<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>biomerica_financials.txt
<TEXT>
<PAGE>

                        BIOMERICA, INC. AND SUBSIDIARIES


                                    CONTENTS

================================================================================




EPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS                      FS-2


ONSOLIDATED FINANCIAL STATEMENTS

   Consolidated Balance Sheet as of May 31, 2001                       FS-3

   Consolidated Statements of Operations and
     Comprehensive Loss for the Years Ended
     May 31, 2001 and 2000, respectively                        FS-4 - FS-5

   Consolidated Statements of Shareholders' Equity
     for  the Years Ended May 31, 2001 and 2000                 FS-6 - FS-7

   Consolidated Statements of Cash Flows for the
     Years Ended May 31, 2001 and 2000                          FS-8 - FS-9


   Notes to Consolidated Financial Statements                 FS-10 - FS-53





<PAGE>


REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


Board of Directors
Biomerica, Inc. and Subsidiaries


We have audited the accompanying consolidated balance sheet of Biomerica, Inc.
and Subsidiaries (the "Company") as of May 31, 2001, and the related
consolidated statements of operations and comprehensive loss, shareholders'
equity and cash flows for the years ended May 31, 2001 and 2000. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biomerica, Inc. and
subsidiaries as of May 31, 2001, and the results of their operations and their
cash flows for the years ended May 31, 2001 and 2000, in conformity with
accounting principles generally accepted in the United States of America.

The Company has suffered substantial recurring losses from operations and has
relied on equity and debt financings to fund operations and may have to do so in
the future. Management's plan in regards to these matters are described in Note
1.



                                                                BDO SEIDMAN, LLP


Costa Mesa, California
August 10, 2001, except as to
 Note 6, which is as
 of September 11, 2001


                                      FS-2
<PAGE>
                                                BIOMERICA, INC. AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET
================================================================================


MAY 31,                                                                 2001
--------------------------------------------------------------------------------

ASSETS

CURRENT ASSETS
   Cash and cash equivalents                                        $   136,299
   Available for-sale securities                                         41,570
   Accounts receivable, less allowance for doubtful
     accounts and sales returns of $192,559                           1,525,255
   Inventories, net                                                   2,865,956
   Notes receivable                                                      18,394
   Prepaid expenses and other                                            89,422
--------------------------------------------------------------------------------

Total current assets                                                  4,676,896
--------------------------------------------------------------------------------

INVENTORIES, non-current                                                 15,000

PROPERTY AND EQUIPMENT, at cost
   Equipment                                                          2,912,011
   Furniture, fixtures and leasehold improvements                       439,096
--------------------------------------------------------------------------------

                                                                      3,351,107

ACCUMULATED DEPRECIATION AND AMORTIZATION                            (3,032,659)
-------------------------------------------------------------------------------

Net property and equipment                                              318,448

INTANGIBLE ASSETS, net of accumulated amortization                      297,239

OTHER ASSETS                                                             39,538
--------------------------------------------------------------------------------

                                                                    $ 5,347,121
================================================================================



<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                                      CONSOLIDATED BALANCE SHEET
================================================================================


MAY 31,                                                                2001
--------------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
   Line of credit                                                   $   140,000
   Accounts payable and accrued expenses                                930,965
   Accrued compensation                                                 263,277
   Net liabilities from discontinued operations                         398,058
--------------------------------------------------------------------------------

Total current liabilities                                             1,732,300
--------------------------------------------------------------------------------


SHAREHOLDER LOAN                                                         95,000

MINORITY INTEREST                                                     2,046,956
--------------------------------------------------------------------------------


SHAREHOLDERS' EQUITY
   Common stock, $.08 par value; 25,000,000 shares
     authorized; 5,036,754 shares subscribed or issued
     and outstanding                                                    391,254
   Additional paid in capital                                        16,859,742
   Accumulated other comprehensive loss                                 (10,289)
   Accumulated deficit                                              (15,767,842)
--------------------------------------------------------------------------------

Total shareholders' equity                                            1,472,865
--------------------------------------------------------------------------------

                                                                    $ 5,347,121
================================================================================

                    See accompanying notes to consolidated financial statements.


                                      FS-3
<PAGE>
<TABLE>

                                                          BIOMERICA, INC. AND SUBSIDIARIES

                                                 CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                                                        COMPREHENSIVE LOSS
==========================================================================================
<CAPTION>

YEARS ENDED MAY 31,                                                2001          2000
------------------------------------------------------------------------------------------
<S>                                                            <C>            <C>
NET SALES                                                      $ 8,939,522    $ 8,013,921

Cost of sales                                                    6,129,900      5,603,652
------------------------------------------------------------------------------------------

GROSS PROFIT                                                     2,809,622      2,410,269
------------------------------------------------------------------------------------------

OPERATING EXPENSES
   Selling, general and administrative                           3,171,085      3,883,237
   Research and development                                        322,121        464,637
------------------------------------------------------------------------------------------

Total operating expenses                                         3,493,206      4,347,874
------------------------------------------------------------------------------------------

OPERATING LOSS FROM CONTINUING OPERATIONS                         (683,584)    (1,937,605)

OTHER INCOME (EXPENSE)
   Interest expense                                                (21,558)       (19,562)
   Other income, net                                                47,762        118,398
------------------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS, before minority interest
   in net loss of consolidated subsidiaries and income taxes      (657,380)    (1,838,769)

MINORITY INTEREST IN NET LOSS OF CONSOLIDATED SUBSIDIARIES          80,894        202,722
------------------------------------------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS, before income taxes              (576,486)    (1,636,047)

INCOME TAX EXPENSE                                                   2,400          2,400
------------------------------------------------------------------------------------------

NET LOSS FROM CONTINUING OPERATIONS                               (578,886)    (1,638,447)

DISCONTINUED OPERATIONS:
   Loss from discontinued operations, net                       (2,093,432)    (2,252,402)
------------------------------------------------------------------------------------------

NET LOSS                                                        (2,672,318)    (3,890,849)
</TABLE>

                                      FS-4

<PAGE>
<TABLE>

                                                            BIOMERICA, INC. AND SUBSIDIARIES

                                                   CONSOLIDATED STATEMENTS OF OPERATIONS AND
                                                              COMPREHENSIVE LOSS (CONTINUED)
============================================================================================
<CAPTION>

YEARS ENDED MAY 31,                                                2001            2000
--------------------------------------------------------------------------------------------
<S>                                                          <C>              <C>
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax
   Unrealized (loss) gain on available-for-sale securities          (5,966)           4,456
--------------------------------------------------------------------------------------------

COMPREHENSIVE LOSS                                           $  (2,678,284)   $  (3,886,393)
============================================================================================

BASIC NET LOSS PER COMMON SHARE:
   Net loss from continuing operations                       $       (0.12)   $       (0.36)
   Net loss from discontinued operations                             (0.43)           (0.50)
--------------------------------------------------------------------------------------------

Basic net loss per common share                              $       (0.55)   $       (0.86)
============================================================================================

DILUTED NET LOSS PER COMMON SHARE:
   Net loss from continuing operations                       $       (0.12)   $       (0.36)
   Net loss from discontinued operations                             (0.43)           (0.50)
--------------------------------------------------------------------------------------------

Diluted net loss per common share                            $       (0.55)   $       (0.86)
============================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
   EQUIVALENT SHARES
   Basic                                                         4,814,790        4,542,820
============================================================================================

   Diluted                                                       4,814,790        4,542,820
============================================================================================

                                See accompanying notes to consolidated financial statements.

</TABLE>
                                      FS-5

<PAGE>
<TABLE>
                                                                                                  BIOMERICA, INC. AND SUBSIDIARIES

                                                                                   CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
==================================================================================================================================
<CAPTION>
                                Common Stock         Additional    Accumulated Other
                            ---------------------      Paid-in       Comprehensive      Shareholder  Accumulated
                            Shares       Amount        Capital       Income (Loss)         Loan        Deficit       Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>           <C>        <C>             <C>                <C>           <C>            <C>
Balances, May 31, 1999      4,110,445  $ 328,835     $ 12,703,339    $   (8,779)        $   (1,000)   $ (9,204,675)  $  3,817,720

Private placement, net of
   offering costs of $34,443  400,000     32,000        1,933,557             -                  -               -      1,965,557

Change in unrealized gain
   (loss) on available-for-sale
   securities                       -          -                -         4,456                  -               -          4,456

Payment received on shareholder
   loan                             -          -                -             -              1,000               -          1,000

Exercise of stock options      56,625      4,530           56,122             -                  -               -         60,652

Shares issued for services
   rendered                     8,000        640           15,360             -                  -               -         16,000

Compensation expense in
   connection with options and
   warrants granted                 -          -          821,043             -                  -               -        821,043

Net loss                            -          -                -             -                  -      (3,890,849)    (3,890,849)
----------------------------------------------------------------------------------------------------------------------------------

Balances, May 31, 2000      4,575,070    366,005       15,529,421        (4,323)                 -     (13,095,524)    2,795,579

</TABLE>

                                                               FS-6
<PAGE>
<TABLE>
                                                                                                    BIOMERICA, INC. AND SUBSIDIARIES

                                                                         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - CONTINUED
====================================================================================================================================
<CAPTION>
                                                                 Common Stock      Accumulated
                                Common Stock       Additional     Subscribed          Other
                            ---------------------   Paid-in   ------------------   Comprehensive Shareholder Accumulated
                            Shares       Amount     Capital    Shares    Amount    Income (Loss)    Loan       Deficit      Total
------------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>        <C>        <C>          <C>      <C>        <C>            <C>      <C>           <C>
Private placement, net of
   offering costs of $1,140   113,375      9,070      142,368  126,075    90,774              -          -            -     242,212

Change in unrealized gain
   (loss) on available-for-sale
   securities                       -          -            -        -         -         (5,966)         -            -      (5,966)

Common stock issued in
   satisfaction of payables    34,643      2,772       35,843        -         -              -          -            -      38,615

Exercise of stock options       8,500        680        6,088        -         -              -          -            -       6,768

Common stock issued for
   services rendered          159,091     12,727      232,898        -         -              -          -            -     245,625

Compensation expense in
   connection with options
   and warrants granted             -          -       89,336        -         -              -          -            -      89,336

Common stock subscribed for
   services rendered                -          -            -   20,000    20,000              -          -            -      20,000

Conversion of subsidiary debt
   into common stock of
   subsidiary                       -          -      713,014        -         -              -          -            -     713,014

Net loss                            -          -            -        -         -              -          -   (2,672,318) (2,672,318)
------------------------------------------------------------------------------------------------------------------------------------

Balances, May 31, 2001      4,890,679  $ 391,254  $16,748,968  146,075  $110,774   $    (10,289)  $      - $(15,767,842) $1,472,865
====================================================================================================================================

                                                                        See accompanying notes to consolidated financial statements.

</TABLE>

                                                               FS-7
<PAGE>
<TABLE>
                                                                BIOMERICA, INC. AND SUBSIDIARIES

                                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================================
<CAPTION>


FOR THE YEARS ENDED MAY 31,                                              2001         2000
------------------------------------------------------------------------------------------------
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
   Net loss from continuing operations                               $  (578,886)   $(1,638,447)
   Adjustments to reconcile net loss to net cash provided
     by (used in) continuing operating activities:
     Depreciation and amortization                                       208,990        209,549
     Provision for losses on accounts receivable                          (4,235)        (2,834)
     Provision for losses on inventory                                   129,034              -
     Realized loss (gain) on sale of available-for-sale securities       (34,427)        13,241
     Warrants and options issued for services rendered                    89,336        821,043
     Common stock of a subsidiary issued for services                          -         50,631
     Gain on conversion of subsidiary preferred stock                          -        (55,487)
     Common stock issued or subscribed for services rendered             265,625         16,000
     Net gain on sale of land                                             (3,722)             -
     Net loss on sale of property and equipment                            2,000              -
     Minority interest in net profits of consolidated subsidiaries       (80,894)      (202,722)
     Changes in current liabilities and assets
       Accounts receivable                                               180,915        (95,844)
       Inventories                                                      (128,301)       198,406
       Prepaid expenses and other                                         54,756        152,561
       Accounts payable and other accrued liabilities                     76,507       (121,778)
       Accrued compensation                                              (67,743)       (68,316)
------------------------------------------------------------------------------------------------

Net cash provided by (used in) operating activities                      108,955       (723,997)
------------------------------------------------------------------------------------------------

</TABLE>


                                      FS-8
<PAGE>
<TABLE>

                                                      BIOMERICA, INC. AND SUBSIDIARIES

                                     CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
======================================================================================
<CAPTION>


FOR THE YEARS ENDED MAY 31,                                     2001           2000
--------------------------------------------------------------------------------------
<S>                                                           <C>            <C>
CASH FLOWS FROM INVESTING ACTIVITIES
   Sales of available-for-sale securities                       85,665         18,191
   Decrease in notes receivable                                 16,600          9,491
   Purchases of property and equipment                         (61,919)      (101,010)
   Proceeds from sale of land                                   49,722              -
   Increase in intangible assets                               (20,090)             -
   Other assets                                                (19,446)       110,737
--------------------------------------------------------------------------------------

Net cash provided by investing activities                       50,532         37,409
--------------------------------------------------------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES
   Net decrease under line of credit agreement                 (20,000)       (20,000)
   Increase in shareholder loan                                 95,000              -
   Repurchase of minority interests                             15,682       (117,914)
   Decrease in shareholder receivable                                -          1,000
   Exercise of stock options                                     6,768         60,652
   Sale of common stock, net of offering expenses              242,212      1,965,557
--------------------------------------------------------------------------------------

Net cash provided by financing activities                      339,662      1,889,295
--------------------------------------------------------------------------------------

Net cash used in discontinued operations                      (977,907)    (2,256,855)
--------------------------------------------------------------------------------------

Net change in cash and cash equivalents                       (478,758)    (1,054,148)

CASH AND CASH EQUIVALENTS, beginning of year                   615,057      1,669,205
--------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS, end of year                     $   136,299    $   615,057
======================================================================================

SUPPLEMENTAL DISCLOSURE OF CASH-FLOW INFORMATION
  CASH PAID DURING THE YEAR FOR:
     Interest                                              $    19,931    $    19,562
======================================================================================

     Income taxes                                          $     2,400    $     2,400
======================================================================================

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND
  FINANCING ACTIVITIES
  Change in unrealized holding gain (loss) on available-
     for-sale securities                                   $     5,966    $     4,456
======================================================================================
                          See accompanying notes to consolidated financial statements.

</TABLE>

                                      FS-9
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


1.  ORGANIZATION       ORGANIZATION
    AND
    LIQUIDITY          Biomerica, Inc. and subsidiaries (collectively "the
                       Company") are primarily engaged in: the development,
                       manufacture and marketing of medical diagnostic kits, the
                       design, manufacture and distribution of various
                       orthodontic products, and the performance of specialized
                       diagnostic testing services.

                       LIQUIDITY

                       The Company has suffered substantial recurring losses
                       from operations over the last couple of years. The
                       Company 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.
                       (see Notes 2 and 13). ReadyScript was a primary
                       contributor to the Company's losses. The Company also
                       plans to reduce operating costs through certain cost
                       reduction efforts and concentrate on its core business in
                       Lancer and Biomerica to increase sales. There can be no
                       assurances that the Company will be able to become
                       profitable, generate positive cash flow from operations
                       or obtain the necessary equity or debt financing to fund
                       operations in the future.

2.  SUMMARY OF         PRINCIPLES OF CONSOLIDATION
    SIGNIFICANT
    ACCOUNTING         The consolidated financial statements for the years ended
    POLICIES           May 31, 2001 and 2000 (see Note 3) include the accounts
                       of Biomerica, Inc. ("Biomerica"), Lancer Orthodontics,
                       Inc. ("Lancer"), Allergy Immuno Technologies, Inc.
                       ("AIT") and ReadyScript, Inc. (discontinued). All
                       significant intercompany accounts and transactions have
                       been eliminated in consolidation.

                       ACCOUNTING ESTIMATES

                       The preparation of financial statements in conformity
                       with accounting principles generally accepted in the
                       United States of America requires management to make
                       estimates and assumptions

                                     FS-10
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         that affect the reported amounts of assets and
    SIGNIFICANT        liabilities and disclosure of contingent assets and
    ACCOUNTING         liabilities at the date of the financial statements, and
    POLICIES           the reported amounts of revenues and expenses during the
    (Continued)        reported period. Actual results could materially differ
                       from those estimates.

                       FAIR VALUE OF FINANCIAL INSTRUMENTS

                       The Company has financial instruments whereby the fair
                       market value of the financial instruments could be
                       different than that recorded on a historical basis. The
                       Company's financial instruments consist of its cash and
                       cash equivalents, accounts receivable, notes receivable,
                       line of credit and accounts payable. The carrying amounts
                       of the Company's financial instruments approximate their
                       fair values at May 31, 2001.

                       CONCENTRATION OF CREDIT RISK

                       The Company, on occasion, maintains cash balances at
                       certain financial institutions in excess of amounts
                       insured by federal agencies.

                       The Company provides credit in the normal course of
                       business to customers throughout the United States and
                       foreign markets. The Company's sales are not materially
                       dependent on a single customer or a small group of
                       customers. The Company performs ongoing credit
                       evaluations of its customers. The Company does not obtain
                       collateral with which to secure its accounts receivable.
                       The Company maintains reserves for potential credit
                       losses based upon the Company's historical experience
                       related to credit losses. At May 31, 2001 two customers
                       accounted for approximately 10.7% and 10.6% of gross
                       accounts receivable. No one customer accounted for 10% or
                       more of revenues for the years ended May 31, 2001 and
                       2000.



                                     FS-11
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         CASH EQUIVALENTS
    SIGNIFICANT
    ACCOUNTING         Cash and cash equivalents consists of demand deposits,
    POLICIES           money market accounts and mutual funds with remaining
    (Continued)        maturities of three months or less when purchased.

                       AVAILABLE-FOR-SALE SECURITIES

                       The Company accounts for investments in accordance with
                       Statement of Financial Accounting Standards No. 115 (SFAS
                       115), "ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
                       EQUITY SECURITIES." This statement addresses the
                       accounting and reporting for investments in equity
                       securities which have readily determinable fair values
                       and all investments in debt securities. The Company's
                       marketable equity securities are classified as
                       available-for-sale under SFAS 115 and reported at fair
                       value, with changes in the unrealized holding gain or
                       loss included in shareholders' equity. Available-for-sale
                       securities consist of common stock of unrelated
                       publicly-traded companies and are stated at market value
                       in accordance with SFAS 115. Cost for purposes of
                       computing realized gains and losses is computed on a
                       specific identification basis. The proceeds from the sale
                       of available-for-sale securities during fiscal 2001 and
                       2000 totaled $85,665 and $18,191, respectively (see Note
                       9). The change in the net unrealized holding (loss) gain
                       on available-for-sale securities that has been included
                       as a separate component of shareholders' equity totaled
                       $(5,966) and $4,456 for the years ended May 31, 2001 and
                       2000, respectively.

                       INVENTORIES

                       Inventories are stated at the lower of cost (first-in,
                       first-out method) or market and consist primarily of
                       orthodontic products and biological chemicals. Cost
                       includes raw materials, labor, manufacturing overhead and
                       purchased products. Market is determined by comparison
                       with recent purchases or net realizable value. Such net
                       realizable value is based on forecasts for sales of the
                       Company's products in the ensuing years. The industries
                       in which the Company operates are characterized by
                       technological


                                     FS-12
<PAGE>
                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         advancement and change. Should demand for the Company's
    SIGNIFICANT        products prove to be significantly less than anticipated,
    ACCOUNTING         the ultimate realizable value of the Company's
    POLICIES           inventories could be substantially less than the amount
    (Continued)        shown on the accompanying consolidated balance sheet.

                       Inventories consist of the following:

                       MAY 31,                                           2001
                       ---------------------------------------------------------

                       Raw materials                                $   909,408
                       Work in progress                                 442,613
                       Finished products                              1,768,136
                       Inventory reserve                               (254,201)
                       ---------------------------------------------------------

                                                                    $ 2,865,956
                       =========================================================

                       Approximately $1,878,000 of Lancer's inventory is located
                       at its manufacturing facility in Mexico as of May 31,
                       2001.

                       PROPERTY AND EQUIPMENT

                       Property and equipment are stated at cost. Expenditures
                       for additions and major improvements are capitalized.
                       Repairs and maintenance costs are charged to operations
                       as incurred. When property and equipment are retired or
                       otherwise disposed of, the related cost and accumulated
                       depreciation are removed from the accounts, and gains or
                       losses from retirements and dispositions are credited or
                       charged to income.

                       Depreciation and amortization are provided over the
                       estimated useful lives of the related assets, ranging
                       from 3 to 12 years, using straight-line and
                       declining-balance methods. Leasehold improvements are
                       amortized over the lesser of the estimated useful life of
                       the asset or the term of the lease. Depreciation expense
                       amounted to $119,325 and $127,696 for the years ended May
                       31, 2001 and 2000, respectively. At May 31, 2001,
                       approximately $38,000 of property and equipment, net of
                       accumulated depreciation and amortization, is located at
                       Lancer's manufacturing facility in Mexico.


                                     FS-13
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         Management of the Company assesses the recoverability of
    SIGNIFICANT        property and equipment by determining whether the
    ACCOUNTING         depreciation and amortization of such assets over their
    POLICIES           remaining lives can be recovered through projected
    (Continued)        undiscounted cash flows. The amount of impairment, if
                       any, is measured based on fair value (projected
                       discounted cash flows) and is charged to operations in
                       the period in which such impairment is determined by
                       management. Management has determined that there is no
                       impairment of property and equipment at May 31, 2001.

                       INTANGIBLE ASSETS

                       Intangible assets are being amortized using the
                       straight-line method over 18 years for marketing and
                       distribution rights and purchased technology use rights,
                       and over 17 years for patents. Marketing and distribution
                       rights include repurchased sales territories. Technology
                       use rights consists of the 1985 purchase (the "Purchase")
                       by Lancer of the manufacturing assets and technology of
                       Titan Research Associates, Ltd. ("Titan"). Prior to the
                       Purchase, certain former officers of Lancer and
                       shareholders of Lancer owned 29% of Titan. Prior to the
                       Purchase, the Company paid royalties ranging from 15% to
                       20% of gross sales, as defined, to license such
                       technology. Amortization amounted to $89,665 and $81,853
                       for the years ended May 31, 2001 and 2000, respectively
                       (see Note 4).

                       The Company assesses the recoverability of these
                       intangible assets by determining whether the amortization
                       of the asset's balance over its remaining life can be
                       recovered through projected undiscounted future cash
                       flows. The amount of impairment, if any, is measured
                       based on fair value and charged to operations in the
                       period in which the impairment is determined by
                       management. Management has determined that there was no
                       impairment of intangible assets as of May 31, 2001.

                                      FS-14
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         RISKS AND UNCERTAINTIES
    SIGNIFICANT
    ACCOUNTING         LICENSES - Certain of the Company's sales of products are
    POLICIES           governed by license agreements with outside third
    (Continued)        parties. All of such license agreements to which the
                       Company currently is a party are for fixed terms which
                       will expire after ten years or upon the expiration of the
                       underlying patents. After the expiration of the
                       agreements or the patents, the Company is free to use the
                       technology that had been licensed. There can be no
                       assurance that the Company will be able to obtain future
                       license agreements as deemed necessary by management. The
                       loss of some of the current licenses or the inability to
                       obtain future licenses could have an adverse affect on
                       the Company's financial position and operations.
                       Historically, the Company has successfully obtained all
                       the licenses it believed necessary to conduct its
                       business.

                       DISTRIBUTION - Lancer has entered into various exclusive
                       and non-exclusive distribution agreements (the
                       "Agreements") which generally specify territories of
                       distribution. The Agreements range in term from one to
                       five years. Lancer may be dependent upon such
                       distributors for the marketing and selling of its
                       products worldwide during the terms of these agreements.
                       Such distributors are generally not obligated to sell any
                       specified minimum quantities of Lancer's product. There
                       can be no assurance of the volume of product sales that
                       may be achieved by such distributors.

                       GOVERNMENT REGULATION - Biomerica's immunodiagnostic
                       products are regulated in the United States as medical
                       devices primarily by the FDA and as such, require
                       regulatory clearance or approval prior to
                       commercialization in the United States. Pursuant to the
                       Federal Food, Drug and Cosmetic Act, and the regulations
                       promulgated thereunder, the FDA regulates, among other
                       things, the clinical testing, manufacture, labeling,
                       promotion, distribution, sale and use of medical devices
                       in the United States. Failure of Biomerica to comply with
                       applicable regulatory requirements can result in, among
                       other things, warning letters, fines, injunctions, civil
                       penalties, recall or seizure of products, total or
                       partial suspension of production, the government's
                       refusal to grant premarket clearance or premarket
                       approval of devices, withdrawal of marketing approvals,
                       and criminal prosecution.


                                     FS-15
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         Sales of medical devices outside the United States are
    SIGNIFICANT        subject to foreign requirements for licensing may differ
    ACCOUNTING         regulatory requirements that vary widely from country to
    POLICIES           country. The time significantly from FDA requirements.
    (Continued)        There required to obtain registrations or approvals
                       required by foreign countries may can be no assurance
                       that Biomerica will be be longer or shorter than that
                       required for FDA clearance or approval, and able to
                       obtain regulatory clearances for its current or any
                       future products in the United States or in foreign
                       markets.

                       Lancer's products are subject to regulation by the FDA
                       under the Medical Device Amendments of 1976 (the
                       "Amendments"). Lancer has registered with the FDA as
                       required by the Amendments. There can be no assurance
                       that Lancer will be able to obtain regulatory clearances
                       for its current or any future products in the United
                       States or in foreign markets.

                       EUROPEAN COMMUNITY - Lancer is required to obtain
                       certification in the European community to sell products
                       in those countries. The certification requires Lancer to
                       maintain certain quality standards. Lancer has been
                       granted certification. However, there is no assurance
                       that Lancer will be able to retain its certification in
                       the future.

                       RISK OF PRODUCT LIABILITY - Testing, manufacturing and
                       marketing of Biomerica's products entail risk of product
                       liability. Biomerica currently has product liability
                       insurance. There can be no assurance, however, that
                       Biomerica will be able to maintain such insurance at a
                       reasonable cost or in sufficient amounts to protect
                       Biomerica against losses due to product liability. An
                       inability could prevent or inhibit the commercialization
                       of Biomerica's products. In addition, a product liability
                       claim or recall could have a material adverse effect on
                       the business or financial condition of the Company.

                       Lancer is subject to the same risks of product liability.
                       Lancer currently has product liability insurance. Lancer
                       also is subject to the risk of loss of its product
                       liability insurance and the consequent exposure to
                       liability.

                                     FS-16
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

2.  SUMMARY OF         HAZARDOUS MATERIALS - Biomerica's manufacturing and
    SIGNIFICANT        research and development involves the controlled use of
    ACCOUNTING         hazardous materials and chemicals. Although Biomerica
    POLICIES           believes that safety procedures for handling and
    (Continued)        disposing of such materials comply with the standards
                       prescribed by state and Federal regulations, the risk of
                       accidental contamination or injury from these materials
                       cannot be completely eliminated. In the event of such an
                       accident, the Company could be held liable for any
                       damages that result and any such liability could exceed
                       the resources of the Company. The Company may incur
                       substantial costs to comply with environmental
                       regulations.

                       STOCK-BASED COMPENSATION

                       During 1995, the Financial Accounting Standards Board
                       issued Statement of Financial Accounting Standards No.
                       123 ("SFAS 123"), "ACCOUNTING FOR STOCK-BASED
                       COMPENSATION," which defines a fair value based method of
                       accounting for stock-based compensation. However, SFAS
                       123 allows an entity to continue to measure compensation
                       cost related to stock and stock options issued to
                       employees using the intrinsic method of accounting
                       prescribed by Accounting Principles Board Opinion No. 25
                       ("APB 25"), "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES."
                       Entities electing to remain with the accounting method of
                       APB 25 must make pro forma disclosures of net (loss)
                       income and (loss) earnings per share, as if the fair
                       value method of accounting defined in SFAS 123 had been
                       applied (see Note 7). The Company has elected to account
                       for its stock-based compensation to employees under APB
                       25.

                       MINORITY INTEREST

                       Minority interest represents the minority shareholders'
                       proportionate share of the equity of Lancer. At May 31,
                       2001, Biomerica owned 30.78% of Lancer (see Note 3),
                       74.6% of AIT (see Note 3) and 88.9% of ReadyScript.

                                     FS-17
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         REVENUE RECOGNITION
    SIGNIFICANT
    ACCOUNTING         Revenues from product sales are recognized at the time
    POLICIES           the product is shipped. Revenues from specialized
    (Continued)        diagnostic testing services are recognized when the
                       related services are performed.

                       RESEARCH AND DEVELOPMENT

                       Research and development expenses are expensed as
                       incurred. The Company expensed approximately $322,000 and
                       $465,000 of research and development expenses during the
                       years ended May 31, 2001 and 2000, respectively.

                       INCOME TAXES

                       The Company accounts for income taxes in accordance with
                       Statement of Financial Accounting Standards No. 109,
                       "ACCOUNTING FOR INCOME TAXES." Under the asset and
                       liability method of Statement No. 109, deferred tax
                       assets and liabilities are recognized for the future tax
                       consequences attributable to differences between the
                       financial statement carrying amounts of existing assets
                       and liabilities and their respective tax bases. Deferred
                       tax assets and liabilities are measured using enacted tax
                       rates expected to apply to taxable income in the years in
                       which those temporary differences are expected to be
                       recovered or settled. Under Statement No. 109, the effect
                       on deferred tax assets and liabilities of a change in tax
                       rates is recognized in income in the period that includes
                       the enactment date. A valuation allowance is provided for
                       certain deferred tax assets if it is more likely than not
                       that the Company will not realize tax assets through
                       future operations.

                       Biomerica, Lancer and AIT file separate income tax
                       returns for Federal and state income tax purposes.

                       ADVERTISING COSTS

                       The Company reports the cost of all advertising as
                       expense in the period in which those costs are incurred.
                       Advertising costs were approximately $50,000 and $69,000
                       for the years ended May 31, 2001 and 2000, respectively.

                                     FS-18
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

2.  SUMMARY OF         LOSS PER SHARE
    SIGNFICANT
    ACCOUNTING         In February 1997, the Financial Accounting Standards
    POLICIES           Board ("FASB") issued Statement of Financial Accounting
    (Continued)        Standards No. 128 ("SFAS 128"), "EARNINGS PER SHARE"
                       ("EPS"). SFAS 128 requires dual presentation of basic EPS
                       and diluted EPS on the face of all income statements
                       issued after December 15, 1997 for all entities with
                       complex capital structures. Basic EPS is computed as net
                       loss divided by the weighted average number of common
                       shares outstanding for the period. Diluted EPS reflects
                       the potential dilution that could occur from common
                       shares issuable through stock options, warrants and other
                       convertible securities.

                       The following table illustrates the required disclosure
                       of the reconciliation of the numerators and denominators
                       of the basic and diluted EPS computations.

                                                     For the Years Ended May 31,
                                                     --------------------------
                                                          2001         2000
                       ---------------------------------------------------------

                       Numerator:
                           Loss from continuing
                             operations               $  (578,886)  $(1,638,447)
                           Loss from discontinued
                             operations                (2,093,432)   (2,252,402)
                       ---------------------------------------------------------

                       Numerator for basic and
                           diluted net income per
                           common--net loss           $(2,672,318)  $(3,890,849)
                       =========================================================


                       Denominator for basic net loss
                           per common share           $ 4,814,790   $ 4,542,820
                       Effect of dilutive securities:
                           Options and warrants                 -              -
                       ---------------------------------------------------------

                       Denominator for diluted net loss
                           per common share           $ 4,814,790   $ 4,542,820
                       =========================================================


                                     FS-19
<PAGE>
                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

2.  SUMMARY OF                                       For the Years Ended May 31,
    SIGNIFICANT                                      ---------------------------
    ACCOUNTING                                            2001         2000
    POLICIES           ---------------------------------------------------------
    (Continued)
                       Basic net loss per common
                           share:
                           Loss from continuing
                             operations               $     (0.12)  $     (0.36)
                           Loss from discontinued
                             operations                     (0.43)        (0.50)
                       ---------------------------------------------------------

                       Basic net income per common
                           share                      $     (0.55)  $     (0.86)
                       =========================================================

                       Diluted net loss per common
                           share:
                           Loss from continuing
                             operations               $     (0.12)  $     (0.36)
                           Loss from discontinued
                             operations                     (0.43)        (0.50)
                       ---------------------------------------------------------

                       Diluted net loss per common
                           share                      $     (0.55)  $     (0.86)
                       =========================================================

                       The computation of diluted loss per share excludes the
                       effect of incremental common shares attributable to the
                       exercise of outstanding common stock options and warrants
                       because their effect was antidilutive due to losses
                       incurred by the Company. See summary of outstanding stock
                       options and warrants in Note 7.

                       As of May 31, 2001, there was a total of 3,144,234
                       potential dilutive shares of common stock.


                                     FS-20
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


2.  SUMMARY OF         SEGMENT REPORTING
    SIGNIFICANT
    ACCOUNTING         The Financial Accounting Standards Board has issued
    POLICIES           Statement of Financial Accounting Standards No. 131
    (Continued)        "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
                       INFORMATION" ("SFAS 131"). SFAS 131 requires public
                       companies to report information about segments of their
                       business in their annual financial statements and
                       requires them to report selected segment information in
                       their quarterly reports issued to shareholders. It also
                       requires entity-wide disclosures about the product,
                       services an entity provides, the material countries in
                       which it holds assets and reports revenues, and its major
                       customers. The Company adopted the provisions of this
                       statement for 1999 annual reporting (Note 10).

                       REPORTING COMPREHENSIVE INCOME

                       In June 1997, the FASB issued Statement of Financial
                       Accounting Standards ("SFAS") No. 130, "REPORTING
                       COMPREHENSIVE INCOME." This statement establishes
                       standards for reporting the components of comprehensive
                       income and requires that all items that are required to
                       be recognized under accounting standards as components of
                       comprehensive income be included in a financial statement
                       that is displayed with the same prominence as other
                       financial statements. Comprehensive income includes net
                       income as well as certain items that are reported
                       directly within a separate component of stockholders'
                       equity.

                       RECENT ACCOUNTING PRONOUNCEMENTS

                       In June 1998, the Financial Accounting Standards Board
                       issued Statement of Financial Accounting Standards (SFAS)
                       No. 133, "Accounting for Derivative Instruments and
                       Hedging Activities." This statement establishes
                       accounting and reporting standards for derivative
                       instruments and requires recognition of all derivatives
                       as assets or liabilities in the statement of financial
                       position and measurement of those instruments at fair
                       value. SFAS No. 133, as amended by SFAS No. 137, is
                       effective for all fiscal quarters of fiscal years
                       beginning after June 15, 2000. The Company currently does
                       not engage in derivative or hedging activities, and
                       accordingly, believes that there will be no impact to its
                       consolidated financial statements upon implementation in
                       the Company's fiscal year 2002.



                                     FS-21
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

2.  SUMMARY OF         In December 1999, the Securities and Exchange Commission
    SIGNIFICANT        issued Staff Accounting Bulletin No. 101, Revenue
    ACCOUNTING         Recognition in Financial Statements ("SAB 101"). SAB 101
    POLICIES           summarizes certain areas of the Staff's views in applying
    (CONTINUED)        accounting principles generally accepted in the United
                       States of America to revenue recognition in financial
                       statements. The Company believes that its current revenue
                       recognition policies comply with SAB 101.

                       In March 2000, the Financial Accounting Standards Board
                       ("FASB") issued Interpretation No. 44 ("FIN 44"),
                       "Accounting for Certain Transactions involving Stock
                       Compensation." The adoption of this Interpretation did
                       not have a material impact on the consolidated results of
                       operations or financial position of the Company.

                       In July 2001, the Financial Accounting Standards Board
                       ("FASB") issued Statement of Financial Accounting
                       Standards No. 141 ("SFAS 141"), "Business Combinations",
                       which eliminates the pooling method of accounting for
                       business combinations initiated after June 30, 2001. In
                       addition, SFAS 141 addresses the accounting for
                       intangible assets and goodwill acquired in a business
                       combination. This portion of SFAS 141 is effective for
                       business combinations completed after June 30, 2001. The
                       Company does not expect SFAS 141 will have a material
                       impact on the Company's financial position or results of
                       operations.

                       In July 2001, the FASB issued Statement of Financial
                       Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
                       Intangible Assets", which revises the accounting for
                       purchased goodwill and intangible assets. Under SFAS 142,
                       goodwill and intangible assets with indefinite lives will
                       no longer be amortized and will be tested for impairment
                       annually. SFAS 142 is effective for fiscal years
                       beginning after December 15, 2001, with earlier adoption
                       permitted. The Company has not yet determined the impact
                       on the Company's financial position or results of
                       operations as a result of the future adoption of SFAS
                       142.

                                     FS-22
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


3.  CONSOLIDATED       Lancer is engaged in the design, manufacture and
    SUBSIDIARIES       distribution of orthodontic products. During 2000, Lancer
                       repurchased 114,998 shares of its common stock for
                       aggregate consideration of $117,914. During 2000, Lancer
                       issued 54,725 shares of its common stock valued at
                       $50,631 for certain management and consulting services.
                       In May 2000, all 370,483 shares issued and outstanding of
                       Lancer's Redeemable Convertible Preferred Stock-Series C
                       were converted into 52,926 shares of Lancer's common
                       stock. The result of these transactions increased
                       Biomerica's direct ownership percentage of Lancer to
                       30.78% and increased its direct and indirect (via
                       agreements with certain shareholders) voting control over
                       Lancer to 51.19% as of May 31, 2001.

                       AIT provides immune allergy testing and products to
                       physicians and medical institutions. During 1998,
                       1,916,429 shares of AIT were subscribed to Biomerica in
                       exchange for debt (see Note 7) and 35,000 shares of AIT
                       were issued to two AIT employees. The net effect of these
                       issues increased Biomerica's interest in AIT to 74.6%.

                       The Company's fiscal 2001 and 2000 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.
                       (see Note 13). The net assets and operating results of
                       ReadyScript are shown separately in the accompanying
                       consolidated financial statements as discontinued
                       operations and are held for sale. Prior periods have been
                       restated to reflect the results of ReadyScript as
                       discontinued.


                                     FS-23
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


3.  CONSOLIDATED       Operating results for Lancer, AIT and ReadyScript in the
    SUBSIDIARIES       aggregate for the years ended May 31, 2001 and 2000,
    (Continued)        which are included in the consolidated operating results
                       of the Company, are as follows:

                                                        2001            2000
                       ---------------------------------------------------------

                       Net sales                     $ 6,027,873    $ 5,730,488
                       Cost of sales                   4,081,143      3,960,362
                       ---------------------------------------------------------

                       Gross profit                    1,946,730      1,770,126
                       ---------------------------------------------------------

                       Operating expenses:
                          Selling, general and
                            administrative             2,038,565      2,268,090
                          Research and development        71,505        184,849
                       ---------------------------------------------------------

                            Total operating expenses   2,110,070      2,452,939
                       ---------------------------------------------------------

                       Other income (expense):
                          Interest expense               (19,931)       (19,526)
                          Other income, net                5,358        228,368
                       ---------------------------------------------------------

                                                         (14,573)       208,842
                       ---------------------------------------------------------

                       Loss from continuing operations
                          before income taxes           (177,913)      (473,971)

                       Income tax expense                  1,600          1,600
                       ---------------------------------------------------------

                       Net loss from continuing
                          operations                  $ (179,513)   $  (475,571)

                       Discontinued operations:
                          Loss from discontinued
                            operations, net           (2,093,432)    (2,252,402)
                       ---------------------------------------------------------

                       Net loss                      $(2,272,945)   $(2,727,973)
                       =========================================================


                                     FS-24
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


4.  INTANGIBLE         Intangible assets, net of accumulated amortization,
    ASSETS             consist of the following:

                       MAY 31,                                          2001
                       ---------------------------------------------------------

                       Marketing and distribution rights            $   442,750
                       Technology use rights                            858,328
                       Patents and other intangibles                    172,170
                       ---------------------------------------------------------

                                                                      1,473,248

                       Less accumulated amortization                 (1,176,009)
                       ---------------------------------------------------------

                                                                    $   297,239
                       =========================================================

                       Included in marketing and distribution rights are
                       repurchased sales territories by Lancer which are being
                       amortized over the estimated useful life of eighteen
                       years. In each of the fiscal years 2001 and 2000, the
                       Company recorded amortization expense of $24,900 related
                       to repurchased sales territories.

                       During fiscal 1985, Lancer purchased certain assets and
                       technology which is being amortized over the estimated
                       useful life of eighteen years. Lancer recorded
                       amortization expense of $48,696 for each of the years
                       ended May 31, 2001 and 2000 related to these assets.

                       Amortization expense related to patents and other
                       intangibles which is included in the accompanying
                       consolidated statements of operations amounted to $16,069
                       and $8,257 for the years ended May 31, 2001 and 2000,
                       respectively.

5.  LINE OF            At May 31, 2001, Lancer had a $300,000 line of credit
    CREDIT             with a bank. Borrowings are made at prime plus 1.25%
                       (8.25% at May 31, 2001) and are limited to specified
                       percentages of eligible accounts receivable. The unused
                       portion available to Lancer under the line of credit at
                       May 31, 2001 was $160,000. The line of credit expired on
                       September 10, 2001. As of May 31, 2001, there was
                       $140,000 outstanding under the line of credit.


                                     FS-25
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

5.  LINE OF            The line of credit is collateralized by substantially all
    CREDIT             the assets of Lancer, including inventories, receivables,
    (Continued)        and equipment. The lending agreement for the line of
                       credit requires, among other things, that Lancer maintain
                       a tangible net worth of $2,800,000, a debt to tangible
                       net worth ratio of no more than 1 to 1, and a current
                       ratio in excess of 2 to 1, and prohibits the advancing of
                       funds to Biomerica. Lancer is not required to maintain
                       compensating balances in connection with this lending
                       agreement. Lancer was in violation of certain of its debt
                       covenants at May 31, 2001. Lancer is currently in
                       discussions with a new lender to replace its existing
                       line of credit. Management believes it will be successful
                       in such discussions, however, there can be no assurance
                       of this success nor that management would be successful
                       in finding a replacement lender with acceptable terms.

                       The following summarizes information on short-term
                       borrowings for the year ended May 31, 2001:

                       MAY 31,                                          2001
                       ---------------------------------------------------------

                       Average month end balance                      $ 193,333
                       Maximum balance outstanding at any month end   $ 220,000
                       Weighted average interest rate (computed
                         by dividing interest expense by average
                         monthly balance)                                 10.31%
                       Interest rate at year end                           8.25%
                       =========================================================

6.  RELATED            SHAREHOLDER RECEIVABLE
    PARTY
    TRANSACTIONS       During fiscal 1998, the estate of the chief executive
                       officer exercised a stock option to purchase 25,000
                       common shares at $0.80 per share and 60,000 common shares
                       at $0.85 per share for a total of $71,000 via a
                       shareholder loan. During 1999, $70,000 of the shareholder
                       loan was repaid. During 2000, the remaining $1,000 was
                       repaid.


                                     FS-26
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


6.  RELATED            SHAREHOLDER LINE OF CREDIT
    PARTY
    TRANSACTIONS       Biomerica, Inc. entered into an agreement in substance
    (Continued)        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 bears interest at 8%, is
                       secured by accounts receivable and inventory, and expires
                       September 12, 2001. There was $95,000 outstanding under
                       this line of credit at May 31, 2001. Biomerica and the
                       shareholder are in the process of formalizing this line
                       of credit. During 2001, the Company incurred $1,051 in
                       interest expense related to the shareholder line of
                       credit. Subsequent to year-end, an additional $130,000
                       was borrowed under the line of credit (Note 14).

7.  SHAREHOLDERS'      1991, 1995 AND 1999 STOCK OPTION AND RESTRICTED STOCK
    EQUITY             PLANS

                       In December 1991, the Company adopted a stock option and
                       restricted stock plan (the "1991 Plan") which provides
                       that non-qualified options and incentive stock options
                       and restricted stock covering an aggregate of 350,000 of
                       the Company's unissued common stock may be granted to
                       officers, employees or consultants of the Company.
                       Options granted under the 1991 Plan may be granted at
                       prices not less than 85% of the then fair market value of
                       the common stock, vest at not less than 20% per year and
                       expire not more than 10 years after the date of grant.

                       In January 1996, the Company adopted a stock option and
                       restricted stock plan (the "1995 Plan") which provides
                       that non-qualified options and incentive stock options
                       and restricted stock covering an aggregate of 500,000 of
                       the Company's unissued common stock may be granted to
                       affiliates, employees or consultants of the Company.
                       Options granted under the 1995 Plan may be granted at
                       prices not less than 85% of the then fair market value of
                       the common stock and expire not more than 10 years after
                       the date of grant.

                       During 1997, the Company granted options to purchase
                       72,000 and 45,000 shares of common stock at exercise
                       prices of $1.90 and $1.92 per share, respectively, to
                       various employees of the Company. The options vest over a
                       period ranging from four to five years. During 1997, the
                       Company granted options to purchase 18,000 and 5,000
                       shares of common stock at exercise prices of $1.90 and
                       $3.00 per share respectively, to various consultants of
                       the Company.


                                     FS-27
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


7.  SHAREHOLDERS'      During 1998, the Company granted options to purchase
    EQUITY             152,500 shares at an exercise price of $1.85 to employees
    (Continued)        and a total of 1,500 shares to non-employees, at an
                       exercise price of $1.91.

                       During 1999, the Company granted options to purchase
                       2,000, 179,850 and 27,900 shares of its common stock at
                       an exercise prices of $0.90, $0.86 and $0.85,
                       respectively, to employees and 2,000 and 7,000 shares to
                       non-employees, at exercise prices of $0.90 and $0.86,
                       respectively.

                       On June 3, 1999, the Company, issued 8,000 shares of
                       common stock to a consultant for services provided. The
                       Company valued these shares at $16,000.

                       On June 11, 1999, the Company issued 1,150,000 and 50,000
                       options to purchase shares of the Company's stock to
                       employees and non-employees, respectively. The purchase
                       price of the options is $3.00 per share. The options vest
                       immediately and are exercisable for a period of ten
                       years. The Company recorded $58,806 related to the fair
                       value of options granted to non-employees. In addition,
                       the Company issued 1,000,000 stock purchase warrants to
                       unaffiliated entities for consulting and fund-raising
                       services rendered. The holder is granted the right to
                       purchase common stock at an exercise price of $3.00 per
                       share through the year 2005. The Company valued these
                       warrants at $1,176,126. Of this, $588,063 was expensed
                       for consulting services and $588,063 was recorded as a
                       reduction of paid-in-capital in connection with the
                       private placement as discussed below.

                       On June 11, 1999, the Company entered into a Five Year
                       Back-End Processing Agreement with an unaffiliated
                       entity. The unaffiliated entity was to develop customized
                       back-end processing to enable the company to process
                       customer prescription orders on-line and insurance claims
                       and payments. In addition, the unaffiliated entity
                       transferred and assigned to the Company the right, title
                       and interest in and to the internet domain name
                       "TheBigRX.com" and all rights to any trademark relating
                       thereto.



                                     FS-28
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


7.  SHAREHOLDERS'      The Company issued 410,000 stock purchase warrants for
    EQUITY             these services. The holder was granted the right to
    (Continued)        purchase common stock at an exercise price of $5.00. The
                       Company valued these warrants at approximately $333,000
                       and initially was expensing them over sixty months
                       ($66,493 of expense was recorded during the year ended
                       May 31, 2000). Subsequent to May 31, 2000, the
                       unaffiliated entity stopped providing services to the
                       Company. The Company does not intend to issue any common
                       stock if the aforementioned warrants are presented for
                       exercise because of the breach in performance. The
                       Company stopped amortizing the warrant expense subsequent
                       to May 31, 2000.

                       On June 11, 1999, the Company entered into a Five Year
                       Strategic Marketing Agreement with TheBigHub.com whereby
                       TheBigHub.com will provide strategic placement of
                       advertising and marketing for Biomerica's BigRX.com on
                       its website. The Company issued 250,000 stock purchase
                       warrants for these services. The holder was granted the
                       right to purchase common stock at an exercise price of
                       $5.00. The Company valued these warrants at approximately
                       $203,000 and initially was expensing them over sixty
                       months ($40,545 of expense was recorded during the year
                       ended May 31, 2000). Subsequent to May 31, 2000, the
                       TheBigHub.com stopped providing services to the Company.
                       The Company does not intend to issue any common stock if
                       the aforementioned warrants are presented for exercise
                       because of the breach in performance. The Company stopped
                       amortizing the warrant expense subsequent to May 31,
                       2000.

                       On June 11, 1999, the Company completed two private
                       placement agreements to sell and issue a total of 400,000
                       (50,000 of which were sold to related parties) shares of
                       the Company's common stock at $5.00 per share. The
                       Company incurred $34,443 in offering costs related
                       thereto. The shares have piggyback registration rights.


                                     FS-29
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


7.  SHAREHOLDERS'      In August 1999, the Company adopted a stock option and
    EQUITY             restricted stock plan (the "1999 Plan") which provides
    (Continued)        that non-qualified options and incentive stock options
                       and restricted stock covering an aggregate of 1,000,000
                       of the Company's unissued common stock may be granted to
                       affiliates, employees or consultants of the Company. As
                       of January 1, of each calendar year, commencing January
                       1, 2000, this amount is subject to automatic annual
                       increases equal the lesser of 1.5% of the total number of
                       outstanding common shares assuming conversion of
                       convertible securities or 500,000. Options granted under
                       the 1999 Plan may be granted at prices not less than 85%
                       of the then fair market value of the common stock and
                       expire not more than 10 years after the date of grant.

                       During 2000, the Company granted 726,000 and 50,000
                       options to purchase shares of the Company's stock to
                       employees and non-employees, respectively. The purchase
                       price of the options range from $1.38 to $3.88 per share.
                       Management recorded $0 and $25,135, respectively, during
                       the years ended May 31, 2001 and 2000, respectively, of
                       expense related to the granting of options to employees.
                       Management recorded $69,230 and $22,004 during the years
                       ended May 31, 2001 and 2000, respectively, of expense
                       related to the granting of options to non-employees.

                       During 2000, the Company agreed to grant warrants to
                       three medical groups in exchange for services. The
                       Company was committed to, but had not yet issued, 15,000
                       warrants at exercise prices of $2.00 to $3.25 as of May
                       31, 2000. During 2001, the Company issued 5,000 of these
                       warrants at an exercise price of $3.25. The Company
                       recorded $17,372 of expense related to these warrants in
                       2000. Unissued warrants are not included in the table
                       below.

                       During the years ended May 31, 2001 and 2000, the Company
                       recorded compensation expense of $1,207 and $2,625,
                       respectively related to the amortization of the fair
                       value of options to purchase common stock issued prior to
                       June 1, 1999.


                                     FS-30
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

7.  SHAREHOLDERS'      During 2001, the Company granted 257,000 and 6,000
    EQUITY             options to purchase shares of the Company's stock to
    (Continued)        employees and non-employees, respectively. The purchase
                       price of the options range from $0.50 to $1.50 per share.
                       Management recorded $18,720 during the year ended May 31,
                       2001 of expense related to the granting of options to
                       employees. Management recorded $1,386 during the year
                       ended May 31, 2001 of expense related to the granting of
                       options to non-employees.

                       During 2001, the Company issued 57,424 warrants to
                       purchase shares of the Company's stock to various
                       employees. The warrants have an exercise price of $2.00.

                       During 2001, the Company, agreed to extend the expiration
                       date of 33,875 expiring options issued to employees.

                       Activity as to stock options and warrants under the 1991,
                       1995 and 1999 plans are as follows:
<TABLE>
<CAPTION>
                                                                                               WEIGHTED
                                                                   NUMBER                      AVERAGE
                                                                 OF STOCK      PRICE RANGE    EXERCISE
                                                                  OPTIONS        PER SHARE       PRICE
                       ---------------------------------------------------------------------------------
<S>                                                             <C>          <C>             <C>
                       Options outstanding at
                         June 1, 1999                             454,050    $ .80 - $3.00   $    1.38
                       Options and warrants granted             3,636,000    $1.38 - $5.00   $    3.27
                       Options exercised                          (56,625)   $ .80 - $1.90   $    1.07
                       Options canceled or expired               (476,125)   $ .86 - $3.88   $    2.63
                       ---------------------------------------------------------------------------------

                       Options outstanding at
                         May 31, 2000                           3,557,300    $ .85 - $5.00   $    3.15
                       Options granted                            268,000    $ .50 - $3.25   $     .91
                       Warrants granted                            57,434    $        2.00   $    2.00
                       Options exercised                           (8,500)   $ .50 - $ .86   $     .77
                       Options canceled or expired               (730,000)   $ .50 - $5.00   $    4.75
                       ---------------------------------------------------------------------------------

                       Options and warrants
                         outstanding at May 31, 2001            3,144,234    $ .50 - $3.25   $    2.58
                       =================================================================================

                       Options and warrants
                         exercisable at May 31, 2001            1,781,240    $ .50 - $3.25   $    1.37
                       =================================================================================
</TABLE>

                                     FS-31
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

7.  SHAREHOLDERS'      The weighted average fair value of options and warrants
    EQUITY             granted during 2001 and 2000 was $0.93 and $1.25,
    (Continued)        respectively.

                       The following summarizes information about the Company's
                       stock options and warrants outstanding at May 31, 2001:
<TABLE>
<CAPTION>

                                                       WEIGHTED
                                                        AVERAGE
                                                       REMAINING   WEIGHTED     NUMBER       WEIGHTED
                             RANGE OF      NUMBER     CONTRACTUAL   AVERAGE   EXERCISABLE    AVERAGE
                             EXERCISE    OUTSTANDING    LIFE IN    EXERCISE   AT MAY 31,     EXERCISE
                              PRICES    MAY 31, 2001     YEARS       PRICE       2000         PRICE
                       -------------------------------------------------------------------------------
<S>                      <C>                <C>           <C>       <C>        <C>          <C>
                         $  .50 - $ .90       332,175     3.68      $  ..71     165,181      $  .78
                         $ 1.38 - $1.92       381,875     2.99      $ 1.67     272,125      $ 1.65
                         $ 2.00 - $3.25     2,430,184     3.10      $ 2.99     143,934      $ 2.83
                       ===============================================================================
</TABLE>

                       SFAS 123 PRO FORMA INFORMATION

                       Pro forma information regarding loss per share is
                       required by SFAS 123, and has been determined as if the
                       Company had accounted for its employee stock options
                       under the fair value method of SFAS 123. The fair value
                       for these options was estimated at the date of grant
                       using the Black Scholes option pricing model with the
                       following assumptions for the years ended May 31, 2001
                       and 2000; risk free interest rates ranging from 4.9% to
                       6.65%; dividend yield of 0%; expected life of the options
                       ranging from one to three years; and volatility factors
                       of the expected market price of the Company's common
                       stock ranging from 120% to 200%.

                       The Black Scholes option valuation model was developed
                       for use in estimating the fair value of traded options
                       which have no vesting restrictions and are fully
                       transferable. In addition, option valuation models
                       require the input of highly subjective assumptions
                       including the expected stock price volatility. Because
                       the Company's employee stock options have characteristics
                       significantly different from those of traded options, and
                       because changes in the subjective input assumptions can
                       materially affect the fair value estimate, in
                       management's opinion, the existing models do not
                       necessarily provide a reliable single measure of the fair
                       value of its employee stock options.


                                     FS-32
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

7.  SHAREHOLDERS'      For purposes of pro forma disclosures, the estimated fair
    EQUITY             value of the options is amortized to expense over the
    (Continued)        option vesting period. Adjustments are made for options
                       forfeited prior to vesting. The effect on compensation
                       expense, net loss, and net loss per share (basic and
                       diluted) had compensation costs for the Company's stock
                       option plans been determined based on fair value on the
                       date of grant consistent with the provisions of SFAS 123
                       are as follows:

                       MAY 31,                            2001          2000
                       ---------------------------------------------------------

                       Net loss from continuing
                         operations, as reported     $  (578,886)   $(1,638,447)
                       Adjustment to compensation
                         expense under SFAS 123       (1,094,095)    (1,600,464)
                       ---------------------------------------------------------

                       Net loss from continuing
                         operations, pro forma       $(1,672,981)   $(3,238,911)
                       =========================================================

                       Pro forma net loss from
                         continuing operations per share
                         - basic                     $     (0.35)   $     (0.71)
                       =========================================================

                       Pro forma net loss from
                         continuing operations per share
                         - diluted                   $     (0.35)   $     (0.71)
                       =========================================================

                       MAY 31,                            2001          2000
                       ---------------------------------------------------------

                       Net loss from discontinued
                         operations, as reported     $(2,093,432)   $(2,252,402)
                       Adjustment to compensation
                         expense under SFAS 123                -              -
                       ---------------------------------------------------------

                       Net loss from discontinued
                          operations, pro forma      $(2,093,432)   $(2,252,402)
                       =========================================================

                       Pro forma net loss from
                         discontinued operations per
                         share - basic               $     (0.43)   $     (0.50)
                       =========================================================

                       Pro forma net loss from
                         discontinued operations per
                         share - diluted             $     (0.43)   $     (0.50)
                       =========================================================


                                     FS-33
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


7.  SHAREHOLDERS'      STOCK ACTIVITY
    EQUITY
    (Continued)        During 2001, the Company sold 239,450 shares of its
                       common stock at an average selling price of $1.016 per
                       share. Proceeds to the Company were $242,212, net of
                       offering costs of $1,140. At May 31, 2001, 113,375 of the
                       shares have been issued. The remaining 126,075 shares
                       valued at $90,774 were issued subsequent to May 31, 2001
                       and accordingly have been classified as common stock
                       subscribed.

                       During 2001, the Company, agreed to issue 20,000 shares
                       of common stock to a consultant for services provided.
                       The Company valued these subscribed shares at $20,000. As
                       of May 31, 2001 the shares have not been issued and
                       accordingly have been classified as common stock
                       subscribed.

                       During 2001, the Company, issued 34,643 and 159,091
                       shares of common stock to various vendors and consultants
                       for satisfaction of payables and services provided,
                       respectively. The Company valued these shares at $38,615
                       and $245,625, respectively.

                       SUBSIDIARY OPTIONS AND WARRANTS

                       During fiscal 1998, AIT granted options to purchase
                       1,185,000 shares of common stock to various employees and
                       directors of AIT, including an option to purchase 250,000
                       shares granted to Biomerica, Inc., the parent company.
                       The exercise price will be the fair market value AIT's
                       common stock on the date when certain conditions are met,
                       as defined. The options will vest 50% per year and expire
                       over five years.

                       During 1999, Lancer granted options to purchase 138,500
                       shares of its common stock at an exercise price of $1.00
                       to employees and options to purchase 29,000 shares of its
                       common stock to non-employees, at an exercise price of
                       $1.00.

                       During 2000, Lancer granted options to purchase 15,000
                       shares of its common stock at an exercise price of $0.85
                       to employees.


                                     FS-34
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

7.  SHAREHOLDERS'      During 2001, Lancer granted options to purchase 177,000
    EQUITY             shares of its common stock at an exercise prices of $0.25
    (Continued)        to $0.875 to employees.

                       During 2001, ReadyScript granted options to purchase
                       1,574,287 shares of its common stock at an exercise price
                       of $0.25 to employees.

                       During 2001, ReadyScript entered into convertible
                       Promissory Notes totaling $835,000. As of May 31, 2001,
                       $782,000 of that debt had been converted into 1,500,175
                       shares of ReadyScript common stock. The Company recorded
                       an increase to additional paid-in-capital of $713,014 as
                       a result of this conversion.

8.  INCOME TAXES       Income tax expense from continuing operations for the
                       years ended May 31, 2001 and 2000 consists of the
                       following current provisions:
<TABLE>
<CAPTION>

                       MAY 31,                                   2001           2000
                       ------------------------------------------------------------------
<S>                                                          <C>            <C>
                       U.S. Federal                          $         -    $          -

                       State and local                             2,400           2,400
                       ------------------------------------------------------------------

                                                             $     2,400    $      2,400
                       ==================================================================

                       Income tax expense from continuing operations differs
                       from the amounts computed by applying the U.S. Federal
                       income tax rate of 35 percent to pretax loss as a result
                       of the following:

                       MAY 31,                                     2001         2000
                       ------------------------------------------------------------------

                       Computed "expected" tax benefit        $ (201,770)   $   (572,616)
                       Increase (reduction) in income
                         taxes resulting from:
                         Meals and entertainment                   8,684          20,312
                         Change in valuation allowance           153,517         472,752
                         Equity in earnings of affiliates
                            not subject to taxation because
                            of dividends- received deduction
                            for tax purposes                      39,569          79,552
                         State income taxes                        2,400           2,400
                       ------------------------------------------------------------------

                                                              $    2,400    $      2,400
                       ==================================================================
</TABLE>


                                     FS-35
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

8.  INCOME TAXES       The tax effect of temporary differences that give rise to
    (Continued)        significant portions of liabilities are presented below.

                       MAY 31,                                          2001
                       ---------------------------------------------------------

                       Deferred tax assets:
                         Accounts receivable, principally
                           due to allowance for doubtful
                           accounts and sales returns               $    76,705
                         Inventories, principally due to
                           additional costs inventoried for
                           tax purposes pursuant to the Tax
                           Reform Act of 1986 and
                           allowance for inventory
                           obsolescence                                 101,259
                         Compensated absences and
                           deferred payroll, principally due
                           to accrual for financial reporting
                           purposes                                     104,875
                         State net operating loss
                           carryforwards                                290,106
                         Federal net operating loss
                           carryforwards                              4,407,566
                         Tax credit carryforwards                       194,864
                         Investment in affiliates                       525,545
                       ---------------------------------------------------------

                                                                      5,700,920

                       Less valuation allowance                      (5,667,031)
                       ---------------------------------------------------------

                       Net deferred tax asset                            33,889

                       Deferred tax liability:
                         Marketing rights, principally due to
                           amortization                                 (33,889)
                       ---------------------------------------------------------

                       Net deferred tax liability                   $          -
                       =========================================================


                                     FS-36
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


8.  INCOME TAXES       The Company has provided a valuation allowance with
    (Continued)        respect to substantially all of its deferred tax assets
                       as of May 31, 2001 and 2000. Management provided such
                       allowance as it is currently more likely than not that
                       tax-planning strategies will not generate taxable income
                       sufficient to realize such assets in foreseeable future
                       reporting periods.

                       As of May 31, 2001, Biomerica had net tax operating loss
                       carryforwards of approximately $9,466,000 and investment
                       tax and research and development credits of approximately
                       $45,000, which are available to offset future Federal tax
                       liabilities. The carryforwards expire at varying dates
                       from 2001 to 2021. As of May 31, 2001, Biomerica has net
                       operating tax loss carryforwards of approximately
                       $2,127,000 available to offset future state income tax
                       liabilities, which expire through 2011.

                       As of May 31, 2000, Lancer had net tax operating loss
                       carryforwards of approximately $2,049,000 and business
                       tax credits of approximately $98,000 available to offset
                       future Federal tax liabilities. The carryforwards expire
                       through 2021. As of May 31, 2001, Lancer has net tax
                       operating loss carryforwards of approximately $205,000
                       and business tax credits of approximately $23,000
                       available to offset future state income tax liabilities.
                       The state carryforwards expire at varying dates through
                       2011.

                       As of May 31, 2001, AIT had net tax operating loss
                       carryforwards of approximately $1,931,000 and business
                       tax credits of approximately $29,000 available to offset
                       future Federal tax liabilities. The carryforwards expire
                       at varying dates through 2021. AIT also had net tax
                       operating loss carryforwards of approximately $580,000 to
                       offset future California taxable income, expiring at
                       varying dates through 2011.

                       The Tax Reform Act of 1986 includes provisions which
                       limit the Federal net operating loss carryforwards
                       available for use in any given year if certain events,
                       including a significant change in stock ownership, occur.


                                     FS-37
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

9.  OTHER INCOME       Other income consists of the following for the years
                       ending May 31:

                       MAY 31,                               2001        2000
                       ---------------------------------------------------------

                       Realized gain (loss) on available-
                         for-sale securities               $  34,427  $ (13,241)
                       Dividend and interest income            8,081     99,358
                       Tax reversal                                -     50,000
                       Insurance proceeds                          -    170,000
                       Offering expenses                           -   (251,574)
                       Other                                   5,254     63,855
                       ---------------------------------------------------------

                                                           $  47,762  $ 118,398
                       =========================================================

                       Management of Lancer completed an assessment of a theft
                       of inventory located at its facility in Mexicali Mexico
                       on April 6, 1999. The carrying value of the inventory
                       stolen approximated $110,000, valued at standard cost.
                       During the year ended May 31, 2000, Lancer settled the
                       claim with the insurance carrier and received
                       approximately $280,000. This amount represents the value
                       of the stolen inventory at net average selling price,
                       less commissions and royalties. The $170,000 received in
                       excess of the $110,000 estimated carrying value was
                       recognized as other income for the year ended May 31,
                       2000.

                       During 1999, Lancer was assessed $64,724 in pass through
                       net assets taxes by their subcontractor under their
                       Manufacturing Agreement. During 2000, legal counsel
                       determined that Lancer was not liable for portions of the
                       assessment. Accordingly, approximately $50,000 of the
                       prior year accrual was reversed and recognized as other
                       income during the year ended May 31, 2000.

                       During 2000, $251,574 of amounts incurred by the Company
                       in connection with a registration of securities that was
                       cancelled were written-off.

                                     FS-38
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

10. BUSINESS SEGMENTS  Reportable business segments for the years ended May 31,
                       2001 and 2000 are as follows:

                                                         2001           2000
                       ---------------------------------------------------------

                       Domestic sales:
                         Orthodontic products         $ 3,018,000   $ 3,133,000
                       =========================================================

                       Medical diagnostic products    $ 1,682,000   $ 1,298,000
                       =========================================================

                       Foreign sales:
                         Orthodontic products         $ 2,910,000   $ 2,518,000
                       =========================================================

                       Medical diagnostic products    $ 1,330,000   $ 1,065,000
                       =========================================================

                       Net sales:
                         Orthodontic products         $ 5,928,000   $ 5,651,000
                         Medical diagnostic products    3,012,000     2,363,000
                       ---------------------------------------------------------

                       Total                          $ 8,940,000   $ 8,014,000
                       =========================================================

                       Operating loss:
                         Orthodontic products         $   (98,000)  $  (504,000)
                         Medical diagnostic products     (586,000)   (1,434,000)
                       ---------------------------------------------------------

                       Total                          $  (684,000)  $(1,938,000)
                       =========================================================

                       Operating loss from discontinued
                         segment
                         ReadyScript                  $(2,093,432)  $(2,252,402)
                       ---------------------------------------------------------

                       Total                          $(2,093,432)  $(2,252,402)
                       =========================================================

                       Domestic long-lived assets:
                         Orthodontic products         $   196,000   $   283,000
                         Medical diagnostic products      375,000       484,000
                       ---------------------------------------------------------

                       Total                          $   571,000   $   767,000
                       =========================================================

                       Foreign long-lived assets:
                         Orthodontic products         $    45,000   $    70,000
                         Medical diagnostic products            -             -
                       ---------------------------------------------------------

                       Total                          $    45,000   $    70,000
                       =========================================================

                       Total assets:
                         Orthodontic products         $ 3,737,000   $ 3,755,000
                         Medical diagnostic products    1,610,000     3,030,000
                       ---------------------------------------------------------

                       Total                          $ 5,347,000   $ 6,785,000
                       =========================================================


                                     FS-39
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


10. BUSINESS SEGMENTS                                      2001         2000
    (Continued)        ---------------------------------------------------------

                       Depreciation and amortization
                         expense:
                         Orthodontic products         $   122,000   $   151,000
                         Medical diagnostic products       87,000        59,000
                       ---------------------------------------------------------

                       Total                          $   209,000   $   210,000
                       =========================================================

                       Capital expenditures:
                         Orthodontic products         $     9,000   $    10,000
                         Medical diagnostic products       53,000        91,000
                       ---------------------------------------------------------

                       Total                          $    62,000   $   101,000
                       =========================================================

                       The net sales as reflected above consist of sales to
                       unaffiliated customers only as there were no significant
                       intersegment sales during fiscal years 2001 and 2000. No
                       customer accounted for more than 10% of net sales during
                       fiscal years 2001 and 2000.

                       Geographic information regarding net sales and operating
                       loss is as follows:

                                                          2001          2000
                       ---------------------------------------------------------

                       Net sales:
                         United States                $ 4,700,000   $ 4,431,000
                         Europe                         2,207,000     1,683,000
                         South America                    558,000       543,000
                         Asia                             221,000       349,000
                         Other foreign                  1,254,000     1,008,000
                       ---------------------------------------------------------

                       Total net sales                $ 8,940,000   $ 8,014,000
                       =========================================================


                                     FS-40

<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


10. BUSINESS SEGMENTS
    (Continued)
                                                         2001           2000
                       ---------------------------------------------------------

                       Operating loss:
                         United States                $ (727,000)   $(1,504,000)
                         Europe                          102,000       (176,000)
                         South America                    20,000        (37,000)
                         Asia                            (30,000)       (66,000)
                         Other foreign                   (49,000)      (155,000)
                       ---------------------------------------------------------

                       Total operating loss           $ (684,000)   $(1,938,000)
                       =========================================================

                       Identifiable assets by business segment are those assets
                       that are used in the Company's operations in each
                       industry. Identifiable assets are held primarily in the
                       United States. The Company's interests in AIT, whose
                       operations are in the United States, are vertically
                       integrated with the Company's operations in the medical
                       diagnostic products industry.

11. COMMITMENTS AND    OPERATING LEASES
    CONTINGENCIES
                       Biomerica leases its primary facility under a
                       non-cancelable operating lease which expired on May 31,
                       1998. The lease is currently month-to-month. AIT leases
                       its primary facility under a month-to-month operating
                       lease. These facilities are owned and operated by four of
                       the Company's shareholders. The lease rate is $12,720 and
                       $1,400 per month, respectively.

                       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 (1994) to $6,317 per month (2004).
                       The lease expense is being recognized on a straight-line
                       basis over the term of the lease.



                                     FS-41
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


11. COMMITMENTS AND    Lancer entered into a non-cancelable operating lease for
    CONTINGENCIES      its Mexico facility expiring March 2006, which requires
    (Continued)        average monthly rentals of approximately $6,000. Total
                       expense for this facility for the years ended May 31,
                       2001 and 2000, was approximately $74,000.

                       Rental expense for all operating leases amounted to
                       approximately $348,000 and $312,000 for the years ended
                       May 31, 2001 and 2000, respectively. The future annual
                       minimum payments are as follows:

                       YEARS ENDING MAY 31,                          Amount
                       ---------------------------------------------------------

                       2002                                         $   133,543
                       2003                                             136,397
                       2004                                             106,511
                       2005                                              62,292
                       2006                                              51,910
                       ---------------------------------------------------------

                       Minimum lease payments                       $   490,653
                       =========================================================

                       MANUFACTURING AGREEMENT

                       In May 1990, Lancer entered into a manufacturing
                       subcontractor agreement (the "Manufacturing Agreement"),
                       whereby the subcontractor agreed to provide manufacturing
                       services to Lancer through its affiliated entities
                       located in Mexicali, B.C., Mexico. Lancer moved the
                       majority of its manufacturing operations to Mexico during
                       fiscal 1992 and 1991. Under the terms of the original
                       agreement, the subcontractor manufactured Lancer's
                       products based on an hourly rate per employee based on
                       the number of employees in the subcontractor's workforce.
                       As the number of employees increase, the hourly rate
                       decreases. In December 1992, Lancer renegotiated the
                       Manufacturing Agreement changing from an hourly rate per
                       employee cost to a pass through of actual costs plus a
                       weekly administrative fee. The amended Manufacturing
                       Agreement gives Lancer greater control over all costs
                       associated with the manufacturing operation. In July


                                     FS-42
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

11. COMMITMENTS AND    1994, Lancer again renegotiated the Manufacturing
    CONTINGENCIES      Agreement reducing the administrative fee and extending
    (Continued)        the Manufacturing Agreement through June 1998. In March
                       1996, Lancer agreed to extend the manufacturing agreement
                       through October 1998, to coincide with the building
                       lease. Effective April 1, 1996, Lancer leased the
                       Mexicali facility under a separate agreement, as
                       discussed above. During 1999, Lancer extended the
                       Manufacturing Agreement through October 31, 2000. The
                       Manufacturing Agreement is currently operating as
                       month-to-month. Should Lancer discontinue operations in
                       Mexico, it is responsible for the accumulated employee
                       seniority obligation as prescribed by Mexican law. At May
                       31, 2001, this obligation was approximately $361,000.
                       Such obligation is contingent in nature and accordingly
                       has not been accrued in the accompanying balance sheet.

                       Lancer is in the process of converting Mexican assets and
                       obligations to its own division, a Mexican corporation
                       named Lancer Orthodontics de Mexico (Lancer de Mexico).
                       This division will administer services previously
                       provided by an independent manufacturing contractor. A
                       new lease was negotiated effective April 1, 2001, for the
                       16,000 square foot facility used for Lancer's Mexican
                       operations. Utility and Mexican vendor obligations have
                       been converted to the Lancer de Mexico name. This
                       conversion will eliminate the expense of an
                       administrative fee and is expected to provide better
                       control in meeting obligations.

                       EMPLOYMENT AGREEMENT

                       In June 1986, the Company entered into an employment
                       agreement with its then chief executive officer. In May
                       1996, the agreement was extended for an additional three
                       years expiring in May 1999. This agreement was cancelled
                       in April 1997. This agreement required minimum annual
                       compensation payments of $169,000 and provided for
                       periodic cost of living increases. The chief executive
                       officer was paid approximately $81,000 during the year
                       ended May 31, 1996. The chief executive officer and the
                       Company agreed to amend the employment agreement for
                       fiscal year 1995,


                                     FS-43
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

11. COMMITMENTS AND    whereby the chief executive officer would not receive any
    CONTINGENCIES      deferred compensation for the period June 1994 through
    (Continued)        November 1994 of approximately $54,500 and instead
                       received 60,000 stock options (see Note 7). Approximately
                       $121,000 of the total accrued compensation included in
                       the 2001 consolidated balance sheet is due to the chief
                       executive officer's estate.

                       LICENSE AND ROYALTY AGREEMENT

                       Lancer has entered into various of license and/or royalty
                       agreements pursuant to which it has obtained rights to
                       manufacture and market certain products. The agreements
                       are for various durations expiring through 2007 and they
                       require the Company to make payments based on the sales
                       of the individual licensed products.

                       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.

                       RETIREMENT SAVINGS PLAN

                       Effective September 1, 1986, the Company established a
                       401(k) plan for the benefit of its employees. The plan
                       permits eligible employees to contribute to the plan up
                       to the maximum percentage of total annual compensation
                       allowable under the limits of Internal Revenue Code
                       Sections 415, 401(k) and 404. The Company, at the
                       discretion of its Board of Directors, may make
                       contributions to the plan in amounts determined by the
                       Board each year. No contributions by the Company have
                       been made since the plan's inception.

                       LITIGATION

                       The Company is, from time to time, involved in legal
                       proceedings, claims and litigation arising in the
                       ordinary course of business. While the amounts claimed
                       may be substantial, the ultimate liability cannot
                       presently be determined because of considerable
                       uncertainties that exist. Therefore, it is possible the
                       outcome of such legal proceedings, claims and litigation
                       could have a material effect on quarterly or annual
                       operating results or cash flows when resolved in a future
                       period. However, based on facts currently available,
                       management believes such matters will not have a material
                       adverse affect on the Company's consolidated financial
                       position, results of operations or cash flows.

                                     FS-44
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================

11. COMMITMENTS AND    NASDAQ SMALLCAP MARKET LISTING REQUIREMENTS
    CONTINGENCIES
    (Continued)        The Company has been notified by Nasdaq that it has
                       failed to maintain the listing requirement that its
                       minimum bid price be $1.00 or more and that it must
                       regain compliance by October 4, 2001 or it will be
                       subject to delisting. The Company will be subject to
                       continuing requirements to be listed on the Nasdaq
                       SmallCap Market. There can be no assurance that the
                       Company can continue to meet such requirements. The price
                       and liquidity of the Common Stock may be materially
                       adversely affected if the Company is unable to meet such
                       requirements in the future.

12. CONDENSED          Lancer's line-of-credit prohibits the transfer or
    FINANCIAL          dividend of funds to Biomerica, Inc. As a result, the
    INFORMATION OF     following condensed unconsolidated balance sheet for
    PARENT COMPANY     Biomerica, Inc. as of May 31, 2001, and the condensed
                       unconsolidated statements of operations and cash flows
                       for the years ended May 31, 2001 and 2000 have been
                       provided. No cash dividends were paid by the consolidated
                       subsidiaries (see Note 3) during the years ended May 31,
                       2001 and 2000.
<TABLE>

                                      CONDENSED UNCONSOLIDATED BALANCE SHEET
<CAPTION>
                       MAY 31,                                                         2001
                       -----------------------------------------------------------------------
                                                          ASSETS
<S>                                                                                <C>
                       Current Assets:
                          Available-for-sale securities                            $   41,570
                          Accounts receivable, net                                    356,831
                          Inventories                                                 722,344
                          Notes receivable                                             18,394
                          Prepaid expenses and other                                   20,389
                       -----------------------------------------------------------------------

                       Total current assets                                         1,159,528

                       Investment in and advances to unconsolidated subsidiary,
                          restricted                                                  910,218
                       Inventory, non-current                                          15,000
                       Property and equipment, net                                    239,708
                       Intangible assets                                              124,363
                       Other                                                           41,151
                       ------------------------------------------------------------------------

                                                                                   $ 2,489,968
                       ========================================================================


                                     FS-45
<PAGE>
                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


12. CONDENSED                   CONDENSED UNCONSOLIDATED BALANCE SHEET (CONTINUED)
    FINANCIAL          MAY 31,                                                         2001
    INFORMATION OF     ------------------------------------------------------------------------
    PARENT COMPANY
    (Continued)                        LIABILITIES AND SHAREHOLDERS' EQUITY

                       Current Liabilities:
                          Accounts payable and accrued liabilities                 $   402,205
                          Accrued compensation                                         145,552
                       ------------------------------------------------------------------------

                       Total current liabilities                                       547,757
                       ------------------------------------------------------------------------

                       Shareholder loan                                                 95,000
                       Equity in losses of unconsolidated subsidiaries, net of
                          advances, unrestricted                                       374,346
                       ------------------------------------------------------------------------

                       Shareholders' equity:
                          Common stock                                                 391,254
                          Additional paid-in capital                                16,859,742
                          Accumulated other comprehensive loss                         (10,289)
                          Accumulated deficit                                      (15,767,842)
                       ------------------------------------------------------------------------

                       Total shareholders' equity                                    1,472,865
                       ------------------------------------------------------------------------

                                                                                   $ 2,489,968
                       ========================================================================


</TABLE>


                                     FS-46
<PAGE>
<TABLE>

                                                            BIOMERICA, INC. AND SUBSIDIARIES

                                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                           YEARS ENDED MAY 31, 2001 AND 2000
============================================================================================
<CAPTION>


12. CONDENSESD
    FINANCIAL                    CONDENSED UNCONSOLIDATED STATEMENTS OF OPERATIONS
    INFORMATION OF
    PARENT COMPANY     MAY 31,                                      2001           2000
    (Continued)        ---------------------------------------------------------------------
<S>                                                             <C>            <C>
                       Net revenues                             $  2,911,649   $  2,283,433
                       Cost of sales                               2,048,757      1,643,290
                       ---------------------------------------------------------------------

                       Gross profit                                  862,892        640,143
                       ---------------------------------------------------------------------

                       Operating expenses:
                       Selling, general and administrative         1,132,519      1,867,520
                       Research and development                      250,616        279,788
                       ---------------------------------------------------------------------

                       Total operating expenses                    1,383,135      2,147,308
                       ---------------------------------------------------------------------

                          Operating loss                            (520,243)    (1,507,165)

                       Other income                                   40,776         86,081
                       ---------------------------------------------------------------------

                       Loss from operations before interest
                          in net income of consolidated
                          subsidiaries and income taxes             (479,467)    (1,421,084)

                       Interest in net loss of consolidated
                          subsidiaries                            (2,192,051)    (2,468,965)
                       ---------------------------------------------------------------------

                       Loss from continuing operations
                          before income taxes                     (2,671,518)    (3,890,049)

                       Income tax expense                                800            800
                       ---------------------------------------------------------------------

                       Net loss                                 $ (2,672,318)  $ (3,890,849)
                       =====================================================================

</TABLE>

                                     FS-47
<PAGE>
<TABLE>

                                                            BIOMERICA, INC. AND SUBSIDIARIES

                                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                           YEARS ENDED MAY 31, 2001 AND 2000
============================================================================================

<CAPTION>
<S>                                                             <C>            <C>
12. CONDENSED                       CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS
    FINANCIAL
    INFORMATION OF     MAY 31,                                      2001           2000
    PARENT COMPANY     ---------------------------------------------------------------------
    (Continued)        Cash Flows from Operating Activities:
                          Net loss from continuing
                             operations                         $ (2,672,318)  $ (3,890,849)
                          Adjustments to reconcile net
                             income to net cash (used in)
                             provided by operating
                             activities:
                             Depreciation and
                                amortization                          76,311         93,187
                             Realized (gain) loss on
                                sale of available-for-
                                sale securities                      (34,427)        13,241
                             Loss of subsidiaries                  2,192,051      2,468,965
                             Options and warrants issued
                                for services rendered                 89,336        821,043
                             Common stock is for rent                      -         16,000
                             Common stock issued or
                                subscribed for services
                                rendered                             265,625              -
                             Deferred compensation                         -        (77,231)
                             Loss on disposal of assets                2,000              -
                             Increase in investment in
                                and advances to
                                consolidated subsidiaries         (1,020,476)    (2,336,205)
                             Net change in other current
                                assets and current
                                liabilities                          166,406        (89,171)
                       ---------------------------------------------------------------------

                       Net cash used in operating activities        (935,492)    (2,981,020)
                       ---------------------------------------------------------------------

                       Cash flows from investing activities:
                          Sales of available-for-sale
                             securities                               85,665         18,191
                          Principal payments received on
                             notes receivable                         16,600          9,491
                          Increase in intangible assets              (20,000)             -
                          Purchase of property and
                             equipment                                     -       (125,335)
                       ---------------------------------------------------------------------

                       Net cash used in investing activities          82,265        (97,653)
                       ---------------------------------------------------------------------

</TABLE>

                                     FS-48
<PAGE>
<TABLE>

                                                            BIOMERICA, INC. AND SUBSIDIARIES

                                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                           YEARS ENDED MAY 31, 2001 AND 2000
============================================================================================

<CAPTION>
<S>                                                             <C>            <C>
12. CONDENSED                       CONDENSED UNCONSOLIDATED STATEMENTS OF CASH FLOWS
    FINANCIAL                                            CONTINUED
    INFORMATION OF     MAY 31,                                      2001           2000
    PARENT COMPANY     ---------------------------------------------------------------------
    (Continued)        Cash Flows from financing activities:
                          Exercise of stock options                    6,768         60,652
                          Proceeds from sale of stock                242,212      1,965,557
                          Increase in shareholder loan                95,000              -
                          Decrease in shareholder
                             receivable                                    -          1,000
                       ---------------------------------------------------------------------

                       Net cash provided by financing
                          activities                                 343,980      2,027,209
                       ---------------------------------------------------------------------

                       Net change in cash and cash
                          equivalents                               (509,247)    (1,051,464)

                       Cash and cash equivalents at
                          beginning of year                          509,247      1,560,711
                       ---------------------------------------------------------------------

                       Cash and cash equivalents at end of
                          year                                  $          -   $    509,247
                       =====================================================================

                       Supplemental disclosure of cash flow
                          information -
                          Cash paid during the year for:
                             Interest                           $          -   $          -
                             Income taxes                       $        800   $        800

                       Supplemental schedule of non-cash
                          investing and financing activities
                          Change in unrealized holding
                             gain on available-for-sale
                             securities                         $      5,966   $      4,456
                       =====================================================================


</TABLE>

                                     FS-49
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


13.  DISCONTINUED      The following summarizes the net liabilities of the
     OPERATIONS        discontinued operations as of May 31, 2001 and the
                       results of its operations for each of the years in the
                       two-year period ended May 31, 2001.

                       Balance sheet items:

                       MAY 31,                                          2001
                       ---------------------------------------------------------

                       Assets:
                          Cash                                      $     1,081
                          Prepaid expenses and other                      3,886
                          Other assets                                   62,831
                       ---------------------------------------------------------

                                                                         67,798

                       Less liabilities
                          Accrued liabilities                          (465,856)
                       ---------------------------------------------------------

                       Net liabilities                              $  (398,058)
                       ---------------------------------------------------------

                       Results of its operations items:

                       YEARS ENDED MAY 31,                2001         2000
                       ---------------------------------------------------------

                       Revenues                       $         -   $    19,786

                       Cost and expenses
                          Cost of Sales                         -        20,978
                          General and administrative    1,837,187     1,817,725
                          Research and development        256,245       433,485
                       ---------------------------------------------------------

                       Total costs                      2,093,432     2,272,188
                       ---------------------------------------------------------

                       Loss from operations           $(2,093,432)  $(2,252,402)
                       =========================================================


                                     FS-50
<PAGE>

                                                BIOMERICA, INC. AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                               YEARS ENDED MAY 31, 2001 AND 2000
================================================================================


14. SUBSEQUENT         During June and July 2001, the Company borrowed
    EVENTS             $130,000 from a shareholder according to the September
                       12, 2000 line of credit agreement (see Note 5).
<TABLE>
<CAPTION>

YEARS ENDED MAY 31,                                                2001             2000
--------------------------------------------------------------------------------------------
<S>                                                            <C>             <C>
Deleted from FS-5
OTHER COMPREHENSIVE (LOSS) INCOME, net of tax
   Unrealized (loss) gain on available-for-sale securities           (5,966)          4,456
--------------------------------------------------------------------------------------------

COMPREHENSIVE LOSS                                             $ (2,667,284)   $ (3,886,393)
============================================================================================

PER SHARE DATA FROM CONTINUING OPERATIONS:
   Net loss from continuing operations (basic)                 $      (0.12)   $      (0.36)
   Net loss from continuing operations (diluted)               $      (0.12)   $      (0.36)
============================================================================================

PER SHARE DATA FROM DISCONTINUED OPERATIONS:
   Net loss from discontinued operations (basic)               $      (0.43)   $      (0.50)
   Net loss from discontinued operations (diluted)             $      (0.43)   $      (0.50)
============================================================================================


PER SHARE DATA:
   Net loss (basic)                                            $      (0.55)   $      (0.86)
   Net loss (diluted)                                          $      (0.55)   $      (0.86)
============================================================================================

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
   EQUIVALENT SHARES
   Basic                                                          4,814,790       4,542,820
============================================================================================

   Diluted                                                        4,814,790       4,542,820
============================================================================================

</TABLE>

                                     FS-51
<PAGE>
<TABLE>

                                                           BIOMERICA, INC. AND SUBSIDIARIES

                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          YEARS ENDED MAY 31, 2001 AND 2000
===========================================================================================
<CAPTION>

FROM FS-19, NOTE 2                                       FOR THE YEAR ENDED MAY 31, 2001
                                             ----------------------------------------------
                                                         Loss         Shares      Per Share
                                                      (Numerator)  (Denominator)    Amount
                       --------------------------------------------------------------------
<S>                                                  <C>              <C>         <C>
                       BASIC EPS -

                         Loss from continuing
                          operations attributable to
                          common shareholders        $  (578,886)     4,772,765   $  (0.12)
                       ====================================================================

                         Loss from discontinued
                          operations
                          attributable to common
                          shareholders               $(2,093,432)     4,772,765   $  (0.56)
                       ====================================================================

                       EFFECT OF DILUTIVE
                          SECURITIES -

                         Options and warrants                  -              -           -
                       --------------------------------------------------------------------

                       DILUTED EPS -

                         Loss from continuing
                          operations attributable to
                          common shareholders plus
                          assumed conversions        $  (578,886)     4,772,765   $  (0.12)
                       ====================================================================

                         Loss from discontinued
                          operations attributable to
                          common shareholders plus
                          assumed conversions        $(2,093,432)     4,772,765   $  (0.56)
                       ====================================================================

</TABLE>


                                     FS-52
<PAGE>
<TABLE>

                                                           BIOMERICA, INC. AND SUBSIDIARIES

                                                 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                          YEARS ENDED MAY 31, 2001 AND 2000
===========================================================================================
<CAPTION>

FROM FS-19, NOTE 2                                       FOR THE YEAR ENDED MAY 31, 2001
                                             ----------------------------------------------
2.  SUMMARY OF                                           Loss         Shares      Per Share
    SIGNIFICANT                                      (Numerator)  (Denominator)    Amount
    ACCOUNTING         --------------------------------------------------------------------
    POLICIES
    (Continued)
<S>                                                  <C>              <C>         <C>
                       BASIC EPS -

                         Loss from continuing
                          operations attributable
                          to common shareholders     $(1,638,447)     4,542,820   $  (0.36)
                       ====================================================================


                         Loss from discontinued
                          operations attributable
                          to common shareholders     $(2,252,402)     4,542,820   $  (0.50)
                       ====================================================================

                       EFFECT OF DILUTIVE
                          SECURITIES -

                         Options and warrants                  -              -           -
                       --------------------------------------------------------------------

                       DILUTED EPS -

                         Loss from continuing
                          operations attributable
                          to common shareholders
                          plus assumed conversions   $(1,638,447)     4,542,820   $  (0.86)
                       ====================================================================

                         Loss from discontinued
                          operations attributable
                          to common shareholders     $(2,252,402)     4,542,820   $  (0.50)
                       ====================================================================


</TABLE>

                                     FS-53

</TEXT>
</DOCUMENT>
