this CE certification Lancer retained British Standards
Institution (BSI) to evaluate Lancer's quality system. Lancer's quality system
is imaged under International Standards Organization (ISO) 9002. ISO 9002 is an
internationally recognized standard in which companies establish their methods
of operation and commitment to quality. There are 20 clauses for which Lancer
has developed standard operating procedures in accordance with these ISO 9002
requirements.

EN 46002 is the medical device directive (MDD) for the European Community.
Strict standards and clauses within the MDD are required to be implemented to
sell within the European Community. In order for Lancer's medical devices to be
sold within the European Community with the CE Mark, Lancer must fully comply
with the EN 46002 requirements. Lancer has also constructed a technical file
that gives all certifications and risk assessments for Lancer's products as a
medical device (the "Product Technical Files").

With ISO 9002, EN 46002, and the Product Technical Files, Lancer applied
for and was granted certification under ISO 9002, EN 46002, and CE. With the CE
certification, Lancer is now permitted to sell its products within the European
Community. The international ISO 9002 and EN 46002
standards will become obsolete in December 2003. As a result, Lancer is
currently in the process of updating its Quality Management System for
conformance to the new ISO 9000: 2000 international quality system standards, as
well as the ISO 13485 standard for medical devices. Compliance with and
certification to both ISO 9000:2000 and ISO 13485 will be implemented by
December 2003.

SEASONALITY OF BUSINESS

The business of the Company and its subsidiaries has not been subject to
significant seasonal fluctuations.

INTERNATIONAL BUSINESS

Most of Biomerica's fixed assets are located within southern California.
The Company currently has a minor amount of fixed assets located in Mexico.
Lancer has a greater number of fixed assets located there due to their larger
manufacturing volume in Mexico at this time. The following table sets forth the
dollar volume of revenue attributable to sales to domestic customers and foreign
customers during the last two fiscal years for the Biomerica and its
consolidated subsidiaries:

Year Ended May 31,
------------------
2003 2002
---- ----
U.S. Customers $4,609,000/50.9% $4,254,000/49.5%
Asia 228,000/2.5% 199,000/ 2.3%
Europe 2,393,000/26.4% 2,313,000/26.9%
Middle East 321,000/3.6% 449,000/ 5.2%
Oceania 452,000/5.0% 393,000/ 4.6%
S. America 460,000/5.1% 498,000/ 5.8%
Other foreign 596,000/6.5% 492,000/ 5.7%
---------------- ----------------

Total Revenues $9,059,000/100% $8,598,000/100%

We recognize that our foreign sales could be subject to some special or
unusual risks which are not present in the ordinary course of business in the
United States. Changes in economic factors, government regulations and import
restrictions all could impact sales within certain foreign countries. Foreign
countries have licensing requirements applicable to the sale of diagnostic

products which vary substantially from domestic requirements; depending upon the
product and the foreign country, these may be more or less restrictive than
requirements within the United States. We cannot predict the impact that
conversion to the Euro in the European countries may have on Biomerica or
Lancer, if any.

Foreign diagnostic sales are made primarily through a network of over 60
independent distributors in approximately 40 countries.

INTELLECTUAL PROPERTY

We regard the protection of our copyrights, service marks, trademarks and
trade secrets as critical to our future success. We rely on a combination of
copyright, trademark, service mark and trade secret laws and contractual
restrictions to establish and protect our proprietary rights in products and
services. We have entered into confidentiality and invention assignment
agreements with our employees and contractors, and nondisclosure agreements with
most of our vendors, fulfillment partners and strategic partners to limit access
to and disclosure of proprietary information. We cannot be certain that these
contractual arrangements or the other steps taken by us to protect our
intellectual property will prevent misappropriation of our
technology. We have licensed in the past, and expect that we may license in the
future, certain of our proprietary rights, such as trademarks or copyrighted
material, to third parties. While we attempt to ensure that the quality of our
product brands is maintained by such licensees, we cannot be certain that such
licensees will not take actions that might hurt the value of our proprietary
rights or reputation.

Lancer has certain license agreements as a licensee for three products.
These licenses expire at varying dates from 4/21/04 until 10/12/10. As a
licensor they have licenses on the design of a nickel titanium orthodontic
archwire. These licenses expire on 4/4/06. All but one of the agreements
requires royalty payment on a percentage of net sales dollars sold over a
specified period. One specific license specifies a royalty payment based upon
the number of units sold. All of such license agreements to which Lancer
currently is a party, are for fixed terms which will expire after ten years from
the commencement of the agreement or upon the expiration of the underlying
patents. After the expiration of the agreements of the patents, Lancer is free
to use the technology that had been licensed.

BRANDS, TRADEMARKS, PATENTS

We registered the tradenames "Fortel," "Isletest," "Nimbus" and "GAP" with
the Office of Patents and Trademarks on December 31, 1985. Our unregistered
tradenames are "EZ-Detect," "CAST," "COT," "EquistiK," "FelistiK," "Tri-Level
Controls," "Tru-Level Controls," "T-Marker Controls," "AllerHalt," "Candiquant,"
"Candigen," "EZ-H.P." and "EZ-PSA." A trademark for "Aware" was issued and
assigned in January, 2002.

The Company held a license for a diagnostic test for CAG-A as of May 31,
2001. Since that time, the Company decided not to market the product. At May 31,
2002, the Company recorded an impairment expense for the unamortized balance of
the license in the amount of $100,320, which was reflected in the cost of sales
in the year ended May 31, 2002.

On April 4, 1989, Lancer was granted a patent on its CounterForce design of
a nickel titanium orthodontic archwire. On August 1, 1989, Lancer was granted a
patent on its bracket design used in the manufacturing of interline and Intrigue
orthodontic brackets. On September 17, 1996, Lancer was granted a patent on its
method of laser annealing marking of orthodontic appliances. On March 4, 1997,
Lancer was granted a patent on an orthodontic bracket and method of mounting.
All of the patents are for a duration of 17 years. Lancer has entered into
license agreements expiring in 2006 whereby, for cash consideration, the counter
party has obtained the rights to manufacture and market certain products
patented by Lancer. Lancer has also entered into a number of license and/or
royalty agreements pursuant to which it has obtained rights to certain of the
products which it manufactures and/or markets. The patents and agreements have
had a favorable effect on Lancer's image in the orthodontic marketplace and
Lancer's sales. Lancer has license agreements as a licensee with three products.
As a licensor Lancer has licenses on the design of a nickel titanium orthodontic
archwire. All but one of the agreements requires royalty payments on a
percentage of net sales dollars sold over a specified period. One specific
license specifies a royalty payment based upon the number of units sold.

Lancer has made a practice of selling its products under trademarks and of
obtaining protection for those trademarks in the United States and certain
foreign countries. Lancer considers these trademarks to be of importance in the
operation of its business.

The laws of some foreign countries do not protect our proprietary rights to
the same extent as do the laws of the U.S. Effective copyright, trademark and
trade secret protection may not be available in such jurisdictions. Our efforts
to protect our intellectual property rights may not prevent misappropriation of
our content.

EMPLOYEES

As of August 14, 2003, the Company and its subsidiaries employed 62
full-time employees and 2 part-time employees in the United States. The number
of employees between the two companies decreased over the previous year
according to the following breakdown between departments:

Total
2003 2002
---- ----
Administrative 11 11
Marketing & sales 17 19
Research & development 2 1
Production and operations 32 32
---- ----
Total 62 63

In addition, Lancer, through its Mexican subsidiary, employs approximately
120 people. Biomerica employs 8 people at its Mexican facility. We also engage
the services of various outside Ph.D. and M.D. consultants as well as medical
institutions for technical support on a regular basis. We are not a party to any
collective bargaining agreement and have never experienced a work stoppage. We
consider our employee relations to be good.

ITEM 2. DESCRIPTION OF PROPERTY
-----------------------

During fiscal 2002 the company entered into a lease of the existing
facilities of approximately 21,000 square feet of space in Newport Beach,
California for a four year term which expires October 31, 2005. Pursuant to the
lease we pay an annual base rent of approximately $180,000 plus all real estate
taxes and insurance costs. During fiscal 2003 the Company incurred a total of
$182,400 in rent expense for approximately 21,800 square feet of space. As of
May 31, 2003, the Company owed $86,938 in rent expense and as of August 20, 2003
the Company owed a balance of $86,848 for past rent. In May and June 2003 the
Company issued 60,000 shares of Biomerica restricted common stock plus warrants
to purchase an additional 60,000 shares of Biomerica restricted common stock at
the purchase price of $.25 for payment of $15,000 in accrued rent. The rent
shall escalate by 3% on September 1, 2003. These facilities are used for
diagnostic test kit research and development, manufacturing, marketing and
administration. Management believes that the rent for the facilities in Newport
Beach, CA is consistent with current market values for comparable property in
the area. Management believes that the lease terms are the same as could be
obtained in an arm's length transaction.

The facilities are leased from Mrs. Ilse Sultanian and JSJ Management. Ms.
Janet Moore, an officer, director and shareholder of our Company, is a partner
in JSJ Management. Mrs. Ilse Sultanian and the other partners of JSJ Management,
Susan Irani and Jennifer Irani, are shareholders of the Company.

At May 31, 2003, future aggregate minimum lease payments for Biomerica are
as follows:

Years ending May 31
-------------------

2004 184,050
2005 185,400
2006 77,250
---------
$446,700

On May 16, 2002, the Company signed a one-year sub-lease agreement for
1,392 square foot of office space, included in the above-described lease, for
the sum of $1,642 per month which was renewed for a period of one year.

Lancer leases its main facility under a non-cancelable operating lease
expiring December 31, 2003, as extended, which requires monthly rentals that
increase annually, from $2,900 per month in 1994 to $6,317 per month in 2004.
The lease expense is being recognized on a straight-line basis over the term of
the lease. The excess of the expense recognized over the cash paid aggregates
$3,903 at May 31, 2003, and is included in accrued liabilities in the
accompanying balance sheet. Total rental expense for this facility for each of
the years ended May 31, 2003 and 2002 was approximately $69,000.

Effective December 1, 2002, Lancer Orthodontics de Mexico entered into a
non-cancelable operating lease for its Mexico facility through March 31, 2009.
The new lease encompasses the approximately 16,000 square feet of the previous
lease, plus additional square footage of approximately 10,000, for a total of
approximately 26,000 square feet. Lancer Orthodontics de Mexico will provide
subcontracted manufacturing services to Biomerica, Inc., using a portion of the
additional square footage. The new lease requires four monthly lease payments of
approximately $5,300 through March 2003, and seventy-two monthly payments of
approximately $9,600 through March 2009. An agreement has been negotiated
between Lancer Orthodontics de Mexico and Biomerica for lease reimbursement of
approximately $2,000 per month. The remainder of approximately $7,600 monthly
lease expense will be borne by Lancer. Total rent expense for this facility for
the year ended May 31, 2003 and 2002, was approximately $74,000 and $69,000,
respectively.

The new Lancer Orthodontics de Mexico lease also requires an additional
refundable security deposit of $26,550, payable over twelve months beginning
January 2003. Lancer Orthodontics, Inc., is paying half and Biomerica, Inc. the
other half. At May 31, 2003 and 2002, other assets on the balance sheet includes
approximately $39,000 and $31,000, respectively of security deposit paid by
Lancer on the Mexico location.

Future aggregate minimum annual cash lease payments for Lancer are as
follows:

Years ending May 31
-------------------

2004 $ 173,950
2005 132,003
2006 131,148
2007 129,438
2008 127,767
2009 105,776
----------
Total $ 800,082

We believe that our facilities and equipment are in suitable condition and
are adequate to satisfy the current requirements of our Company and our
subsidiaries.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table summarizes the Company's obligations and commitments as of
May 31, 2003:

Payments Due by Period

Contractual Cash Total Less than 1 year 1-3 years 4-5 years After 5 years
Obligations

Line of credit 426 426 -- -- --
Shareholder debt $ 347,835 $ 59,048 $ 163,803 $ 124,984 --
Operating Leases $1,181,994 $ 349,277 $ 504,099 $ 328,618 --
Employment
Agreements $ 135,000 $ 135,000 -- -- --

Total $1,665,255 $ 543,751 $ 667,902 $ 453,602 --

ITEM 3. LEGAL PROCEEDINGS
-----------------

Inapplicable.

ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
-------------------------------------------------

The 2002 Annual Meeting of the Company's stockholders was held on September
2, 2003. Two matters were voted on at the meeting, as set forth in the proxy
statement dated June 26, 2003, as filed with the Securities and Exchange
Commission pursuant to Rule 14 under the Securities Exchange Act of 1934. The
following summarizes the voting:

Proposal No. 1: Election of Directors

Name For Votes Withheld

Barbieri 4,745,095 230,842
Cano 4,745,095 230,842
Irani 4,744,305 232,184
Moore 4,744,705 231,232
Orlando 4,745,095 230,842

All directors were elected.

Proposal No. 2: Proposal to Ratify and Approve the Company's 2002 Stock
Incentive Plan

For Against Abstain

1,870,275 400,481 70,483

Proposal No. 2 did not receive a plurality of the votes and therefore was not
approved.

-------------------------------------------------

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
--------------------------------------------------------

During fiscal 2002 Biomerica's common stock was traded on the Nasdaq Small
Cap system under the symbol "BMRA". Since June 20, 2002, the Company's stock has
been traded on the OTC Bulletin Board under the symbol "BMRA.OB".

On January 15, 2002, the Company received a Nasdaq Staff Determination
indicating that the Company failed to comply with the net tangible assets or
shareholders' equity requirements for continued listing set forth in Marketplace
Rule 4310(c)(2)(B), and that its securities were, therefore, subject to
delisting from the Nasdaq SmallCap Market effective January 23, 2002. The
Company requested a hearing before a Nasdaq Listing Qualifications Panel to
review the Staff Determination. The request for a hearing stayed the delisting
of the Company's securities pending the Panel's decision. On February 21, 2002,
the hearing took place. In response to the hearing, on March 25, 2002, the
Company received a Nasdaq Staff Determination Letter stating their decision with
respect to the continued listing of the Company's securities. The Panel
determined to continue the listing of the Company's securities on the Nasdaq
SmallCap Market via an exception from the net tangible assets requirement. While
the Company failed to meet this requirement, the Company was granted a temporary
exception from the standard subject to the Company meeting certain conditions by
specified deadlines.

The Company was unable to satisfy the conditions within the deadlines
established by the Panel. Pursuant to a decision by the Nasdaq Listing
Qualifications Panel, the Company's common stock was delisted from the Nasdaq
Stock Market effective June 20, 2002, for failure to comply with the net
tangible assets or shareholders' Equity requirements as set forth in Marketplace
Rule 4310(c)(2)(B). The Company's securities were immediately eligible to trade
on the OTC Bulletin Board and are traded under the symbol BMRA.OB.

On February 14, 2002, the Company received a Nasdaq Staff Determination
Letter indicating that the Company failed to comply with the minimum $1.00 per
share requirement for continued inclusion of its common stock under Marketplace
Rule 4310(c)(4), and therefore was subject to delisting from the Nasdaq SmallCap
Market. In accordance with Marketplace Rule 4310(c)(8)(D), the Company would
have been provided 180 calendar days, or until August 13, 2002, to regain
compliance. However, prior to that time, the Company was delisted according to
the above mentioned reasons.

Shares traded on the OTC Bulletin Board are not as liquid as those traded
on Nasdaq National market or the Nasdaq SmallCap market.

The following table shows the high and low bid prices for Biomerica's
common stock over the last two years based upon data reported by NASDAQ for the
fiscal year ended May 31, 2002 and as reported by Yahoo for the period ended May
31, 2003.

Bid Prices
---------------------------
High Low
-------------- -----------
Quarter ended:
May 31, 2003............................. $0.52 $0.20
February 28, 2003........................ $0.51 $0.17
November 30, 2002........................ $0.49 $0.18
August 31, 2002.......................... $0.60 $0.33
May 31, 2002............................. $0.70 $0.41
February 29, 2002........................ $0.74 $0.45
November 30, 2001........................ $1.13 $0.35
August 31, 2001.......................... $0.95 $0.52

As of August 21, 2003, the number of holders of record of Biomerica's
common stock was approximately 985, excluding stock held in street name. The
number of record holders does not bear any relationship to the number of
beneficial owners of the Common Stock.

The Company has not paid any cash dividends on its Common Stock in the past
and does not plan to pay any cash dividends on its Common Stock in the
foreseeable future. The Company's Board of Directors intends, for the
foreseeable future, to retain any earnings to finance the continued operation
and expansion of the Company's business.

On April 10, 2002, the Company filed a Form S-4 for the proposed
registration of between 488,200 and 984,274 shares of Biomerica common stock.
The shares were to be issued for the purchase of the assets of the subsidiary
Lancer Orthodontics, Inc. Due to market conditions, both boards of directors
have agreed not to proceed with the proposed purchase and Biomerica requested in
July 2002 that the registration statement be withdrawn. In addition, since
Biomerica was unable to remain on the Nasdaq Small Cap Market, Lancer
shareholders would not have had increased liquidity. This request was filed by
EDGAR on September 27, 2002. The Company has seen no affect on operations as a
result of the announcement that we would not be proceeding with the purchase.
Fees associated with the proposed asset purchase were approximately $57,500.

With respect to the one-for-three reverse stock split that was approved at
the last shareholders' meeting, the purpose of the reverse stock split would
have been to try to meet the minimum bid price as required by Nasdaq in order to
maintain listing. Therefore, the board will not effect the one-for-three reverse
stock split.

The following is information on issuances of securities during the past
three fiscal years:

Class or Persons Price per
Date Title Amount Sold To Share Total

9/00 common 113,375 insiders & qualified
investors $1.34 $151,438

5/01 common 34,643 qualified investors $1.11 $ 38,615

4/01 common 126,075 insiders & qualified
investors $0.72 $ 90,774

6/01 common 14,166 insiders & qualified
investors $0.72 $ 10,200

3/02 common 17,000 insiders & qualified $0.50 $ 8,500
investors

3/02 common 6,250 qualified investor $0.61 $ 3,813

9/02 common 87,778 insiders & qualified $0.45 $ 51,417
investors

2/03 common 100,000 qualified investor $0.25 $ 25,000

3/03 common 98,182 insiders & qualified $0.22 $ 21,600
investors

5/03 common 22,107 qualified investor $0.45 $ 20,611

5/03 common 60,000 insider & qualified $0.25 $ 15,000
investors

The exemption relied upon for the issuance of the unregistered shares was
that the shares were issued to accredited investors within the meaning of
Securities and Exchange Commission Rule 501 of Regulation D.

EQUITY COMPENSATION PLANS

The table below provides information relating to our equity compensation
plans as of May 31, 2003:

Number of
Securities
Remaining Avail-
able for Future
Issuance Under
Number of Securities Compensations Plans
To be issued upon Weighted-Average (Excluding Securities
Plan Exercise of outstanding Exercise Price of Reflected in First
Category Options Outstanding Options Column)

Equity compensations 1,053,786 $1.14 513,813
Plans approved by
Securities holders

Total

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------

EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS
FORM 10-KSB ARE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INVOLVE
KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES WHICH MAY CAUSE BIOMERICA'S AND
LANCER'S RESULTS IN FUTURE PERIODS TO DIFFER FROM FORECASTED RESULTS. THESE
RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHER THINGS, THE CONTINUED DEMAND FOR
THE COMPANIES' PRODUCTS, AVAILABILITY OF RAW MATERIALS AND THE STATE OF THE
ECONOMY. THESE AND OTHER RISKS ARE DESCRIBED IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-KSB AND IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION.

LIQUIDITY AND GOING CONCERN

RESULTS OF OPERATIONS

We currently have one active subsidiary, Lancer Orthodontics, Inc.
("Lancer"), which is engaged in manufacturing, sales and development of
orthodontic products. We own approximately 31.12% of the outstanding stock of
Lancer. We exercise effective control of over 50% over Lancer via voting
agreements with certain shareholders. As a result of our control and ownership,
our financial statements are consolidated with those of Lancer. Lancer is a
public company whose common stock is traded on the bulletin board system under
the symbol "LANZ,". On May 30, 2002, Biomerica sold its controlling interest in
Allergy Immuno Technologies, Inc. The operations of AIT for fiscal 2002 were
reported as discontinued operations as a result of this sale.

The ReadyScript subsidiary was a development-stage enterprise and required
the raising of a significant amount of capital to fund its short- term working
capital needs. The ReadyScript operations were discontinued in May 2001. The
sale of some of the ReadyScript intangible assets is being discussed with
various parties, however at this time there is no purchaser for these assets.
The subsidiary is being reported in the financial statements as a discontinued
operation because it is no longer an operating entity.

Fiscal 2003 Compared to Fiscal 2002

Our consolidated net sales were $9,059,938 for fiscal 2003 compared to
$8,598,054 for fiscal 2002. This represents an increase of $461,884, or 5.4% for
fiscal 2003. Of the total consolidated net sales for fiscal 2003, $5,887,898 is
attributable to Lancer, and $3,172,040 to Biomerica. Lancer's sales decreased by
$134,433 or 2.2%, while Biomerica showed a sales increase of $596,317, or 22.7%.
The decrease at Lancer was attributable to decreased international sales of
$242,273, particularly in South and Central America. Domestic sales at Lancer
increased by $112,985. The increase in sales at Biomerica was due to increased
screening programs of the EZ Detect product and increased sales of certain of
its laboratory products.

Cost of sales in fiscal 2003 as compared to fiscal 2002 increased by
$99,023 or 1.6%. Lancer's cost of sales as a percentage of sales increased from
69.1% to 70.3% in fiscal 2003 as compared to fiscal 2002. The increase was
primarily attributable to expansion costs in Mexico. Biomerica had a decrease in
cost of sales as a percentage of sales from 73.9% to 63.6% in fiscal 2003 as
compared to fiscal 2002. The decrease was due to the Company recording an
impairment expense for the unamortized balance of a license in the amount of
$100,320 which is reflected in cost of sales in the accompanying statement of
operations for the year ended May 31, 2002.

Selling, general and administrative costs increased in fiscal 2003 as
compared to fiscal 2002 by $4,240 or 1.0%. Lancer had a decrease of $139,918 in
these costs due to decreases in labor costs and travel expenses which was offset
by higher insurance expenses. Biomerica had an increase in fiscal 2003 as
compared to fiscal 2002 of $144,156, primarily due to higher commissions and
wages.

Research and development expense increased in fiscal 2003 as compared to
fiscal 2002 by $103,083 or 64.5%. Of this, Lancer had an increase of $103,528,
as a result of increased labor costs and supplies associated with development of
new products. Biomerica had a decrease in research and development expenses of
$445.

Interest expense net of interest income, decreased in fiscal 2003 as
compared to fiscal 2002 by $8,103 or 20.1%, due to a decrease of such expense at
Lancer of $13,723 which was offset by an increase at Biomerica of $5,620.
Lancer's interest expense decreased because the average line of credit balance
was lower due to an increase in cash, primarily from cash flows and insurance
proceeds. Biomerica's interest expense increased due to a higher average line of
credit balance.

Other income increased by $102,193 or 312.8% in fiscal 2003 as compared to
fiscal 2002. Of this, Lancer had an increase in other income of $102,821 due to
other income of $62,655 from the insurance claim settlement of $144,413 for the
theft of inventory at Lancer's Mexicali facility, less $81,758 of inventory
related thereto.

As of May 31, 2003, Biomerica had net tax operating loss carryforwards of
approximately $4,384,000 and investment tax and research and development credits
of approximately $62,000, which are available to offset future federal tax
liabilities. These carryforwards expire at varying dates from 2003 to 2022. As

of May 31, 2003, Biomerica had net operating tax loss carryforwards of
approximately $1,177,000 available to offset future state income tax
liabilities, which expire through 2012. As of May 31, 2003, Lancer had net
operating loss carryforwards of approximately $2,059,000 and business tax
credits of approximately $64,000 available to offset future Federal tax
liabilities. The Lancer federal carryforwards expire through 2021. As of May 31,
2002, Lancer had net tax operating loss carryforwards of approximately $70,000
and business tax credits of approximately $10,000 available to offset future
state income tax liabilities. The state carryforwards expire through the year
2011.

Liquidity, Capital Resources and Going Concern

As of May 31, 2003, we had cash and available for sale securities of
$538,279 (see Note 1 of Notes to Consolidated Financial Statements) and current
working capital of $2,964,391. Of the current working capital, $2,813,672 is
attributable to the Lancer subsidiary, which is restricted from distribution of
any assets (except for reimbursement of expenses on behalf of Lancer or for
services rendered for Biomerica). During 2002, cash used in operations was
$131,073. During 2003, cash provided by operations was $523,536. During fiscal
2003, cash used in investing activities was $239,285, primarily due to the
purchase of property and equipment. During 2003, cash used for financing
activities of $74,548 was primarily a result of paydowns on the shareholder line
of credit. During 2002, cash generated from investing activities amounted to
$219,452 primarily from the sale of AIT. During 2002 the Company generated
$228,774 primarily as a result of increases in shareholder line of credit.

On an unconsolidated basis, the Biomerica used cash in operating activities
of $126,954 in fiscal 2003 as compared to $313,475 in fiscal 2002. Net cash
provided by investing activities for the years ended May 31, 2003 and 2002 were
$38,528 and $222,839, respectively. Net cash used in and provided by financing
activities was $2,450 for fiscal 2003 and $291,328 for fiscal 2002. See Note 12
to the Notes to Consolidated Financial Statements.

During fiscal 2001 Lancer management negotiated a new line of credit with
GE Capital Healthcare Financial Services through October 24, 2003. The line of
credit allows for borrowings up to $400,000 and is limited to 80% of accounts
receivable less than 90 days old with a liquidity factor of 94%. The outstanding
balance at May 31, 2003 was $426. The unused portion available under the line of
credit at May 31, 2003, was approximately $365,000. Borrowings bear interest at
prime plus 2.00% per annum, but not lower than 8% (6.25% at May 31, 2003). In
addition to interest, a management fee of 0.25% on the average monthly
outstanding loan balance and an unused balance fee of 0.0425% on the average
monthly unused portion available are required.

The line of credit is collateralized by substantially all the assets of
Lancer, including inventories, receivables, and equipment. The lending agreement
for the line of credit requires, among other things, that Lancer maintain a
tangible net worth ratio of $2,100,000, which was met, and that receivables'
payments be sent to a controlled lockbox. In addition to interest, a management
fee of .25% of the average monthly outstanding loan balance and an unused
balance fee of .0425% on the average monthly unused portion available are
required. Lancer is not required to maintain compensating balances in connection
with this lending agreement. Lancer is restricted from distribution of any
assets to Biomerica except for reimbursement of expenses on behalf of Lancer or
for services rendered.

The debt covenant violations that existed at May 31, 2001 did not affect
the bank line of credit that was replaced by the GE Capital line in October
2001. There were no covenant violations at May 31, 2003.

Lancer instituted a price increase in fiscal 2002. The 5% increase had no
material effect on operations or on demand from material customers.

Lancer's inventory and sales practices affect its financing requirements,
however, management believes that the working capital relating to these are
within normal ranges for Lancer's business.

Lancer's management believes that it will be able to finance Lancer's
operations through cash flow and available borrowings through the current fiscal
year and ensuing fiscal years based upon a level of demand for their products
approximately consistent or in excess of prior years.

Biomerica, Inc. entered into an agreement for a line of credit agreement on
September 12, 2000 with a shareholder whereby the shareholder will loan to the
Company, as needed, up to $500,000 for working capital needs. The line of credit
bore interest at 8%, was secured by accounts receivable and inventory, and
expires September 13, 2003. The outstanding principal and interest on September
12, 2003 was $337,835, including principal of $288,850 and interest of $48,985,
all of which will be converted into a note payable bearing interest at 8% with
interest and principal due monthly. The remaining unpaid principal and interest,
if any, are due September 12, 2007. The note will be secured by inventory and
receivables. There was $303,550 of outstanding principal and $43,963 of unpaid
interest under this line of credit at May 31, 2003. In addition, during fiscal
2002 the Company was advanced $10,000 from Zackary Irani, another
officer/director. In June 2003, Zackary Irani agreed to accept 40,000 shares of
Biomerica restricted common stock plus 40,000 warrants for restricted common
stock exercisable at a purchase price of $.25 in repayment of the $10,000 loan.
During 2003 and 2002, the Company incurred $29,466 and $19,661, respectively, in
interest expense related to the shareholder line of credit, of which $1,200 was
paid in fiscal 2003. As of May 31, 2003, $45,136 in accrued interest was due on
the line of credit and for the other officer/director loan.

Pursuant to a decision by the Nasdaq Listing Qualifications Panel, the
Company's common stock was delisted from the Nasdaq Stock Market effective June
20, 2002, for failure to comply with the net tangible assets or shareholders'
equity requirements as set forth in Marketplace Rule 310(c)(2)(B). The Company's
securities were immediately eligible to trade on The OTC Bulletin Board and are
traded under the symbol BMRA.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Note 2 of the Notes to Consolidated Financial Statements
describes the significant accounting policies essential to the consolidated
financial statements. The preparation of these financial statements requires
estimates and assumptions that affect the reported amounts and disclosures.

We believe the following to be critical accounting policies as they require
more significant judgments and estimates used in the preparation of our
consolidated financial statements. Although we believe that our judgments and
estimates are appropriate and correct, actual future results may differ from our
estimates.

In general the critical accounting policies that may require judgments or
estimates relate specifically to the 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.

We recognize product revenues when an arrangement exists, delivery has
occurred, the price is determinable and collection is reasonably assured.

The Allowance for Doubtful Accounts is established for estimated losses
resulting from the inability of our customers to make required payments. The
assessment of specific receivable balances and required reserves is performed by
management and discussed with the audit committee. We have identified specific
customers where collection is probable and have established specific reserves,
but to the extent collection is made, the allowance will be released.
Additionally, if the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.

Reserves are provided for excess and obsolete inventory, which are
estimated based on a comparison of the quantity and cost of inventory on hand to
management's forecast of customer demand. Customer demand is dependent on many
factors and requires us to use significant judgment in our forecasting process.
We must also make assumptions regarding the rate at which new products will be
accepted in the marketplace and at which customers will transition from older
products to newer products. Once a reserve is established, it is maintained
until the product to which it relates is sold or otherwise disposed of, even if
in subsequent periods we forecast demand for the product.

In general, we are in a loss position for tax purposes, and have
established a valuation allowance against deferred tax assets, as we do not
believe it is likely that we will generate sufficient taxable income in future
periods to realize the benefit of our deferred tax assets. Predicting future
taxable income is difficult, and requires the use of significant judgment. At
May 31, 2003, all of our deferred tax assets were reserved. Accruals are made
for specific tax exposures and are generally not material to our operating
results or financial position, nor do we anticipate material changes to these
reserves in the near future.

POTENTIAL CONSEQUENCES OF ALLERGY IMMUNO TECHNOLOGY, INC.'S FAILURE TO
CONDUCT A FORMAL STOCKHOLDER VOTE IN CONNECTION WITH OUR PURCHASE OF ASSETS
FROM IT AND ASSUMPTION OF ITS LIABILITIES

During not less than the preceding three years, AIT, a former
majority-owned subsidiary of ours, had been unprofitable and, for financial
statement reporting purposes, its losses were consolidated into our financial
statements. In March of 2002, AIT ceased its clinical testing services.
Thereafter, in late April of 2002, we entered into a transaction, pursuant to
which, at the end of May of 2002, AIT transferred its remaining assets to us
(valued on its financial statements at approximately $8,000), issued to us
approximately 808,500 shares of its restricted common stock (valued as of the
date of the transaction at approximately $19,000), and we assumed its remaining
liabilities (recorded on its financial statements at approximately $27,000) (the
"Asset/Liability Transaction"). The Asset/Liability Transaction was approved by
our board on April 22, 2002. Approval by our stockholders was not required under
Delaware corporate law. We understand that AIT's board approved the
Asset/Liability Transaction in April of 2002 and that, rather than calling a
formal meeting of AIT's stockholders, our consent to that transaction was deemed
to constitute the approval of the holders of a majority of AIT's capital stock,
as permitted by Delaware corporate law.

The Company's substantial recurring losses from operations during the
preceding years and its lack of readily available capital, other than a line of
credit from a stockholder and officer, to help fund operations were the major
factors in its decision to stop lending funds to AIT. Both ReadyScript and AIT
contributed to the Company's losses. Accordingly, the Company discontinued
operations of ReadyScript in May of 2001 and ceased funding of AIT one year
later. (See Notes 2 and 13 to the Company's Audited Financial Statements for the
year ended May 31, 2002).

At the time of the approval of the Asset/Liability Transaction, our seven
directors were Allen Barbieri, David Barrows, Carlos Beharie, M.D., Francis R.
Cano, Ph.D., Zackary S. Irani, Janet Moore, and Robert A. Orlando, M.D., Ph.D.,
three of whom (Mr. Irani, Ms. Moore, and Dr. Orlando) were also directors of
AIT. AIT's fourth director at such time was Susan Irani, whom AIT deemed to be
an affiliate of ours. Further, at such time, Mr. Irani served as the Chief
Executive Officer and Ms. Moore served as the Chief Financial Officer and
Secretary of both AIT and us. The Asset/Liability Transaction was negotiated by
management common to AIT and us and was approved by all of our directors
(including the directors constituting a majority of our board, who did not serve
in common with AIT). We were advised that the Asset/Liability Transaction was
approved by all of the AIT directors (each of whom also served as one of our
directors or was deemed to be an affiliate of ours).

Notwithstanding the approval of the Asset/Liability Transaction by AIT's
board and its majority stockholder, AIT may not have provided prompt notice of
that approval to all of its stockholders in a manner fully consistent with
Delaware corporate law. That failure could have certain potential consequences.
Although AIT did not solicit proxies from its stockholders, it also did not file
a Schedule 14C with the Securities and Exchange Commission in connection with
the approval of the Asset/Liability Transaction by its majority stockholder.
Further, the potential exists that one of AIT's stockholders could bring a legal
action under Delaware state law against AIT either to rescind the
Asset/Liability Transaction, or to seek damages against AIT. Because of our
status as an affiliate of AIT at the time of the Asset/Liability Transaction,
such failure to file a Schedule 14C or a potential action could also name us,
our directors, and our officers. As of the date of this filing, no action has
been filed, and no proceeding has been commenced, against us or any of our
directors or officers, and no person or agency has contacted us or our directors
or officers announcing an intention to bring any action or to commence any
proceeding.

We have been advised by counsel to AIT that, as of the date of this filing,
no action has been filed, and no proceeding has been commenced, against AIT or
any of its directors or officers, and no person or agency has contacted AIT or
its directors or officers announcing an intention to bring any action or to
commence any proceeding. AIT has informed us that its present attorney has
advised it that the likelihood of such an action or proceeding is minimal, the
possibility of its success on the merits is remote, and the scope of any
potential damages award is nominal for a variety of reasons. For example,

No AIT stockholder or other person with potential standing to sue has
announced dissatisfaction with the Asset/Liability Transaction, although it
was announced publicly in June of 2002.

The assets that were the subject of the Asset/Liability Transaction had
historically yielded only unprofitable operations, which operations had ceased
prior to the approval of the Asset/Liability Transaction, as well as the
closing of that transaction.

The value of the assets that were the subject of the Asset/Liability
Transaction was small and less than the amount of liabilities that we
concurrently assumed; thus, any award the compensation due to any potential
plaintiffs upon a successful claim would be correspondingly small.

Any potential liability under such a claim would be incapable of precise
determination because the measure of damages under such a claim would depend
upon a subjective valuation of the assets and liabilities that were the
subject of the Asset/Liability Transaction.

We do not believe that such an action is probable, nor that a liability for such
an action, if any, could be estimated. Accordingly, we have not accrued a
liability in the accompanying consolidated financial statements related to the
aforementioned matter.

FACTORS THAT MAY AFFECT FUTURE RESULTS

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, 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, 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; the
operating and financial covenants contained in our credit line and Lancer's
which could limit our operating flexibility; 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
dental 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 these factors make it difficult to predict operating results for
any particular period.

INSURANCE COVERAGE

Biomerica currently carries various insurance policies including products
liability ($2,000,000), general liability ($2,000,000), property insurance
(premises-$2,490,000, personal property-$1,560,000), business income insurance
($800,000), employee benefit liability insurance ($1,000,000), commercial crime
insurance ($100,000), crime insurance (pension plan) ($300,000), employee theft
($100,000), depositor's forgery ($100,000),umbrella liability insurance
($1,000,000), workman's compensation insurance ($1,000,000), directors and
officers' insurance ($2,000,000), group health, disability and life insurance.
Lancer currently has coverage for personal property ($750,000), business income
(($1,200,000), general liability ($2,000,000), employee benefit liability
($1,000,000), products liability ($7,000,000), auto ($1,000,000, commercial
fidelity ($100,000), excess umbrella ($3,000,000),difference in conditions and
Mexico required coverage ($2,500,000), directors and officers' insurance (shared
with Biomerica) ($2,000,000); group health and dental. Both Lancer's and
Biomerica's workman's compensation policies cover injuries to employees as a
result of accidental contamination of hazardous materials. The companies do not
have a separate policy for contamination of hazardous materials.

RECENT ACCOUNTING PRONOUNCEMENTS:

In August 2001, the FASB issued FAS No. 143, "Accounting for Asset
Retirement Obligations." This statement addresses financial accounting and
reporting for obligations associated with the retirement of tangible long- lived
assets and the associated asset retirement costs. It applies to all entities and
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or normal operation
of long-lived assets, except for certain obligations of lessees. This statement
is effective for financial statements issued for fiscal years beginning after
June 15, 2002. The Company does not expect SFAS 143 will have a material impact
on the Company's financial position or results of operations.

In October 2001, the FASB issued Statement of Financial Accounting
Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or Disposal of
Long-Lived Assets," or SFAS 144. SFAS No. 144 requires that those long- lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. SFAS
No. 144 is effective for financial statements issued for fiscal years beginning
after December 15, 2001 and, generally, is to be applied prospectively. The
adoption of FAS 144 did not have a material impact on the Company's Consolidated
Financial position or results of operations.

In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145 ("SFAS 145"), "Rescission of FASB Statements No. 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections," to update, clarify and
simplify existing accounting pronouncements. FASB Statement No. 4, which
required all gains and losses from debt extinguishment to be aggregated and, if

material, classified as an extraordinary item, net of related tax effect, was
rescinded. Consequently, FASB Statement No. 64, which amended FASB Statement
No.4, was rescinded because it was no longer necessary. The Company does not
expect the adoption of this statement to have a material effect on our financial
statements.

In June 2002, the FASB issued Statement of Financial Accounting Standards
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS 146 addresses accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)." SFAS
No. 146 requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value when the liability
is incurred. SFAS No. 146 is effective for exit or disposal activities that are
initiated after December 31, 2002, with early application encouraged. The
Company does not expect the adoption of this statement to have a material effect
on our financial statements.

In December 2002, the Financial Accounting Standards Board issued SFAS No.
148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an
Amendment of FASB Statement No. 123." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation", to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, this statement amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about. the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The Company adopted the disclosure requirements effective December 1,
2002, in its consolidated financial statements.

In November 2002, FIN No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others," was issued. FIN 45 requires that upon issuance of a guarantee, a
guarantor must recognize a liability for the fair value of an obligation assumed
under a guarantee. FIN 45 also requires additional disclosures by a guarantor in
its interim and annual financial statements about the obligations associated
with guarantees issued. The recognition provisions of FIN 45 are effective for
guarantees issued after December 31, 2002, while the disclosure requirements
were effective for financial statements for periods ending after December 15,
2002. The adoption of FIN 45 did not have a material impact on the Company's
consolidated financial position or results of operations.

In January 2003, FIN No. 46, "CONSOLIDATION OF VARIABLE INTEREST ENTITIES"
was issued. This interpretation clarifies the application of Accounting Research
Bulletin No. 51, " Financial Statements," relating to consolidation of certain
entities. FIN No. 46 will require identification of the Company's participation
in variable interests entities ("VIEs"), which are defined as entities with a
level of invested equity that is not sufficient to fund future activities to
permit them to operate on a stand-alone basis, or whose equity holders lack
certain characteristics of a controlling financial interest. For entities
identified as VIEs, FIN No. 46 sets forth a model to evaluate potential
consolidation based on an assessment of which party to the VIE, if any, bears a
majority of the exposure to its expected losses, or stands to gain from a
majority of its expected returns. FIN No. 46 also sets forth certain disclosures
regarding interests in VIE that are deemed significant, even if consolidation is
not required. The adoption of FIN No. 46 did not have a material impact on the
Company's financial position, results of operations or cash flows.

In April 2003, SFAS No. 149, "AMENDMENT OF STATEMENT 133 ON DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES" was issued. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for contracts entered into or modified after June 30,
2003. Adoption of this statement is not expected to have a significant effect on
the Company's financial position or results of operations.

In May 2003, SFAS No. 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY" was issued. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS No. 150 is not expected to have a significant
effect on the Company's financial position, results of operations, or cash
flows.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------

Exhibit 99.3, "Biomerica, Inc. and Subsidiaries Consolidated Financial
Statements" is incorporated herein by this reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
---------------------------------------------------------------

Inapplicable.

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.

The Company's Bylaws give the Board of Directors ("the Board") the power to
set the number of directors at no less than three (3) nor more than nine (9).
The size of the Company's Board is currently set at seven (7). Five (5)
directors are to be elected at the Annual Meeting to be held on September 2,
2003. The directors so elected will serve until replaced by a vote of the
stockholders. In the event that any of them should become unavailable prior to
the Annual Meeting, the Proxy will be voted for a substitute nominee or nominees
designated by the Board or the number of directors may be reduced accordingly.

The following table sets forth the name and current age of each nominee for
director, the year he or she was first elected a director and his or her
position(s) with the Company.

----------------------------- ----------- ----------- -----------------------------------
Director
Name Age Since Positions Held
----------------------------- ----------- ----------- -----------------------------------

Zackary Irani 37 1997 Chairman of the Board and Chief
Executive Officer
----------------------------- ----------- ----------- -----------------------------------

Janet Moore 52 1997 Secretary, Chief Financial Officer,
Treasurer and Director
----------------------------- ----------- ----------- -----------------------------------

Allen Barbieri 44 1999 Director, Vice-President Finance
----------------------------- ----------- ----------- -----------------------------------

Robert A. Orlando, M.D.,
Ph.D. 65 1986 Director
----------------------------- ----------- ----------- -----------------------------------

Francis R. Cano, Ph.D. 58 1999 Director
----------------------------- ----------- ----------- -----------------------------------

Mr. Zackary Irani has been a Director of the Company, and has been serving
as the Company's Chairman of the Board and Chief Executive since April 29, 1997.
Prior to that time, Mr. Irani served as the Company's Vice President of Business
Development since July 1994. He has been an employee of the Company since 1986.
Mr. Irani also serves as a director and Chief Executive Officer of Lancer
Orthodontics, Inc. In addition, Mr. Irani is the President and Chairman of the
Company's discontinued operation, ReadyScript, Inc. Mr. Irani became a salaried
employee of Lancer in June 2001. He has no employment agreement with them and is
paid $30,000 in salary and $30,000 in Lancer common stock per year. He is
usually at the Lancer location two days per week.

Ms. Janet Moore has been a Director of the Company since April 29, 1997,
and has been serving as the Company's Secretary and Treasurer since 1985. She
has served as the Company's Chief Financial Officer since 1999. She has been an
employee of the Company since 1976. Ms. Moore also serves as a director and
Secretary of Lancer Orthodontics, Inc. and the Company's discontinued operation,
ReadyScript, Inc. Ms. Moore time is spent primarily on Biomerica issues but does
devote some time to Lancer.

Robert A. Orlando, M.D., Ph.D., has served as a Director of the Company
since 1986. Dr. Orlando is a professor of pathology at Southern California
College of Optometry, as well as a biophysicist and immunologist. Dr. Orlando
has served as the Chief Pathologist at Beverly Hospital in Montebello,
California since 1991. Dr. Orlando also serves as a director of Lancer
Orthodontics, Inc. Dr. Orlando earned his Ph.D. in Pathology from the University
of Chicago and his M.D. from New Jersey University of Medicine.

Francis R. Cano, Ph.D. has served as a Director of the Company since June
1999. Dr. Cano currently works as a consultant in the biomedical field. From
1996 to 1997, Dr. Cano served as Senior Vice President - Biotechnology of BDM,
an information technology company. From 1992 to 1996, he served as President and
Chief Operating Officer of Aviron, a public biotechnology company focused on
developing viral vaccines for disease prevention. Dr. Cano was also involved in
developing a vaccine business at a division of American Cynamid Corporation. Dr.
Cano also serves on the board of Lancer Orthodontics,Inc.

Mr. Allen Barbieri has served as a Director of the Company since October
1999 and Vice-President of Finance since May 2002. Mr. Barbieri currently also
works as a private investor. From 1998 to 1999 he served as President and Chief
Financial Officer of Buy.com. From 1994 until 1998 Mr. Barbieri was President
and Chief Executive Officer of Pacific National Bank. Mr. Barbieri also serves
on the board of ReadyScript, Inc. and is Vice-President of Finance of Biomerica.

The Board recommends a vote for the election of each of the nominated
directors.

EXECUTIVE OFFICERS

Mr. Francis Capitanio, age 59, has served as the President of the
diagnostics division of Biomerica since July 10, 2000. Mr. Capitanio was
President and Chief Executive Officer of Kalisto Biologicals, Inc. from 1997
until 2000. From 1980 until 1996 he was President and Chief Executive Officer of
Diatech Diagnostics.

SECTION 16(a) - BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive Officers, directors and persons who beneficially own more than 10% of
the Company's Stock, to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than 10% beneficial owners are required by applicable
regulations to furnish the Company with copies of all Section 16(a) forms they
file.

Based solely upon a review of the copies of such forms furnished to the
Company and information involving securities transactions of which the Company
is aware, the Company believes that during the fiscal year ended May 31, 2003,
all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial stockholders were complied with.

ITEM 10. EXECUTIVE COMPENSATION
----------------------

SUMMARY COMPENSATION TABLE

The following table sets forth the total compensation earned by the Chief
Executive Officer and all other executive officers who earned in excess of
$100,000 per annum during the fiscal years ended May 31, 2003, 2002 and 2001.

ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------ --------------------------------------
AWARDS PAYOUTS
---------------------- --------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMP.
POSITION YEAR ($)(1) ($) ($) ($) SARS (#) ($) ($)
-------------------------- ---- --------- ----- ------------ ---------- ---------- ------- -----

Zackary Irani, Chairman 2003 60,000(2) -0- -0- -0- 75,000(4) -0- -0-
and Chief Executive
Officer 2002 45,000(2) -0- -0- 20,000 65,000 -0- -0-

2001 91,593 -0- -0- -0- -0- -0- -0-

Francis Capitanio,
President, Diagnostics
Division (4) 2003 123,137 -0- -0- -0- 25,000 -0- -0-

2002 106,333 -0- -0- 6,579 21,000 -0- -0-

2001 111,778 -0- -0- -0- 72,000 -0- -0-

(1) The amounts described in the Summary Compensation Table above do not
include other compensation and benefits provided to Mr. Irani or Mr.
Capitanio during the fiscal year ended May 31, 2003, that in the
aggregate did not exceed the lesser of $50,000 or 10% of the
executives' annual salary and bonus.

(2) During fiscal 2003 Mr. Irani accepted 37,778 shares of restricted
common stock in payment of $17,000 in accrued wages and 68,182 shares
of restricted common stock in payment of $15,000 in accrued wages. The
wages for fiscal years 2003 include $13,333 cash wages and $46,667 in
accrued wages. In fiscal 2002 Mr. Irani received $3,150 in cash wages
and $41,250 in accrued wages. In fiscal 2003 Mr. Irani also received
$31,731 in wages plus an accrual of $32,500 for common stock he will
receive from the subsidiary, Lancer Orthodontics since he spends time
at that facility. In fiscal 2002 Mr. Irani also received compensation
of $40,000 from Lancer Orthodontics. In fiscal 2001 he received $3,000
from Lancer for director's fees which were taken in Lancer restricted
common stock. Mr. Irani was an employee of the Company's subsidiary,
ReadyScript, Inc. from June 2000 through April 2001. The wages shown
above for fiscal 2001 represent wages paid to him by ReadyScript for
that period, plus accrued wages of $41,667 still due him by
ReadyScript, plus wages paid to him by Biomerica, Inc. in May 2001.

(3) Mr. Capitanio began his employment with the Company in July 2000
(fiscal 2001). During fiscal 2002 Mr. Capitanio accepted 6,579 of
Biomerica common stock and 21,000 options for Biomerica common stock in
lieu of cash salary of $18,667.

(4) Mr. Irani had an option for 64,000 shares which expired in Dec 2002.

COMPENSATION OF DIRECTORS

Although not prohibited by the Company's Bylaws, directors receive no
direct payment for their services as directors, but they have been, and may in
the future be, granted options to purchase the Company's securities. The
compensation of directors is subject to review and adjustment from time to time
by the Board of Directors.

STOCK OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning stock options granted
in the fiscal year ended May 31, 2003, to the Company's Chief Executive Officer
and President of diagnostics.

INDIVIDUAL GRANTS(1)

Percent of
Total Number
Number of of Securities
Securities Underlying
Underlying Options/ Options/SARs Exercise or Base
NAME SARs Granted (#) Granted (#) Price ($/SH) Expiration Date
------------------- ------------------- -------------- ----------------- -------------------

Zackary Irani 75,000 17.3 $.28 5/23/08

Francis Capitanio 25,000 5.8 $.28 5/23/08

OPTION EXERCISES AND FISCAL YEAR-END VALUES

The following table presents information for the named executive officers
in the Summary Compensation Table with respect to options exercised during
fiscal 2003 and unexercised options held as of the end of the fiscal year.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES

Number of Securities
Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Shares Fiscal Year End (#) at Fiscal Year End ($)
Acquired Value ------------------------- -------------------------
Name On Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
----------------- --------------- ------------ ------------------------- -------------------------

Zackary Irani (1) -0- -0- 1,157,783/50,000 $4,250/$8,500

Francis Capitanio -0- -0- 69,500/48,500 $2,125/$2,125

------------
(1) Based on the closing price of $.45 as of the last day of the fiscal
year ended May 31, 2003.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------

The following table sets forth, as of June 23, 2003 certain information as
to shares of Common Stock owned by (i) each person known to beneficially own
more than 5% of the outstanding Common Stock, (ii) each director, including
nominees for director, and each named executive officer of the Company, and
(iii) all executive officers and directors of the Company as a group. Unless
otherwise indicated, each person listed has sole voting and investment power
over the shares beneficially owned by him or her. Unless otherwise indicated,
the address of each named beneficial owner is the same as that of the Company's
principal executive offices located at 1533 Monrovia Avenue, Newport Beach,
California 92663.

SHARES PERCENTAGE
NAME OF BENEFICIALLY BENEFICIALLY
BENEFICIAL OWNER (1)(2) OWNED OWNED
----------------------- ----------------- ------------

Janet Moore (3) 829,054 13.6%

Zackary Irani (4) 1,529,309 20.8%

Francis Capitanio(5) 94,079 1.6%

Dr. Robert A. Orlando (1)(6) 96,500 1.7%

Allen Barbieri (1)(7) 107,334 1.8%

Francis R. Cano, Ph.D. (1)(8) 62,500 1.1%

Joseph L. Rink 317,202 5.5%

All executive officers and directors
as a group (six persons) 2,718,776 36.4%

---------------

(1) Dr. Orlando's address is 947 West 30th Street, Los Angeles, CA 92034;
Mr. Barbieri's address is 5 Foxboro, Irvine, CA 92614; and Dr. Cano's
address is 11 Acorn Lane, Los Altos, CA 94022.

(2) Beneficial ownership is determined in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934. Any shares of Common Stock that each
named person and group has the right to acquire within 60 days pursuant
to options, warrants, conversion privileges or other rights, are deemed
outstanding for purposes of computing shares beneficially owned by and
the percentage ownership of each such person and group. However, such
shares are not deemed outstanding for purposes of computing the shares
beneficially owned by or percentage ownership of any other person or
group. Percentage ownership for each named beneficial owner, and the
ownership of the directors and executive officers as a group, is based
on 5,772,431 plus the shares the named person and group has a right to
acquire within 60 days pursuant to options, warrants, conversion
privileges or other rights.

(3) Includes 89,367 shares underlying options exercisable by Ms. Moore at
or within 60 days after the date of the Proxy, 45,910 shares underlying
warrants exercisable by The Janet Moore Trust of which Janet Moore is
the sole trustee, at or within 60 at or within 60 days after the date
of the Proxy, 607,527 shares owned by The Janet Moore Trust of which
Janet Moore is the sole trustee and 8,250 shares owned by Ms. Moore's
minor children.

(4) Includes 1,257,783 shares underlying options exercisable by Mr. Irani
at or within 60 days after the date of the Proxy.

(5) Includes 87,500 shares underlying options exercisable by Mr. Capitanio
at or within 60 days after the date of the Proxy.
(6) Includes 72,500 shares underlying options exercisable by Dr. Orlando at
or within 60 days after the date of the Proxy.

(7) Includes 79,445 shares underlying options exercisable by Mr. Barbieri
at or within 60 days after the date of the Proxy.

(8) Includes 62,500 shares underlying options exercisable by Dr. Cano at or
within 60 days after the date of the Proxy.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------

During the fiscal year ended May 31, 2003, the Company leased approximately
22,000 square feet of space in Newport Beach, California. The facilities are
leased from Ilse Sultanian and JSJ Management, of which Ms. Janet Moore is a
partner, as well as two other shareholders, Jennifer Irani and Susan Irani.
Jennifer Irani and Susan Irani are cousins of Zackary Irani. Management believes
that the rent for the facilities in Newport Beach, CA, is consistent with
current market values for comparable property in the area. Management believes
that the lease terms are the same as could be obtained in an arm's length
transaction. Jennifer Irani, Susan Irani and Ilse Sultanian each hold less than
5% of the Company common stock and therefore are not mentioned in the Beneficial
Ownership Table. During fiscal 2003, the Company incurred a total of $182,400,
gross of sublease income, in rent expense. During fiscal 2003 the Company
entered into a four-year lease for these facilities. The facilities are
currently being used for the Company's diagnostic test kit research and
development, manufacturing, marketing and administration.

During fiscal 2003 Ilse Sultanian and JSJ Management agreed to accept
60,000 shares plus 60,000 warrants exercisable at $.25 per share of Biomerica
restricted common stock in payment for $15,000 in accrued rent. As of May 31,
2003 the Company owed $55,474 in accrued rent and at August 20, 2003 the Company
owed a balance of $86,848 for past rent.

On July 10, 2001 the Company sold 69,444 shares plus 34,722 warrants to the
Janet Moore Trust of which Ms. Moore is the trustee, at a purchase price of
$1.34 and $.72 per share. The exercise price of the warrants is $1.50. On July
10, 2001 the Company sold 4,166 shares plus 2,083 warrants of Common Stock to
Mr. Irani at a purchase price of $.72 per share. The exercise price of the
warrants is $1.50 per share.

In August 2002 Zackary Irani accepted 68,182 shares of Biomerica restricted
common stock in lieu of $15,000 in accrued wages and in November 2002 accepted
37,778 shares in lieu of $17,000 in accrued wages. In August 2002 Janet Moore
accepted 30,000 shares of Biomerica restricted common stock in lieu of $13,500
in accrued wages and in November 2002 accepted 30,000 shares in lieu of $6,600
in accrued wages. As of May 31, 2003 the Company owed Zackary Irani
approximately $44,529 in accrued wages and Janet Moore $46,950 in accrued wages.

On September 12, 2000, Janet Moore, an officer and director of the Company
entered into an agreement to loan to the Company, as needed, up to a $500,000
for working capital needs. The line of credit bore interest at 8%, was secured
by Biomerica accounts receivable and inventory. The line of credit was renewed
August 28, 2002 and expires September 13, 2003. The outstanding principal and
interest on September 12, 2003 was $337,835, including principal of $288,850 and
interest of $48,985, all of which will be converted into a note payable bearing
interest at 8% with interest and principal due monthly. The remaining unpaid
principal and interest, if any, are due September 12, 2007. The note will be
secured by inventory and receivables. There was $303,550 of outstanding

principal and $43,963 of unpaid interest under this line of credit at May 31,
2003. Another shareholder and director, Zackary Irani loaned the Company $10,000
during the fiscal year ended 2002. In June 2003 Mr. Irani agreed to accept
40,000 shares plus 40,000 warrants exercisable at $.25 per share of Biomerica
restricted common stock in repayment of the $10,000 loan advanced during fiscal
2002.

In May 2002 Biomerica accepted 37,595 shares of Lancer common stock in
payment for expenses of $8,271 advanced by Biomerica on Lancer's behalf.

In April 2003, Lancer de Mexico entered into a manufacturing subcontractor
agreement with Biomerica, Inc., to provide manufacturing services in Mexicali,
Mexico. The agreement requires reimbursement from Biomerica for discrete
expenses such as payroll, shipping, and customs fees; lease and security
deposits of approximately $2,000 and $1,100 per month, respectively; and service
fees of approximately $2,900 per month.

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
-------------------------------------

(a) EXHIBITS
--------

EXHIBIT NO. DESCRIPTION

3.1 Certificate of Incorporation of Registrant filed with the
Secretary of the State of Delaware on September 22, 1971
(incorporated by reference to Exhibit 3.1 filed with
Amendment No. 1 to Registration Statement on Form S-1,
Commission File No. 2-83308).

3.2 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware
on February 6, 1978 (incorporated by reference to Exhibit
3.1 filed with Amendment No. 1 to Registration Statement on
Form S-1, Commission File No. 2-83308).

3.3 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware
on February 4, 1983 (incorporated by reference to Exhibit
3.1 filed with Amendment No. 1 to Registration Statement on
Form S-1, Commission File No. 2-83308).

3.4 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
January 19, 1987 (incorporated by reference to Exhibit 3.4
filed with Form 8 Amendment No. 1 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1987).

3.5 Certificate of Amendment of Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
November 4, 1987 (incorporated by reference to Exhibit 3.1
filed with Amendment No. 1 to Registration Statement on Form
S-1, Commission File No. 2-83308).

3.6 Bylaws of the Registrant (incorporated by reference to Exhibit
3.2 filed with Amendment No. 1 to Registration Statement on
Form S-1, Commission File No. 2-83308).

3.7 Certificate of Amendment of Certificate of Incorporation of
Registrant filed with the Secretary of the State of Delaware on
December 20, 1994 (incorporated by reference to Exhibit 3.7
filed with Registrant's Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1995).

3.8 First Amended and Restated Certificate of Incorporation of
Biomerica, Inc. filed with the Secretary of State of Delaware
on August 1, 2000 (incorporated by reference to Exhibit 3.8
filed with the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended May 31, 2000).

4.1 Specimen Stock Certificate of Common Stock of Registrant
(incorporated by reference to Exhibit 4.1 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).

10.2 Lancer purchase agreement and warrants (incorporated by
reference to Exhibit 10.10 filed with Registrant's Annual
Report on Form 10-K for the fiscal year ended May 31, 1989).

10.3 1999 Stock Incentive Plan of Registrant (incorporated by
reference to Exhibit 10.1 to Registration Statement on Form S-8
filed with the Securities and Exchange Commission on March 29,
2000).

10.4 1995 Stock Option and Common Stock Plan of Registrant
(incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on January 20, 1996).

10.5 1991 Stock Option and Restricted Stock Plan of Registrant
(incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-8 filed with the Securities and Exchange
Commission on April 6, 1992).

10.6 Stock Purchase Agreement by and between Biomerica, Inc.,
RidgeRose Capital Partners, LLC and Zackary Irani and Janet
Moore dated June 11, 1999 (incorporated by reference to Exhibit
10.10 filed with Form 8-K on July 7, 1999).

10.7 Stock Purchase Agreement by and between Biomerica, Inc. and
Zackary Irani and Janet Moore dated June 11, 1999
(incorporated by reference to Exhibit 10.11 filed with
Form 8-K on July 7, 1999).

10.8 Back-end Processing Agreement by and between TheBigStore.
com, Inc. and Biomerica, Inc. and dated June 11, 1999
(incorporated by reference to Exhibit 10.12 filed with
Form 8-K on July 7, 1999).

10.9 Common Stock Purchase Warrant granted to TheBigStore.com,
Inc. dated June 11, 1999 (incorporated by reference to
Exhibit 10.13 filed with Form 8-K on July 7, 1999).

10.10 Common Stock Purchase Warrant granted to RJM Consulting, LLC
dated June 11, 1999 (incorporated by reference to Exhibit 10.14
filed with Form 8-K on July 7, 1999).

10.11 Non-Qualified Option Agreement by and between Zackary Irani and
the Company dated June 10, 1999 (incorporated by reference to
Exhibit 10.15 filed with Form 8-K on July 7, 1999).

10.12 Non-Qualified Option Agreement by and between Janet Moore and
the Company dated June 10, 1999 (incorporated by reference to
Exhibit 10.16 filed with Form 8-K on July 7, 1999).

10.13 Non-Qualified Option Agreement by and between Philip Kaplan,
M.D. and the Company dated June 10, 1999 (incorporated by
reference to Exhibit 10.17 filed with Form 8-K on July 7,
1999).

10.14 Non-Qualified Option Agreement by and between Robert A.
Orlando, M.D., Ph.D. and the Company dated June 10, 1999
(incorporated by reference to Exhibit 10.18 filed Form 8-K on
July 7, 1999).

10.15 Strategic Marketing Agreement entered into as of the 2nd day
of September, 1999 by and between TheBigHub.com, Inc., a
Florida corporation and Biomerica, Inc. (incorporated by
reference to Exhibit 10.16 filed with Registrant's
Registration Statement on Form SB-2, Commission No.
333-87231 filed on September 16, 1999).

10.16 First Amendment to Back-End Processing Agreement entered
into as of September 2, 1999 whereby TheBigStore.com, Inc.,
a Delaware corporation and Biomerica amend the Back-End
Agreement dated June 11, 1999 (incorporated by reference to
Exhibit 10.17 filed with Registrant's Registration Statement
on Form SB-2, Commission No. 333-87231 filed on September 16,
1999).

10.17 Private Placement Memorandum of Biomerica, Inc. dated June 9,
1999 offering 400,000 shares of its Common Stock at $5.00 per
share (incorporated by reference to Exhibit 10.18 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).

10.18 Employment Agreement entered into as of August 30, 1999 by and
between the Internet division of Biomerica, Inc. and Steven J.
Goto (incorporated by reference to Exhibit 10.19 filed with
Registrant's Registration Statement on Form SB-2, Commission
No. 333-87231 filed on September 16, 1999).

10.19 Employment Offer Letter dated August 12, 1999 from Biomerica,
Inc. to Pete McKinley to join the Internet division of
Biomerica, Inc. (incorporated by reference to Exhibit 10.20
filed with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).

10.20 Employment Offer Letter dated August 12, 1999 from Biomerica,
Inc. to Richard Jay, Pharm.D. to join the Internet division
of Biomerica, Inc. (incorporated by reference to Exhibit
10.21 filed with Registrant's Registration Statement on Form
SB-2, Commission No. 333-87231 filed on September 16, 1999).

10.21 Amendment to Lease Extension/Lease Term effective January 1,
1999, whereby Lancer Orthodontics, Inc. and L&T Corporation, a
California corporation entered into an amendment and extension
to the terms of that certain lease agreement dated November 4,
1993 for the premises located at 253 Pawnee Street, Suite A,
San Marcos, California 92069 (incorporated by reference to
Exhibit 10.22 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).

10.22 Sublease Agreement entered into by and between Eagleson de
California S.A. de C.V. and Lancer Orthodontics, Inc.
commencing on November 1, 1998 covering approximately 16,000
square feet located in the Industrial Park at Ave. Saturno No.
20 and of certain improvements constructed on the land as
detailed in that certain sublease between the parties dated
April 1, 1996 (incorporated by reference to Exhibit 10.23 filed
with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).

10.23 Fifth Revision to Manufacturing Shelter Agreement effective
November 1, 1998, whereby Lancer Orthodontics, Inc. and
Eagleson Industries, Inc. revised and amended that certain
Manufacturing Shelter Agreement entered into on May 11, 1990,
revised on June 20, 1991, December 2, 1992, July 1, 1994 and
April 1, 1996 (incorporated by reference to Exhibit 10.24 Filed
with Registrant's Registration Statement on Form SB-2,
Commission No. 333-87231 filed on September 16, 1999).

10.24 Technical Skills Consulting Agreement entered into on January
1, 1999 by and between Lancer Orthodontics, Inc. and Alejandro
Carnero, a non-resident alien, independent contractor and
citizen of the Republic of Mexico (incorporated by reference to
Exhibit 10.25 filed with Registrant's Registration Statement on
Form SB-2, Commission No. 333-87231 filed on September 16,
1999).

10.25 Product Development and Marketing Agreement entered into as of
August 3, 1998 by and between Lancer Orthodontics, Inc. and AG
Metals, Inc., a Nevada corporation (incorporated by reference
to Exhibit 10.26 filed with Registrant's Registration Statement
on Form SB-2, Commission No. 333-87231 filed on September 16,
1999).

10.26 Agreement between Lancer Orthodontics, Inc. and Gary Weikel, an
individual, incorporating by reference that certain Product
Development and Marketing Agreement of even date between Lancer
Orthodontics, Inc. and AG Metals, Inc. (incorporated by
reference to Exhibit 10.27 filed with Registrant's Registration
Statement on Form SB-2, Commission No. 333-87231 filed on
September 16, 1999).

10.27 Lease between Biomerica, Inc., JSJ Management and Ilse
Sultanian dated September 1, 2001. (Incorporated by reference
to the Company's 2002 Form 10KSB/A filed June 6, 2003.)

10.28 Agreement between Biomerica, Inc. and Lancer Orthodontics,
Inc. for the acquisition of the remaining outstanding shares
of Lancer Orthodontics, Inc., common stock by Biomerica
(incorporated by reference to an exhibit filed with the S-4
filed on April 10, 2002).

10.29 General Assignment of Assets Agreement with Allergy Immuno
Technologies, Inc.(incorporated by reference to the Company
2002 Form 10KSB/A filed June 6, 2003.)

10.30 Asset Purchase Agreement by and between Biomerica, Inc., and
Sangui Bio Tech, Inc. dated September 12, 2002.

16.1 Letter on Change of Certifying Accountant (incorporated by
reference to Exhibit A to Form 8-K filed with the Securities
and Exchange Commission on May 24, 1993).

16.2 Letter on change of certifying accountant (incorporated by
reference to Exhibit A to Form 10-QSB/A filed with the
Securities and Exchange Commission on April 14, 1999).

21.1 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21.1 to Form 10-KSB filed with the Securities and
Exchange Commission on September 14, 1999).

31.1 SCertification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

99.3 Biomerica, Inc. and Subsidiaries Consolidated Financial
Statements For The Years Ended May 31, 2003 and 2002 and
Independent Auditors' Report.

(b) Reports on Form 8-K
-------------------

Biomerica filed a report on Form 8-K with the Securities and Exchange
Commission on June 6, 2002.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

BIOMERICA, INC.
Registrant

By /s/ Zackary S. Irani
---------------------------------
Zackary S. Irani, Chief Executive
Officer

Dated: 9/13/03
-------

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated:

Signature and Capacity

/s/ Zackary S. Irani Date: 9/13/03
------------------------------------
Zackary S. Irani
President, Director, Chief Executive
Officer

/s/ Janet Moore Date: 9/13/03
------------------------------------
Janet Moore, Secretary
Director, Chief Financial Officer

/s/ Robert Orlando Date: 9/13/03
------------------------------------
Robert Orlando, M.D., Ph.D.
Director

/s/ Francis R. Cano
----------------------------------- Date: 9/13/03
Francis R. Cano
Director

/s/ Allen Barbieri Date: 9/13/03
------------------------------------
Allen Barbieri
Director, Vice President Finance