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<SEC-DOCUMENT>0001019687-04-000810.txt : 20040414
<SEC-HEADER>0001019687-04-000810.hdr.sgml : 20040414
<ACCEPTANCE-DATETIME>20040414163922
ACCESSION NUMBER:		0001019687-04-000810
CONFORMED SUBMISSION TYPE:	10QSB
PUBLIC DOCUMENT COUNT:		5
CONFORMED PERIOD OF REPORT:	20040229
FILED AS OF DATE:		20040414

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			BIOMERICA INC
		CENTRAL INDEX KEY:			0000073290
		STANDARD INDUSTRIAL CLASSIFICATION:	DENTAL EQUIPMENT & SUPPLIES [3843]
		IRS NUMBER:				952645573
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			0531

	FILING VALUES:
		FORM TYPE:		10QSB
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	000-08765
		FILM NUMBER:		04733476

	BUSINESS ADDRESS:	
		STREET 1:		1533 MONROVIA AVENUE
		CITY:			NEWPORT BEACH
		STATE:			CA
		ZIP:			92663
		BUSINESS PHONE:		9496452111

	MAIL ADDRESS:	
		STREET 1:		1533 MONROVIA AVENUE
		CITY:			NEWPORT BEACH
		STATE:			CA
		ZIP:			92663

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NMS PHARMACEUTICALS INC
		DATE OF NAME CHANGE:	19871130

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NUCLEAR MEDICAL SYSTEMS INC
		DATE OF NAME CHANGE:	19830216

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NUCLEAR INSTRUMENTS INC
		DATE OF NAME CHANGE:	19720508
</SEC-HEADER>
<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>biomerica_10q-022904.txt
<TEXT>
<PAGE>

                                   FORM 10-QSB
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                   QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended February 29, 2004                   Commission File No. 0-8765
                  -----------------                                       ------

                                 BIOMERICA, INC.
- --------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

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

1533 Monrovia Avenue, Newport Beach, California              92663
- --------------------------------------------------------------------------------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number including area code:  (949) 645-2111
- --------------------------------------------------------------------------------

                                (Not applicable)
- --------------------------------------------------------------------------------
             (Former name, former address and former fiscal year, if
                           changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                          Yes  [X]        No  [ ]

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

                         Yes  [ ]         No  [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 5,752,431 shares of common
stock as of April 14, 2004.

                                        1





<PAGE>

                                 BIOMERICA, INC.

                                      INDEX

PART I

Item 1.  Condensed Consolidated Financial Statements:

         Condensed Consolidated Statements of Operations and
         Comprehensive Loss (unaudited) - Three and Nine Months Ended
         February 29, 2004 and February 28, 2003...........................3 & 4

         Condensed Consolidated Balance Sheet (unaudited) -
         February 29, 2004.................................................5 & 6

         Condensed Consolidated Statements of Cash Flows (unaudited) -
         Nine Months Ended February 29, 2004 and February 28, 2003.............7

         Condensed Consolidated Statement of Changes in Shareholders'
         Equity (unaudited) - Nine Months Ended February 29, 2004..............8

         Notes to Consolidated Financial Statements (unaudited).............9-19

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Selected Financial Data.......................................20-23

Item 3.  Quantitative and Qualitative Disclosures about Market Risk........   24

Item 4.  Controls and procedures..............................................24

PART II  Other Information....................................................25

Item 1.  Legal Proceedings....................................................25

Item 2.  Changes in Securities and Use of Proceeds............................25

Item 3.  Defaults upon Senior Securities......................................25

Item 4.  Submission of Matters to a Vote of Security Holders..................25

Item 5.  Other Information....................................................25

Item 6.  Exhibits and Reports on Form 8-K.....................................25

         Signatures...........................................................26

                                        2





<PAGE>
<TABLE>

PART I - FINANCIAL INFORMATION
                                                 SUMMARIZED FINANCIAL INFORMATION
                                                   ITEM 1. FINANCIAL STATEMENTS

                                                          BIOMERICA, INC.
                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                AND COMPREHENSIVE LOSS (UNAUDITED)
<CAPTION>

                                                                        Nine Months Ended                Three Months Ended
                                                                           February 29,                      February 29,
                                                                      2004             2003             2004             2003
                                                                  ------------     ------------     ------------     ------------
<S>                                                               <C>              <C>              <C>              <C>
Net sales ...................................................     $ 6,899,088      $ 6,517,414      $ 2,464,873      $ 2,291,377

     Cost of sales ..........................................       4,784,264        4,515,017        1,646,437        1,562,663
                                                                  ------------     ------------     ------------     ------------
     Gross profit ...........................................     $ 2,114,824      $ 2,002,397          818,436          728,714
                                                                  ------------     ------------     ------------     ------------

Operating Expenses:
     Selling, general and administrative ....................       2,250,086        2,113,020          655,211          655,151
     Research and development ...............................         207,123          185,459           65,370           75,253
                                                                  ------------     ------------     ------------     ------------
                                                                    2,457,209        2,298,479          720,581          730,404
                                                                  ------------     ------------     ------------     ------------

Operating loss from continuing operations ...................        (342,385)        (296,082)          97,855           (1,690)
                                                                  ------------     ------------     ------------     ------------

Other Expense (income):
     Interest expense .......................................          24,120           25,273            8,744            7,573
     Other (income) expense, net ............................         (54,514)         (51,108)         (21,256)             814
                                                                  ------------     ------------     ------------     ------------
                                                                      (30,394)         (25,835)         (12,512)           8,387
                                                                  ------------     ------------     ------------     ------------

Loss from continuing operations, before minority interest
   in net (loss) gain of consolidated subsidiary and
   income taxes .............................................        (311,991)        (270,247)         110,367          (10,077)

Minority interest in net (loss) gain of consolidated
  subsidiary ................................................         (48,069)          31,209           45,750           13,343
                                                                  ------------     ------------     ------------     ------------
(Loss) gain from continuing operations, before income taxes .        (263,922)        (301,456)          64,617          (23,420)

Income tax expense ..........................................              26            3,018               26            1,224
                                                                  ------------     ------------     ------------     ------------

Net (loss) gain from continuing operations ..................        (263,948)        (304,474)          64,591          (24,644)

</TABLE>

                                                                 3





<PAGE>
<TABLE>

                                                          BIOMERICA, INC.
                                          CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                          AND COMPREHENSIVE LOSS - Continued (UNAUDITED)
<CAPTION>

                                                                         Nine Months Ended               Three Months Ended
                                                                           February 29,                      February 29,
                                                                       2004            2003             2004              2003
                                                                  -------------    -------------    -------------    -------------
<S>                                                               <C>              <C>              <C>              <C>
Discontinued operations:
  (Loss) income from discontinued operations, net .............          (4,359)         (40,022)          (1,415)          (1,491)
                                                                  -------------    -------------    -------------    -------------
Net (loss) gain ...............................................        (268,307)        (344,496)          63,176          (26,135)

Other comprehensive gain (loss), net of tax
  Unrealized gain (loss) on available-for-sale securities .....          35,580           (2,122)          13,018             (365)
                                                                  -------------    -------------    -------------    -------------

Comprehensive (loss) gain .....................................   $    (232,727)   $    (346,618)   $      76,194    $     (26,500)
                                                                  =============    =============    =============    =============

Basic net (loss) gain per common share:

     Net (loss) gain from continuing operations ...............   $       (.05)    $       (.06)    $        .01     $       (.00)
     Net (loss) from discontinued operations ..................           (.00)            (.01)            (.00)            (.00)
                                                                  -------------    -------------    -------------    -------------
Basic net (loss) gain per common share ........................   $       (.05)    $       (.07)    $        .01     $       (.00)
                                                                  =============    =============    =============    =============
Diluted net (loss) gain per common share
     Net (loss) gain from continuing operations ...............   $       (.05)    $       (.06)    $        .01     $       (.00)
     Net loss from discontinued operations ....................           (.00)            (.01)            (.00)            (.00)
                                                                  -------------    -------------    -------------    -------------

Diluted net loss per common share .............................   $       (.05)    $       (.07)    $        .01     $       (.00)
                                                                  =============    =============    =============    =============
Weighted average number of common and common equivalent shares:       5,726,993        5,224,867        5,752,431        5,258,475
     Basic and diluted ........................................   ==============   ==============   =============    ==============

The accompanying notes are an integral part of these statements.

</TABLE>

                                                                 4





<PAGE>
<TABLE>

                                 BIOMERICA, INC.

                CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
<CAPTION>

                                                                              February 29,
                                                                                 2004
                                                                              -----------
<S>                                                                           <C>
Assets

Current Assets (Notes 2 & 14)
    Cash and cash equivalents .............................................   $  178,923
    Available for-sale securities .........................................       33,577
    Accounts receivable, less allowance for doubtful accounts of $165,708 .    1,746,278
    Inventories, net of reserve of $227,079 ...............................    2,637,195
    Notes receivable ......................................................        4,119
    Prepaid expenses and other ............................................      152,210
                                                                              -----------

          Total Current Assets ............................................    4,752,302

Inventory, non-current ....................................................       25,000

Property and Equipment, net of accumulated depreciation and amortization ..      659,340

Intangible assets, net of accumulated amortization ........................       41,360

Other Assets ..............................................................       62,904
                                                                              -----------

                                                                              $5,540,906
                                                                              -----------
The accompanying notes are an integral part of these statements.
</TABLE>

                                        5





<PAGE>

                                 BIOMERICA, INC.

          CONDENSED CONSOLIDATED BALANCE SHEET - Continued (UNAUDITED)

                                                                   February 29,
                                                                       2004
                                                                   -------------
Liabilities and Shareholders' Equity

Current Liabilities

     Current portion of term loan ..............................   $     25,004
     Accounts payable and accrued liabilities ..................      1,205,018
     Accrued compensation ......................................        472,711
     Shareholder loan ..........................................        312,216
     Net liabilities from discontinued operations ..............        368,504
                                                                   -------------

          Total Current Liabilities ............................      2,383,453

Long term portion of term loan .................................         72,927

Long term portion of shareholder debt ..........................          4,000
                                                                   -------------

Total Liabilities ..............................................      2,460,380
                                                                   -------------

Minority interest ..............................................      2,105,742
                                                                   -------------
Shareholders' Equity

     Common stock, $0.08 par value authorized 25,000,000 shares,
       subscribed or issued and outstanding 5,752,431 ..........        460,193
     Additional paid-in-capital ................................     17,211,165
     Accumulated other comprehensive gain ......................         25,923
     Accumulated deficit .......................................    (16,722,497)
                                                                   -------------
Total Shareholders' Equity .....................................        974,784
                                                                   -------------

Total Liabilities and Equity ...................................   $  5,540,906
                                                                   =============

The accompanying notes are an integral part of these statements.

                                        6





<PAGE>
<TABLE>

                                                BIOMERICA, INC.
                          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>

For the nine months ended February 29,                                       2004            2003
                                                                          ----------      ----------
<S>                                                                       <C>             <C>
Cash flows from operating activities:
Net loss from continuing operations ................................      $(263,948)      $(304,474)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
     Depreciation and amortization .................................         95,075         106,138
     Realized gain on sale of available-for-sale security ..........         15,115              --
     Minority interest in net (loss) gain of consolidated Subsidiary        (48,069)         31,209
     Common stock, warrants and options issued for services rendered         55,172          67,517
     Provision for losses on accounts receivable ...................         45,663          (1,960)
     Warrant and options issued for services rendered ..............             --          48,546
     Changes in current assets and liabilities:
       Accounts Receivable .........................................       (128,705)        (32,181)
       Inventories .................................................         12,737         414,240
       Prepaid expenses and other current assets ...................         15,094          41,932
       Accounts payable and other accrued liabilities ..............        (75,116)         49,866
       Accrued compensation ........................................        129,811          17,259
                                                                          ----------      ----------

Net cash (used in) provided by operating activities ................       (147,171)        438,092
                                                                          ----------      ----------
Cash flows from investing activities:
     Purchases of property and equipment ...........................       (339,016)        (90,328)
     Other assets ..................................................        (19,504)         (3,651)
     Purchases of intangibles ......................................             --         (21,987)
                                                                          ----------      ----------
Net cash used in investing activities ..............................       (358,520)       (115,966)
                                                                          ----------      ----------
Cash flows from financing activities:
     Issuance of shares by subsidiary ..............................          7,750          17,980
     Increase (decrease) in shareholder loan .......................          2,666              --
     Private placement, net of offering costs ......................         50,500         (46,750)
     Proceeds from sale of common stock subscribed .................             --          25,000
     Exercise of stock options .....................................          2,000              --
     Decrease in line of credit ....................................           (426)        (65,191)
     Increase in term loan .........................................         97,931              --
                                                                          ----------      ----------
Net cash provided by (used in) financing activities ................        160,421         (68,961)
                                                                          ----------      ----------
Net cash used in discontinued operations ...........................           (974)         (2,295)
                                                                          ----------      ----------
Net (decrease) increase in cash and cash equivalents ...............       (346,244)        250,870

Cash at beginning of period ........................................        525,167         329,277
                                                                          ----------      ----------
Cash at end of period ..............................................      $ 178,923       $ 580,147
                                                                          ==========      ==========

Supplemental disclosures on non-cash financing activity
  Issuance of common stock at market value in exchange for
  settlement of accrued wages and shareholder loan .................      $  20,000              --
                                                                          ==========      ==========
</TABLE>

The accompanying notes are an integral part of these statements.

                                                       7





<PAGE>
<TABLE>

                                                          BIOMERICA, INC.

                          CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
                                            FOR THE NINE MONTHS ENDED February 29, 2004
<CAPTION>

                                                                    Common Stock
                            Common Stock                             Subscribed
                    ---------------------------               ---------------------------
                                                                                          Accumulated
                       Number                     Additional                              Other
                       of                         Paid-in                                 Comprehensive  Accumulated
                       Shares        Amount       Capital        Shares        Amount     Gain (loss)    Deficit          Total
                    ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------
<S>                    <C>        <C>           <C>                <C>      <C>           <C>           <C>              <C>
Balance at
 May 31, 2003          5,522,431  $    441,793  $ 17,117,393       18,000   $     4,500   $     (9,657) $(16,454,190)   $1,099,839

Exercise of stock
Options                   10,000           800         1,200                                                                 2,000

Change in
unrealized
gain on available                                                                               35,580                      35,580
for sale securities

Net proceeds from
private placement        220,000        17,600        37,400      (18,000)       (4,500)                                    50,500

Compensation
expense related
to the fair
value of common stock
and warrants
issued to employees
in excess of
consideration received                                55,172                                                                55,172

Net loss                                                                                                    (268,307)     (268,307)
                    ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Balance at             5,752,431  $    460,193  $ 17,211,165            --   $        --   $     25,923  $(16,722,497) $    974,784
February 29, 2004   ============= ============= ============= ============= ============= ============= ============= =============

</TABLE>

The accompanying notes are an integral part of these statements.

                                                                 8





<PAGE>

                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

                                February 29, 2004

(1)    Reference is made to Note 2 of the Notes to Consolidated Financial
       Statements contained in Biomerica, Inc.'s (the "Company") Annual Report
       on Form 10-KSB for the fiscal year ended May 31, 2003, for a summary of
       significant accounting policies utilized by the Company.

       The preparation of consolidated financial statements in conformity with
       accounting principles generally accepted in the United States of America
       ("GAAP"), requires management to make estimates and assumptions that
       affect the reported amounts of assets and liabilities and the disclosure
       of contingent assets and liabilities at the date of the consolidated
       financial statements, and the report amounts of revenues and expenses
       during the reporting period. Significant estimates made by Biomerica's
       and Lancer's management include, but are not limited to, allowances for
       doubtful accounts, allowances for sales returns, valuation of
       inventories, realizability of property and equipment through future
       operations and realizability of deferred tax assets. Actual results could
       materially differ from those estimates.

       The information set forth in these condensed consolidated statements is
       unaudited and may be subject to normal year-end adjustments. The
       information reflects all adjustments which, in the opinion of management,
       are necessary to present a fair statement of the consolidated results of
       operations of Biomerica, Inc., for the periods indicated. It does not
       include all information and footnotes necessary for a fair presentation
       of financial position, results of operations, and cash flow in conformity
       with generally accepted accounting principles. Please see the Company's
       Annual Report on Form 10-KSB for the fiscal year ended May 31, 2003 for
       more detailed footnotes.

       Consolidated results of operations for the interim periods covered by
       this report may not necessarily be indicative of results of operations
       for the full fiscal year.

(2)    As of February 29, 2004, the Company had cash and available-for-sale
       securities in the amount of $212,500 and working capital of $2,368,849.
       Cash and working capital totaling $170,471 and $2,555,175, respectively,
       relates to the Lancer subsidiary. Lancer's line of credit restricts
       Biomerica's ability to draw on Lancer's resources and, as such, said
       cash, working capital and equity are not available to Biomerica.

       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 and Allergy Immuno
       Technologies, Inc. was sold in May 2002. ReadyScript and Allergy Immuno
       Technologies were previously contributors to the Company's losses. The
       Company has reduced operating costs through certain cost reduction
       efforts and plans to concentrate on its core business in Lancer and
       Biomerica to increase sales. There can be no assurance 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. Should the Company be unable to reduce costs
       adequately or should the Company be unable to secure additional
       financing, the result for the Company could be the inability to continue
       operations. The Company will continue to have limited cash resources.
       Although the Company's management recognizes the imminent need to secure
       additional financing there can be no assurance that the Company will be
       successful in consummating any such transaction or, if the Company does
       consummate such transaction, that the terms and conditions of such
       financing will not be unfavorable to us.

       Our independent certified public accountants have concluded that these
       factors, among others, raise substantial doubt as to the Company's
       ability to continue as a going concern for a reasonable period of time,
       and have, therefore modified their audit report on the Company's annual
       consolidated financial statements as of and for the year ended May 31,
       2003, in the form of an explanatory paragraph describing the events that
       have given rise to this uncertainty. The consolidated financial
       statements do not include any adjustments relating to the recoverability
       and classification of asset carrying amounts or the amount and
       classification of liabilities that might result should the Company
       operating.

                                        9





<PAGE>

       These consolidated financial statements have been prepared assuming that
       the Company will continue as a going concern. The Company has operating
       and liquidity concerns due to historically reporting net losses and
       negative cash flows from operations. Biomerica's shareholder's line of
       credit expired September 13, 2003. The unpaid principal and interest of
       $337,835 was converted into a note payable bearing interest at 8% and
       payable in monthly installments over four years. The Company was making
       payments of $7,300 per month towards principal and interest. As of
       February 29, 2004 the terms of the loan were still being negotiated. On
       March 22, 2004 a Loan Modification, Forbearance and Security Agreement
       and an Amended and Restated Promissory Note were finalized. The balance
       of interest and principal as of March 22, 2004 was $313,318. The terms of
       the agreements are that Janet Moore has agreed to a forbearance of any
       payments for the length of the agreement, which expires September 1,
       2004. Collateral for the loan is all the assets of the Company except the
       Lancer common stock currently owned by Biomerica. A warrant for 40,000
       shares of restricted common stock exercisable at a price of $.51 per
       share has been awarded as compensation for the forbearance. In addition.
       Janet Moore has agreed to defer accrued wages now owed to her and
       continue deferring wages earned during this forbearance period.

       The effect on compensation expense, net loss, and net loss per common
       share had compensation costs for the Company's stock option plans been
       determined based on a fair value at the date of grant consistent with the
       provisions of SFAS 148, for the nine and three months ended February 29,
       2004 and February 28, 2003 as follows:
<TABLE>
<CAPTION>
                                               Nine Months Ended   Three Months Ended
                                               2/29/04    2/28/03   2/29/04    2/28/03
- ---------------------------------------------------------------------------------------
<S>                                         <C>        <C>        <C>        <C>
Net (loss) gain from continuing
  operations, as reported                   $(263,948) $(304,474) $ 64,591   $(24,644)
Plus: Stock-based employee compensation
  expense included in reported net gain
  (loss)                                       55,172     67,517    9,684     16,182
Less: Stock-based employee compensation
  expense determined using fair value
  based method                                (18,918)   (36,308)   (6,269)   (12,270)
- ---------------------------------------------------------------------------------------
Net (loss) gain from continuing operations,
 pro forma                                 $ (227,694) $(273,265) $ 68,006   $(20,732)
=======================================================================================

Pro forma net (loss) gain from
   continuing operations
   per share - basic                        $   (0.04) $   (0.06) $    .01   $   (.00)
=======================================================================================
Pro forma net (loss) gain from
   continuing operations
   per share - diluted                      $   (0.04) $   (0.06) $    .01   $   (.00)
=======================================================================================
</TABLE>

                                       10





<PAGE>

(3)      The following summary presents the options granted, exercised, expired,
         and outstanding as of February 29, 2004:

                                                                        Weighted
                                                                        Average
                         Number of Options                              Exercise
                    Employee        Non-employee      Total             Price
                    --------        ------------      -----             -----

Outstanding
May 31, 2003          990,386           75,000        1,065,386         $0.99

Granted                    --               --               --          0.00
Exercised                  --          (10,000)         (10,000)         0.20
Expired                (2,250)              --           (2,250)         0.85
Cancelled              (3,000)              --           (3,000)         0.40
                    ----------       ----------       ----------    ----------
Outstanding
February 29, 2004     985,136           65,000        1,050,136         $1.00
                    ==========       ==========       ==========    ==========

                                                                        Weighted
                                                                        Average
                         Number of Warrants                             Exercise
                    Employee        Non-employee      Total             Price
                    --------        ------------      -----             -----

Outstanding
May 31, 2003        1,285,688        1,131,746        2,417,434         $2.79

Granted               170,000           32,000          202,000          0.25
Exercised                  --               --               --          0.00
Expired                    --               --               --          0.00
                    ----------       ----------       ----------    ----------
Outstanding
February 29, 2004   1,455,688        1,163,746        2,619,434         $2.60
                    ==========       ==========       ==========    ==========

(4)      Reference is made to Note 3 of the Notes to Consolidated Financial
         Statements contained in the Company's Annual Report on Form 10-KSB for
         the fiscal year ended May 31, 2003, for a description of the
         investments in affiliates and consolidated subsidiaries.

(5)      Reference is made to Notes 5 & 11 of the Notes to Consolidated
         Financial Statements contained in the Company's Annual Report on Form
         10-KSB for the fiscal year ended May 31, 2003, for information on
         commitments and contingencies.

(6)      Aggregate market value exceeded cost of available-for-sale securities
         by approximately $25,923 at February 29, 2004.

                                       11





<PAGE>

(7) Earnings Per Share
     ------------------

       In February 1997, the Financial Accounting Standards Board ("FASB")
       issued Statement of Financial Accounting Standards (SFAS) No. 128,
       EARNINGS PER SHARE ("EPS"). SFAS No. 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 income divided by the weighted average
       number of common shares outstanding for the period. Diluted EPS reflects
       the potential dilution that could occur from common shares issuable
       through stock options, warrants and other convertible securities.

       The 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.

       As of February 29, 2004, there was a total of 3,669,570 potential
       dilutive shares of common stock outstanding.

(8)    In June 2001, the FASB issued SFAS No. 143, "ACCOUNTING FOR ASSET
       RETIREMENT OBLIGATIONS", which requires that the fair value of a
       liability for an asset retirement obligation be recognized in the period
       in which it is incurred with the associated asset retirement costs being
       capitalized as a part of the carrying amount of the long-lived asset.
       SFAS No. 143 also includes disclosure requirements that provide a
       description of asset retirement obligations and reconciliation of changes
       in the components of those obligations. The statement is effective for
       fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143
       did not have a material effect on the Company's consolidated financial
       position or results of operations.

       In June 2002, the FASB issued SFAS No. 146, "ACCOUNTING FOR COSTS
       ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES," which updates accounting
       and reporting standards for personnel and operational restructurings. The
       Company was required to adopt SFAS No. 146 for exit, disposal or other
       restructuring activities that are initiated after December 31, 2002, with
       early application encouraged. The Company adoption of SFAS No. 146 did
       not have a material effect on the Company's consolidated financial
       position or results of operations.

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

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

       In November 2002, FASB issued FASB Interpretation No. 45, "Guarantor's
       Accounting and Disclosure Requirements for Guarantees, Including Indirect
       Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies that a
       guarantor is required to recognize, at the inception of a guarantee, a
       liability for the fair value of the obligation undertaken in issuing the
       guarantee.

                                       12





<PAGE>

       The initial recognition and initial measurement provisions of FIN 45 are
       applicable on a prospective basis to guarantees issued or modified after
       December 31, 2002. The disclosure requirements of FIN 45 are applicable
       for financial statements of interim periods ending after December 15,
       2002. The adoption of FIN 45 did not have a material impact on the
       Company's financial position, results of operations or cash flows.

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

(9)   Financial information about foreign and domestic operations and export
       sales is as follows:

                                                For the Nine Months Ended
                                                2/29/04         2/28/03
                                                --------        --------

         Revenues from sales to unaffiliated customers:

         United States                         $3,229,000      $3,453,000
         Asia                                     157,000         166,000
         Europe                                 2,063,000       1,614,000
         South America                            330,000         283,000
         Oceania                                  377,000         325,000
         Other                                    743,000         676,000
                                               ----------      ----------
                                               $6,899,000      $6,517,000
                                               ==========      ==========

       No other geographic concentrations exist where net sales exceed 10% of
       total net sales.

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

(11)   At February 29, 2004, Lancer has a $400,000 line of credit with Cuyamaca
       Bank, which expires January 8, 2005. Borrowings are made at prime plus
       2.0% (6% at February 29, 2004, and are limited to 80% of accounts
       receivable less than 90 days old. The outstanding balance at February 29,
       2004 was $0 and the unused portion available was approximately $400,000.
       Lancer was in compliance with its debt covenants at February 29, 2004.

       The line of credit is collateralized by substantially all the assets of
       Lancer, including inventories, receivables, and equipment. The lending
       agreement for the line of credit requires, among other things, that
       Lancer maintain a tangible net worth ratio of $2,700,000 and a zero
       balance be maintained for 30 consecutive days during the term. Lancer is
       not required to maintain compensating balances in connection with this
       lending agreement. Proceeds from this line cannot be used to support the
       operations of Biomerica.

                                       13





<PAGE>

       Lancer also has a term loan for $100,000 with Cuyamaca Bank that matures
       January 8, 2008. This loan requires 48 monthly payments of approximately
       $2,300 (principal and interest) at an interest rate of prime plus 2% (6%
       at February 29, 2004). The outstanding balance at February 29, 2004 was
       approximately $98,000, with approximately $25,000 classified as a current
       liability. The term loan is for the purchase of new equipment but is
       collateralized by substantially all of the assets of the corporation.

       Biomerica entered into an agreement for a line of credit agreement on
       September 12, 2000 with a shareholder whereby the shareholder would loan
       to the Company, as needed, up to $500,000 for working capital needs. The
       line of credit bore interest at 8%, was secured by accounts receivable
       and inventory, and expired September 13, 2003. The outstanding principal
       and interest on September 12, 2003 was $337,835, including principal of
       $288,050 and interest of $48,985, all of which was converted into a note
       payable bearing interest at 8% with interest and principal due monthly.
       The Company was paying $7,300 per month toward interest and principal. As
       of February 29, 2004 the terms of the loan were still being negotiated.
       On March 22, 2004 a Loan Modification, Forbearance and Security Agreement
       and an Amended and Restated Promissory Note were finalized. The balance
       of interest and principal as of March 22, 2004 was $313,318. The terms of
       the agreements are that Janet Moore has agreed to a forbearance of any
       payments for the length of the agreement, which expires September 1,
       2004. Collateral for the loan is all the assets of the Company except the
       Lancer common stock currently owned by Biomerica. A warrant for 40,000
       shares of restricted common stock exercisable at a price of $.51 per
       share have been awarded as compensation for the forbearance. In addition.
       Janet Moore has agreed to defer accrued wages now owed to her and
       continue deferring wages earned during this forbearance period.

(12)   In June 2003, the Company issued 202,000 shares of restricted common
       stock in a private placement to insiders and qualified investors. The
       stock was sold at $.25 per share and had one warrant for the purchase of
       restricted common stock attached to each share of common stock purchased.
       During the three months ended August 31, 2003, $48,080 was recorded as
       compensation expense for the excess in the market value of the issued
       common stock and warrants over the consideration received. The warrants
       vest immediately, expire in five years, and are exercisable at $.25 per
       share.

       On June 2, 2003, Lancer granted 52,500 stock options to purchase shares
       of Lancer common stock at an exercise price of $.43 per share to
       directors of Lancer for services rendered. The options vest over two
       years and have a term of five years.

       On June 2, 2003, Lancer granted 75,000 stock options to purchase shares
       of Lancer common stock at an exercise price of $.43 per share to its
       Chief Executive Officer in lieu of salary. The options vest over three
       years and have a term of five years.

       On June 2, 2003, Lancer granted 120,000 stock options to purchase shares
       of the Lancer's common stock at an exercise price of $.43 per share as
       pursuant to terms of the Employment agreement between Lancer and Dan
       Castner, the Vice President of Sales and Marketing. The options vest over
       four years and have a term of five years.

(13)   Subsequent Events

       On March 23, 2004, in order to strengthen its balance sheet the board of
       directors of Lancer approved a private placement with the intent of
       raising between $150,000 and $350,000. The price of the restricted shares
       was $.60 per share with one warrant exercisable at $.85 per share for
       each share purchased. A total of 450,000 shares of restricted common
       stock were subscribed to, raising a total of $270,000.

       On April 12, 2004, an agreement was signed between Lancer Orthodontics
       ("Lancer") and Allen Barbieri ("Barbieri") wherein Barbieri will serve as
       the part-time interim Chief Executive Officer of Lancer for a period of
       two years or less. He shall receive as compensation 62,500 shares of
       Lancer restricted common stock for every six months of employment with
       Lancer. At the beginning of each quarter 31,250 shares shall vest.
       Barbieri shall not be entitled to any other form of cash or equity
       compensation, unless determined otherwise in the future.

       On March 31, 2004, a warrant for 40,000 shares of restricted common stock
       was issued to The Janet Moore Trust for the forbearance of payments on
       the note payable to the Company in the amount of $313,318. The warrants
       are at the exercise price of $.51, have an expiration of five years, and
       are fully vested at the date of grant. The Company recorded a noncash
       expense of $20,800 representing the full value of the warrants in March
       of 2004.

                                       14





<PAGE>

<TABLE>
<CAPTION>

(14) Reportable business segments for the nine months and quarter ended February
     29 30, 2004 and 2003 are as follows:
                                               Nine Months               Three Months
                                            Ended February 29,       Ended February 29,
                                            2004         2003        2004          2003
    ---------------------------------------------------------------------------------------
    <S>                                   <C>         <C>           <C>         <C>
        Domestic sales:
       Orthodontic products               $2,351,000  $2,323,000    $  833,000  $  756,000
    =======================================================================================
    Medical diagnostic products           $  878,000  $1,130,000    $  228,000  $  335,000
    =======================================================================================

    Foreign sales:
        Orthodontic products              $2,172,000  $1,975,000    $  806,000  $  752,000
    =======================================================================================

    Medical diagnostic products           $1,498,000  $1,089,000      $598,000  $  448,000
    =======================================================================================

                                       15





<PAGE>

                                               Nine Months               Three Months
                                            Ended February 29,       Ended February 29,
                                            2004         2003        2004          2003
    ---------------------------------------------------------------------------------------
    Net sales:
        Orthodontic products              $4,523,000  $4,298,000    $1,639,000  $1,508,000
        Medical diagnostic products        2,376,000   2,219,000       826,000     783,000
    ---------------------------------------------------------------------------------------

    Total                                 $6,899,000  $6,517,000    $2,465,000  $2,291,000
    =======================================================================================

    Operating (loss) income:
       Orthodontic products               $ ( 92,000) $  ( 1,000)   $   56,000  $   22,000
       Medical diagnostic products          (250,000)   (297,000)       42,000     (24,000)
    ---------------------------------------------------------------------------------------

    Total                                 $ (342,000) $ (296,000)   $ ( 98,000) $   (2,000)
    =======================================================================================

    Operating loss from discontinued segment:
      ReadyScript                         $    4,359  $   40,022    $    1,415  $    1,491
    ---------------------------------------------------------------------------------------

    Total                                 $    4,359  $   40,022    $    1,415  $    1,491
    =======================================================================================
     Depreciation and amortization
     expense:
      Orthodontic products               $    48,000  $   64,000        22,000      16,000
      Medical diagnostic products             44,000      42,000        11,000      18,000
   ----------------------------------------------------------------------------------------

    Total                                $    92,000  $  106,000        33,000      34,000
   ========================================================================================

    Domestic long-lived assets:
    Orthodontic products                  $  387,000  $   92,000
    Medical diagnostic products              134,000     156,000
                    ---------------------------------------------------

    Total                                 $  521,000  $  248,000
                    ===================================================

    Foreign long-lived assets:
     Orthodontic products                 $  121,000  $   16,000
     Medical diagnostic products              17,000       3,600
                    ---------------------------------------------------

    Total                                 $  659,000  $   267,000
                    ===================================================

    Total assets:
     Orthodontic products                $ 3,837,000  $3,568,000
     Medical diagnostic products           1,704,000   1,545,000
- -----------------------------------------------------------------------

    Total                                $ 5,541,000  $5,113,000
=======================================================================

Capital expenditures:
  Orthodontic products                   $   297,000  $   75,000
  Medical diagnostic products                 18,000      15,000
                    ---------------------------------------------------

    Total                                $   315,000  $   90,000
                    ===================================================
</TABLE>

                                       16





<PAGE>

       The net sales as reflected above consist of sales of unaffiliated
       customers only as there were no significant intersegment sales during the
       quarter ended and nine months ended February 29, 2004 and February 28,
       2003.

(15)   Pursuant to the terms of the employment agreement between Lancer and Dan
       Castner, the Vice President of Sales and Marketing of Lancer, dated May
       20, 2003, Lancer agreed to pay Mr. Castner an annual base salary of
       $135,000. In addition, Lancer granted Mr. Castner stock options on June
       2, 2003, to purchase an aggregate of 120,000 shares of Lancer's common
       stock at an exercise price of $.43 per share. The stock options have a
       term of five years and will vest over four years as follows: (i) 25%
       vesting on the first anniversary of the date of grant; (ii) 25% vesting
       on the second anniversary of the date of grant; (iii) the remaining 50%
       vesting as to one-twenty fourth (1/24th) per month each month thereafter
       for the next two years. Should Lancer be purchased by an affiliated third
       party, the options shall vest 100%.

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

(17)   Under its bylaws, the Company has agreed to indemnify its officers and
       directors for certain events or occurrences arising as a result of the
       officer or director's serving in such capacity. The term of the
       indemnification period is for the officer's or director's lifetime. The
       maximum potential amount of future payments the Company could be required
       to make under these indemnification agreements is unlimited. However, the
       Company has a directors and officer liability insurance policy that
       limits its exposure and enables it to recover a portion of any future
       amounts paid.

       As a result of its insurance policy coverage, the Company believes the
       estimated fair value of these indemnification agreements is minimal and
       has no liabilities recorded for these agreements as of February 29, 2004.
       The Company enters into indemnification provisions under (i) its
       agreements with other companies in its ordinary course of business,
       typically with business partners, contractors, and customers, landlords
       and (ii) its agreements with investors. Under these provisions the
       Company generally indemnifies and hold harmless the indemnified party for
       losses suffered or incurred by the indemnified party as a result of the
       Company's activities or, in some cases, as a result of the indemnified
       party's activities under the agreement. These indemnification provisions
       often include indemnifications relating to representations made by the
       Company with regard to intellectual property rights. These
       indemnification provisions generally survive termination of the
       underlying agreement. In addition, in some cases, the Company has agreed
       to reimburse employees for certain expenses. The maximum potential amount
       of future payments the Company could be required to make under these
       indemnification provisions is unlimited. The Company has not incurred
       material costs to defend lawsuits or settle claims related to these
       indemnification agreements. As a result, the Company believes the
       estimated fair value of these agreements is minimal. Accordingly, the
       Company has no liabilities recorded for these agreements as of February
       29, 2004."

(18)   The Chief Executive Officer and Chief Financial Officer of Biomerica are
       currently deferring their cash wages. Their wages are being recorded as
       an administrative expense and reported as part of accrued wages on the
       balance sheet.

(19)   Included in accounts payable at February 29, 2004 is $126,768 due for
       rental of the Company's facilities according to the terms of the lease.
       All of this amount is past due and the Company is in default of the
       lease.

                                       17





<PAGE>

(20) Risks and Uncertainties

       License Agreements - Certain of the Company's sales of products are
       governed by license agreements with outside third parties. All of such
       license agreements to which the Company currently is a party, are for
       fixed terms which will expire after ten years from the commencement of
       the agreement or upon the expiration of the underlying patents. After the
       expiration of the agreements 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.

                                       18





<PAGE>

       Distribution - The Company 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. The Company 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 the Company's product. There can
       be no assurance of the volume of product sales that may be achieved by
       such distributors.

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

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

       Risk of Product Liability - Testing, manufacturing and marketing of the
       Company's products entail risk of product liability. The Company
       currently has product liability insurance. There can be no assurance,
       however, that the Company will be able to maintain such insurance at a
       reasonable cost or in sufficient amounts to protect the Company against
       losses due to product liability. An inability could prevent or inhibit
       the commercialization of the Company'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.

                                       19

<PAGE>

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND SELECTED FINANCIAL DATA

        CERTAIN INFORMATION CONTAINED HEREIN (AS WELL AS INFORMATION INCLUDED IN
        ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE OR TO BE MADE BY
        BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS
        STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND
        SUCCESS OR CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION
        INVOLVES IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY
        AFFECT ANTICIPATED RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS
        MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
        STATEMENTS MADE BY OR ON BEHALF OF BIOMERICA. THE POTENTIAL RISKS AND
        UNCERTAINTIES INCLUDE, AMONG OTHERS, FLUCTUATIONS IN THE COMPANY'S
        OPERATING RESULTS. THESE RISKS AND UNCERTAINTIES ALSO INCLUDE THE
        SUCCESS OF THE COMPANY IN RAISING NEEDED CAPITAL, THE CONTINUAL DEMAND
        FOR THE COMPANY'S PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE
        MARKETPLACE, AVAILABILITY OF RAW MATERIALS, HEALTH CARE REGULATIONS AND
        THE STATE OF THE ECONOMY. READERS ARE CAUTIONED NOT TO PLACE UNDUE
        RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE
        DATE HEREOF, AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE
        FORWARD-LOOKING STATEMENTS.

        CRITICAL ACCOUNTING POLICIES

        The discussion and analysis of our financial condition and results of
        operations are based on the consolidated financial statements, which
        have been prepared in accordance with accounting principles generally
        accepted in the United States. The preparation of these consolidated
        financial statements requires estimates and assumptions that affect the
        reported amounts and disclosures.

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

        In general the critical accounting policies that may require judgments
        or estimates relate specifically to the recognition of revenue, the
        Allowance for Doubtful Accounts, Inventory Reserves for Obsolescence and
        Declines in Market Value, Impairment of Long-Lived Assets, Stock Based
        Compensation and Deferred Income Tax Valuation and Allowances.

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

        The Allowance for Doubtful Accounts is established for estimated losses
        resulting from the inability of our customers to make required payments.
        The assessment of specific receivable balances and required reserves is
        performed by management and discussed with the audit committee. We have
        identified specific customers where collection is probably and have
        established specific reserves, but to the extent collection is made, the
        allowance will be released. Additionally, of the financial condition of
        our customers were to deteriorate, resulting in an impairment of their
        ability to make payments, additional allowances may be required.
        Reserves are provided for excess and obsolete inventory, which are
        estimated based on a comparison of the quantity and cost of inventory on
        hand to management's forecast of customer demand. Customer demand is
        dependent on many factors and requires us to use significant judgment in
        our forecasting process. We must also make assumptions regarding the
        rate at which new products will be accepted in the marketplace and at
        which customers will transition from older products to newer products.
        Once a reserve is established, it is maintained until the product to
        which it relates is sold or otherwise disposed of, even if in subsequent
        periods we forecast demand for the product.

        In general, we are in a loss position for tax purposes, and have
        established a valuation allowance against deferred tax assets, as we do
        not believe it is likely that we will generate sufficient taxable income
        in future periods to realize the benefit of our deferred tax assets.
        Predicting future taxable income is difficult, and requires the use of
        significant judgment. At February 29, 2004, all of our deferred tax
        assets were reserved. Accruals are made for specific tax exposures and
        are generally not material to our operating results or financial
        position, nor do we anticipate material changes to these reserves in the
        near future.

        We have adopted SFAS No. 123, "Accounting for Stock-Based Compensation,"
        for Disclosure purposes. Under SFAS No. 123, we measure compensation for
        our stock- based employee compensation plan using the intrinsic value
        method prescribed in Accounting Principles Board ("APB") No. 25,
        "Accounting for Stock Issued to Employees" and its related
        interpretations. We provide pro forma disclosure of the effect on net
        income or loss as if the fair value based method prescribed in SFAS No.
        123 has been applied in measuring compensation expense.

        We have provided a full valuation reserve related to our substantial
        deferred tax assets. In the future, it sufficient evidence of our
        ability to generate sufficient future taxable income in certain tax
        jurisdictions becomes apparent, we may be required to reduce our
        valuation allowances, resulting in income tax benefits in our
        consolidated statement of operations. We evaluate the realizeability of
        the deferred tax assets and assess the need for valuation allowance
        quarterly. The utilization of the net operating loss carryforwards could
        be substantially limited due to restrictions imposed under federal and
        state laws upon a change of ownership.

        RESULTS OF OPERATIONS

        Consolidated net sales for Biomerica were $6,899,088 for the nine months
        ended February 29, 2004 as compared to $6,517,414 for the same period in
        the prior fiscal year. This represents an increase of $381,674 or 6% for
        the nine-month period. Of this increase $224,692 was attributable to an
        increase in sales at Lancer. Consolidated net sales for the quarter then
        ended were $2,464,873 as compared to $2,291,377 for the same period in
        the previous year. This represents an increase of $173,496, or 8%. Of
        this quarterly increase $131,336 was attributable to sales at Lancer.
        The nine-month increase in sales at Lancer was primarily attributable to
        increases in sales in Europe and South America and the three-month
        increase was due to increases in Europe. Increases in sales at Biomerica
        were a result of sales of new products and an increase in foreign sales.

       Cost of sales as a percentage of sales remained constant for the nine
       months at 69.3% and decreased from 68.2% to 66.5% for the quarter.
       Lancer's cost of sales as a percentage of sales increased from 71.2% to
       71.3% for the nine months and for the quarter decreased from 71.9% to
       70.1%. The Lancer percentage decrease in cost of goods sold was
       attributable to an increase in selling prices for the three months then
       ended. Biomerica's cost of sales as a percentage of sales increased for
       the nine months from 65.5% to 65.6%. For the quarter Biomerica's cost of
       sales increased from 60.2% to 61.1%. For the three months the increase
       was primarily due to higher material costs due to product mix and
       expenses in the Mexico facility.

        Selling, general and administrative costs increased by $137,066, or 6%
        for the nine months and by $60, or 0% for the quarter. Lancer had
        increased selling, general and administrative costs of $132,824 for the
        nine months and $39,657 for the quarter. Lancer had decreased labor and
        professional fees in the administrative area and had increased sales and
        marketing due to increased labor and advertising costs offset by a
        decrease in trade show costs.

        Research and development increased by $21,664, or 11.7% for the nine
        months and decreased by $9,883 for the three months. Lancer had an
        increase in research and development costs of $21,214 and decreased
        costs of $7,465 for the nine and three months, respectively. This
        increase for the nine months expenses was attributable to the
        development of a new product line. Biomerica had costs consistent with
        the prior year for the nine-month period and decreased costs of $2,418
        for the three months due to lower wages.

                                       20





<PAGE>

         For the nine months ended February 29, 2004, other income of $54,514
         was realized as compared to $51,108 in the prior year. In the prior
         year Lancer had proceeds from an insurance claim. In this fiscal year
         Biomerica realized proceeds from the sale of marketable securities. For
         the three months, other income was $21,256 as compared to $814. The
         increase was primarily due to the sale of securities by Biomerica.

         Interest expense decreased by $1,153 (5%) for the nine months compared
         to the previous year and increased by $1,171 for the quarter. The
         decrease was primarily due to the lower loan balance at Biomerica,
         whereas the quarterly increase was due to an increase of borrowing at
         Lancer.

         The following is a breakdown of the three and six month income
         statement by company for continuing operations:

<TABLE>
<CAPTION>
  3 MONTHS ENDED FEBRUARY 29, 2004
                                                      Biomerica          Lancer             Total
<S>                                                  <C>               <C>               <C>
  Sales                                              $  825,911        $1,638,962        $2,464,873
  Cost of goods                                        (497,371)       (1,149,066)       (1,646,437)
                                                     -----------       -----------       -----------
  Gross profit                                          328,540           489,896           818,436

  Selling, general & administrative                     248,497           406,714           655,211
  Research & development                                 37,993            27,377            65,370
                                                     -----------       -----------       -----------
  Total operating expenses                              286,490           434,091           720,581

  Operating profit                                       42,050            55,805            97,855

  Other (income) expenses
  Interest                                                8,119               625             8,744
  Misc income                                            (9,990)          (11,266)          (21,256)
                                                     -----------       -----------       -----------
  Total other (income) expenses                          (1,871)          (10,641)          (12,512)

  Gain before interest in subsidiary                     43,921            66,446           110,367

  9 MONTHS ENDED FEBRUARY 29, 2004

  Sales                                              $2,376,367        $4,522,721        $6,899,088
  Cost of goods                                      (1,558,581)       (3,225,683)       (4,784,264)
                                                     -----------       -----------       -----------
  Gross profit                                          817,786         1,297,038         2,114,824

  Selling, general & administrative                     948,787         1,301,299         2,250,086
  Research & development                                119,885            87,238           207,123
                                                     -----------       -----------       -----------
  Total operating expenses                            1,068,672         1,388,537         2,457,209

  Operating loss                                       (250,886)          (91,499)         (342,385)

  Other (income) expenses
  Interest                                               23,234               886            24,120
  Misc income                                           (31,890)          (22,624)          (54,514)
                                                     -----------       -----------       -----------
                                                         (8,656)          (21,738)          (30,394)
</TABLE>

         Please refer to Note 3 in the Notes to the Consolidated Financial
         Statements in the Company's report on Form 10-KSB for the year ended
         May 31, 2003, for a more in-depth discussion of subsidiaries.

         LIQUIDITY AND CAPITAL RESOURCES

         As of February 29, 2004, the Company had cash and available-for-sale
         securities in the amount of $212,500 and working capital of $2,368,849.
         Cash and working capital totaling $170,471 and $2,555,175,
         respectively, relates to the Lancer subsidiary. Lancer's line of credit
         restricts Biomerica's ability to draw on Lancer's resources and, as
         such, said cash, working capital and equity are not available to
         Biomerica.

                                       21





<PAGE>

         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 and
         Allergy Immuno Technologies was sold in May 2002. ReadyScript and
         Allergy Immuno Technologies were previously contributors to the
         Company's losses. The Company has reduced operating costs through
         certain cost reduction efforts and plans to concentrate on its core
         business in Lancer and Biomerica to increase sales. There can be no
         assurance 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. Should the Company be
         unable to reduce costs adequately or should the Company be unable to
         secure additional financing, the result for the Company could be the
         inability to continue operations.

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

         Our independent certified public accountants have concluded that these
         factors, among others, raise substantial doubt as to the Company's
         ability to continue as a going concern for a reasonable period of time,
         and have, therefore modified their audit report on the Company's annual
         consolidated financial statements as of and for the year ended May 31,
         2003 in the form of an explanatory paragraph describing the events that
         have given rise to this uncertainty. The consolidated financial
         statements do not include any adjustments relating to the
         recoverability and classification of asset carrying amounts or the
         amount and classification of liabilities that might result should the
         Company be unable to continue as a going concern.

         These consolidated financial statements have been prepared assuming
         that the Company will continue as a going concern. The Company has
         operating and liquidity concerns due to historically reporting net
         losses and negative cash flows from operations. Biomerica's
         shareholder's line of credit expired September 13, 2003. The unpaid
         principal and interest of $337,835 was converted into a note payable
         bearing interest at 8% and payable in monthly installments over four
         years. The Company was making payments of $7,300 per month towards
         principal and interest. As of February 29, 2004 the terms of the loan
         were still being negotiated. On March 22, 2004 a Loan Modification,
         Forbearance and Security Agreement and an Amended and Restated
         Promissory Note were finalized. The balance of interest and principal
         as of March 22, 2004 was $313,318. The terms of the agreements are that
         the lender has agreed to a forbearance of any payments for the length
         of the agreement, which expires September 1, 2004. Collateral for the
         loan is all the assets of the Company except the Lancer common stock
         currently owned by Biomerica. A warrant for 40,000 shares of restricted
         common stock exercisable at a price of $.51 per share have been awarded
         as compensation for the forbearance. In addition. Janet Moore has
         agreed to defer accrued wages now owed to her and continue deferring
         wages earned during this forbearance period.

                                       22





<PAGE>

         During the nine months ended February 29, 2004, the Company operations
         used cash of $149,352. This compares to cash provided by operations of
         $438,092 in the same period in the prior fiscal year. The Lancer
         subsidiary used cash in operations of $117,909 during this fiscal year
         and provided cash of $583,384 in the last fiscal year. Cash provided by
         financing activities was $162,602, which resulted from a private
         placement of $50,500, increase in shareholder loan of $2,666, change in
         minority interest of $9,931 and an increase in the term loan at Lancer
         of $97,931 and exercise of stock option of $2,000.

         The Company purchased $339,016 in fixed assets during the first nine
         month of this fiscal year. Of this, $314,447 was a result of
         expenditures at the Lancer subsidiary.

         The Chief Executive Officer and Chief Financial Officer of Biomerica
         are not currently taking a cash salary. Their wages are being recorded
         as an administrative expense and reported as part of accrued wages on
         the balance sheet.

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

         At February 29, 2004, Lancer has a $400,000 line of credit with
         Cuyamaca Bank, which expires January 8, 2005. Borrowings are made at
         prime plus 2.0% (6% at February 29, 2004, and are limited to 80% of
         accounts receivable less than 90 days old. The outstanding balance at
         February 29, 2004 was $0 and the unused portion available was
         approximately $400,000. Lancer was in compliance with its debt
         covenants at February 29, 2004.

         The line of credit is collateralized by substantially all the assets of
         Lancer, including inventories, receivables, and equipment. The lending
         agreement for the line of credit requires, among other things, that
         Lancer maintain a tangible net worth ratio of $2,700,000 and a zero
         balance be maintained for 30 consecutive days during the term. Lancer
         is not required to maintain compensating balances in connection with
         this lending agreement. Proceeds from this line cannot be used to
         support the operations of Biomerica.

         Lancer also has a term loan for $100,000 with Cuyamaca Bank that
         matures January 8, 2008. This loan requires 48 monthly payments of
         approximately $2,300 (principal and interest) at an interest rate of
         prime plus 2% (6% at February 29, 2004). The outstanding balance at
         February 29, 2004 was approximately $98,000, with approximately $25,000
         classified as a current liability. The term loan is for the purchase of
         new equipment but is collateralized by substantially all of the assets
         of the corporation.

          On March 23, 2004, in order to strengthen its balance sheet, the board
          of directors of Lancer approved a private placement with the intent of
          raising between $150,000 and $350,000. The price of the restricted
          shares was $.60 per share with one warrant exercisable at $.85 per
          share for each share purchased. A total of 450,000 shares of
          restricted common stock were subscribed to, raising a total of
          $270,000.

         Biomerica entered into an agreement for a line of credit agreement on
         September 12, 2000 with a shareholder whereby the shareholder would
         loan to the Company, as needed, up to $500,000 for working capital
         needs. The line of credit bore interest at 8%, was secured by accounts
         receivable and inventory, and expired September 13, 2003. The
         outstanding principal and interest on September 12, 2003 was $337,835,
         including principal of $288,050 and interest of $48,985, all of which
         was converted into a note payable bearing interest at 8% with interest
         and principal due monthly. The Company was paying $7,300 per month
         toward interest and principal. As of February 29, 2004 the terms of the
         loan were still being negotiated. On March 22, 2004 a Loan
         Modification, Forbearance and Security Agreement and an Amended and
         Restated Promissory Note were finalized. The balance of interest and
         principal as of March 19, 2004 was $313,318. The terms of the
         agreements are that Janet Moore has agreed to a forbearance of any
         payments for the length of the agreement, which expires September 1,
         2004. Collateral for the loan is all the assets of the Company except
         the Lancer common stock currently owned by Biomerica. A warrant for
         40,000 shares of restricted common stock exercisable at a price of $.51
         per share have been awarded as compensation for the forbearance. In
         addition, Janet Moore has agreed to defer accrued wages now owed to her
         and continue deferring wages earned during this forbearance period.

                                       23





<PAGE>

       Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

       You should read the following factors in conjunction with the factors
       discussed elsewhere in this and our other filings with the SEC and in
       materials incorporated by reference in these filings. The following is
       intended to highlight certain factors that may affect the financial
       condition and results of operations of Biomerica and are not meant to be
       an exhaustive discussion of risks that apply to companies such as
       Biomerica. Like other businesses, Biomerica is susceptible to
       macroeconomic downturns in the United States or abroad, as were
       experiences in fiscal year 2002, that may affect the general economic
       climate and performance of Biomerica or its' customers. Aside from
       general macroeconomic downturns, the additional material factors that
       could affect future financial results include, but are not limited to:
       Terrorist attacks and the impact of such events; diminished access to raw
       materials that directly enter into our manufacturing process; shipping
       labor disruption or other major degradation of the ability to ship our
       products to end users; inability to successfully control our margins
       which are affected by many factors including competition and product mix;
       protracted shutdown of the U.S. Border due to an escalation of terrorist
       or counter terrorist activity; any changes in our business relationships
       with international distributors or the economic climate they operate in;
       any event that has a material adverse impact on our foreign manufacturing
       operations may adversely affect our operation as a whole; failure to
       manage the future expansion of our business could have an adverse affect
       on our revenues and profitability; possible costs in complying with
       government regulations and the delays in receiving required regulatory
       approvals or the enactment of new adverse regulations or regulatory
       requirements; numerous competitors, most of which have substantially
       greater financial and other resources than we do; potential claims and
       litigation brought by patients or medical professionals alleging harm
       caused by the use of or exposure to our products; quarterly variations in
       operating results caused by a number of factors, including business and
       industry conditions and other factors beyond our control. All of these
       factors make it difficult to predict operating results for any particular
       period.

       Item 4.  CONTROLS AND PROCEDURES

       The Company's Chief Executive Officer and Chief Financial Officer (the
       Company's principal executive officer and principal financial officer,
       respectively) have concluded, based on their evaluation as of February
       29, 2004, that the design and operation of the Company's "disclosure
       controls and procedures" (as defined in rules 13a-15(e) under the
       Securities Exchange Act of 1934, as amended ("Exchange Act") are
       effective to ensure that information required to be disclosed by the
       Company in the reports filed or submitted by the Company under the
       Exchange Act is accumulated, recorded, processed, summarized and reported
       to the Company's management, including the Company's principal executive
       officer and principal financial officer, as appropriate to allow timely
       decisions regarding whether or not disclosure is required.

       During the quarter ended February 29, 2004, there were no changes in the
       Company's "internal controls over financial reporting" (as defined in
       Rule 13a-15(f) under the Exchange Act) that have materially affected, or
       are reasonably likely to materially affect, the Company's internal
       controls over financial reporting.

                                       24





<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS.  Inapplicable.

Item     2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The following shares of
         Restricted common stock were issued during the nine months Ended
         February 29, 2004:
                                    Class or Persons     Price
         Date     Title    Amount   Sold to              Per Share     Total
         ----     -----    ------   -------              ---------     -----

         6/5/03   common   46,000  qualified investors       $.25     $11,500
         6/6/03   common    8,000  qualified investor        $.25       2,000
         6/9/03   common    8,000  qualified investor        $.25       2,000
         6/17/03  common  100,000  qualified investor        $.25      25,000
                                   and insider
         6/23/03  common   20,000  qualified investor        $.25       5,000
         6/26/03  common   20,000  qualified investor        $.25       5,000

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

Item 3.  DEFAULTS UPON SENIOR SECURITIES.  Inapplicable.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.  Inapplicable.

Item 5.  OTHER INFORMATION.  Inapplicable.

Item 6.  EXHIBITS AND REPORTS ON FORM 8-K. Inapplicable.

Exhibits

- ----

99.1     Certifications of Chief Executive Officer and Chief Financial Officer
         pursuant To 18 U.S.C., Section 1350, as adopted pursuant to Section 302
         and 906 of the Sarbanes-Oxley Act of 2002.
99.2     Warrant Agreement dated March 31, 2004.
99.3     Amended and Restated Promissory Note dated March 19, 2004.
99.4     Loan Modification, Forbearance and Security Agreement dated March 19,
         2004.

                                       25





<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date:  April 14, 2004

                                             BIOMERICA, INC.

                                             By: /S/ Zackary S. Irani
                                                 -----------------------------
                                             Zackary S. Irani
                                             Chief Executive Officer

                                       26








</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>3
<FILENAME>biomerican_10qex99-1.txt
<TEXT>
<PAGE>

Exhibit 99.1

                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Zackary S. Irani, certify that:

1.     I have reviewed this quarterly report on Form 10-QSB of Biomerica, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
       statement of a material fact or omit to state a material fact necessary
       to make the statements made, in light of the circumstances under which
       such statements were made, not misleading with respect to the period
       covered by this report;

3.     Based on my knowledge, the financial statements, and other financial
       information included in this quarterly report, fairly present in all
       material respects the financial condition, results of operations and cash
       flows of the registrant as of, and for, the periods presented in this
       quarterly report;

4.     The registrant's other certifying officer and I are responsible for
       establishing and maintaining disclosure controls and procedures (as
       defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
       and we have:

       a)     designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              quarterly report is being prepared;

       b)     evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

       c)     disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on
       our most recent evaluation of our internal control over financial
       reporting, to the registrant's auditors and the audit committee of
       registrant's board of directors (or persons performing the equivalent
       functions):

       a)     all significant deficiencies in the design or operation of
              internal controls which are reasonably likely to adversely affect
              the registrant's ability to record, process, summarize and report
              financial information; and

       b)     any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

     Date:  April 14, 2004

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

<PAGE>



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

         I, Janet Moore, certify that:

1.     I have reviewed this quarterly report on Form 10-QSB of Biomerica, Inc.;

2.     Based on my knowledge, this quarterly report does not contain any untrue
       statement of a material fact or omit to state a material fact necessary
       to make the statements made, in light of the circumstances under which
       such statements were made, not misleading with respect to the period
       covered by this report;

3.     Based on my knowledge, the financial statements, and other financial
       information included in this quarterly report, fairly present in all
       material respects the financial condition, results of operations and cash
       flows of the registrant as of, and for, the period presented in this
       quarterly report;

4.     The registrant's other certifying officer and I are responsible for
       establishing and maintaining disclosure controls and procedures (as
       defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
       and we have:

       a)     designed such disclosure controls and procedures to ensure that
              material information relating to the registrant, including its
              consolidated subsidiaries, is made known to us by others within
              those entities, particularly during the period in which this
              quarterly report is being prepared;

       b)     evaluated the effectiveness of the registrant's disclosure
              controls and procedures and presented in this report our
              conclusions about the effectiveness of the disclosure controls and
              procedures, as of the end of the period covered by this report
              based on such evaluation; and

       d)     disclosed in this report any change in the registrant's internal
              control over financial reporting that occurred during the
              registrant's most recent fiscal quarter that has materially
              affected, or is reasonably likely to materially affect, the
              registrant's internal control over financial reporting; and

5.     The registrant's other certifying officer and I have disclosed, based on
       our most recent evaluation of our internal control over financial
       reporting, to the registrant's auditors and the audit committee of
       registrant's board of directors (or persons performing the equivalent
       functions):

       a)     all significant deficiencies in the design or operation of
              internal controls which are reasonably likely to adversely affect
              the registrant's ability to record, process, summarize and report
              financial information; and

       b)     any fraud, whether or not material, that involves management or
              other employees who have a significant role in the registrant's
              internal controls; and

Date:  April 14, 2004

     /s/ Janet Moore
     ---------------
     Chief Financial Officer

<PAGE>



                    CERTIFICATION OF CHIEF EXECUTIVE OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Zackary S. Irani, certify that the Quarterly Report on Form 10-QSB for the
fiscal quarter ended February 29, 2004, fully complies with the requirements in
Sections 13(a) Or 15(d) of the Securities Exchange Act of 1934, and that the
information contained In such quarterly report fairly presents, in all material
respects, the financial Condition and results of operations of Biomerica, Inc.
for the periods being presented.

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

April 14, 2004





<PAGE>



                    CERTIFICATION OF CHIEF FINANCIAL OFFICER
                                   PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Janet Moore, certify that the Quarterly Report on Form 10-QSB for the fiscal
Quarter ended February 29, 2004, fully complies with the requirements in
Sections 13(a) Or 15(d) of the Securities Exchange Act of 1934, and that the
information contained In such quarterly report fairly presents, in all material
respects, the financial Condition and results of operations of Biomerica, Inc.
for the periods being presented.

                                                     /s/ Janet Moore
                                                     --------------------------
                                                       Janet Moore
                                                       Chief Financial Officer

April 14, 2004


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>4
<FILENAME>biomerica_10qex99-2.txt
<TEXT>
<PAGE>

Exhibit 99.2

                          COMMON STOCK PURCHASE WARRANT

THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR ANY
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH
SALE OR TRANSFER IS IN ACCORDANCE WITH THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SUCH ACT AND APPLICABLE LAWS IS AVAILABLE WITH RESPECT THERETO.


                          COMMON STOCK PURCHASE WARRANT

                                                        Number of Shares: 40,000
                                                          Shares of Common Stock

                                 BIOMERICA, INC.


         1. ISSUANCE. This Warrant is issued to the JANET MOORE TRUST DATED
8/21/98, JANET MOORE TRUSTEE ("HOLDER") by BIOMERICA, INC., a Delaware
corporation (hereinafter, with its successors, called the "COMPANY").

         2. PURCHASE PRICE; NUMBER OF SHARES. The registered Holder of this
Warrant is entitled, upon surrender of this Warrant with the subscription form
annexed hereto duly executed and the exercise price thereof, at the principal
office of the Company, to purchase from the Company FORTY THOUSAND (40,000)
fully paid and nonassessable shares (the "SHARES") of Common Stock, $0.08 par
value, of the Company (the "COMMON STOCK"), with an exercise price per share of
$.51 (the "PURCHASE PRICE"). Until such time as this Warrant is exercised in
full or expires, the Purchase Price and the securities issuable upon exercise of
this Warrant are subject to adjustment as hereinafter provided. The person or
persons in whose name or names any certificate representing Shares of Common
Stock is issued hereunder shall be deemed to have become the holder of record of
the Shares represented thereby as at the close of business on the date that this
Warrant is exercised with respect to such Shares, whether or not the transfer
books of the Company shall be closed.

         3. PAYMENT OF PURCHASE PRICE; ISSUANCE OF SHARES. The purchase price
shall be paid in cash or by check. Upon the exercise of the rights represented
by this Warrant, certificates for the Shares of Stock so purchased shall be
delivered to the Holder as soon as possible and in any event within thirty (30)
days after such exercise and, unless this Warrant has been fully exercised or
expired, a new Warrant representing the portion of Shares, if any, with respect
to which this Warrant shall not have been exercised shall also be issued to the
Holder as soon as possible and in any event within thirty (30) days.

<PAGE>


         4. PARTIAL EXERCISE. This Warrant may be exercised in part, and the
Holder shall be entitled to receive a new warrant, which shall be dated as of
the date of this Warrant, covering the number of shares in respect of which this
Warrant shall not have been exercised.

         5. FRACTIONAL SHARES. In no event shall any fractional share of Common
Stock or Common Stock be issued upon any exercise of this Warrant. If, upon
exercise of this Warrant in its entirety, the Holder would, except as provided
in this Section 5, be entitled to receive a fractional share of Common Stock or
Common Stock, then the Company shall pay the Holder cash equal to the fraction
of such share multiplied by the Purchase Price per share.

         6. EXPIRATION DATE; AUTOMATIC EXERCISE. This Warrant shall expire at
5:00 p.m., Pacific Standard Time, on March 31, 2009, and shall be void
thereafter.

         7. RESERVED SHARES; VALID ISSUANCE. The Company covenants that it will
at all times from and after the date hereof reserve and keep available such
number of its authorized shares of Common Stock, no par value, of the Company,
free from all preemptive or similar rights therein, as will be sufficient to
permit the exercise of this Warrant in full. The Company further covenants that
such shares as may be issued pursuant to such exercise and/or conversion will,
upon issuance, be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof.

         8. STOCK SPLITS AND DIVIDENDS. If after the date hereof the Company
shall subdivide the Common Stock, by stock split or otherwise or combine the
Common Stock, or issue additional shares of Common Stock in payment of a stock
dividend on the Common Stock, the number of shares of Common Stock issuable on
the exercise of this Warrant shall forthwith be proportionately increased in the
case of a stock split or stock dividend, or proportionately decreased in the
case of a combination, and the Purchase Price shall forthwith be proportionately
decreased in the case of stock split or stock dividend, or proportionately
increased in the case of a combination.

         9. MERGERS AND RECLASSIFICATIONS. If after the date hereof the Company
shall enter into any Reorganization (as hereinafter defined), then, as a
condition of such Reorganization, lawful provisions shall be made, and duly
executed documents evidencing the same from the Company or its successor shall
be delivered to the Holder, so that the Holder shall thereafter have the right
to purchase, at a total price not to exceed that payable upon the exercise of
the then-unexercised portion of this Warrant, the kind and amount of shares of
stock and other securities and property receivable upon such Reorganization by a
holder of the number of shares of Common Stock which might have been purchased
by the Holder immediately prior to such Reorganization upon the exercise of the
unexercised portion of this Warrant, and in any case appropriate provisions
shall be made with respect to the rights and interest of the Holder to the end
that the provisions hereof (including without limitation, provisions for the
adjustment of the Purchase Price and the number of shares issuable hereunder and
the provisions relating to the net issue election) shall thereafter be
applicable in relation to any shares of stock or other securities and property
thereafter deliverable upon exercise hereof. For the purposes of this Section 9,


                                       2
<PAGE>

the term "REORGANIZATION" shall mean any reclassification or capital
reorganization (other than as a result of a subdivision, combination or stock
dividend provided for in Section 8 hereof), or any consolidation of the Company
with, or merger of the Company into, another corporation or other business
organization (other than a merger or consolidation in which the Company is the
surviving corporation or which does not result in any reclassification or change
of the outstanding Common Stock, or pursuant to which less than 50% of the
voting power of the Company is transferred to persons who were not stockholders
of the Company prior to the transaction), or any sale or conveyance to another
corporation or other business organization of all or substantially all of the
assets of the Company.

         10. CERTIFICATE OF ADJUSTMENT. Whenever the Purchase Price or the
number of Shares purchasable hereunder is adjusted, as herein provided, the
Company shall promptly deliver to the Holder a certificate of the Company's
chief executive officer setting forth the purchase price and number of shares
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.

         11. NOTICES OF RECORD DATE, ETC. In the event of:

         (a)      any reclassification of the capital stock of the Company,
                  capital reorganization of the Company, consolidation or merger
                  involving the Company, or sale or conveyance of all or
                  substantially all of its assets; or

         (b)      any voluntary or involuntary dissolution, liquidation or
                  winding-up of the Company;

then, in each such event, the Company will provide or cause to be provided to
the Holder a written notice thereof at the time such notice is provided to the
holders of the Company's Common Stock.

         12. REPRESENTATIONS, WARRANTIES, AND COVENANTS OF THE COMPANY. This
Warrant is issued and delivered by the Company and accepted by Holder on the
basis of the following representations, warranties and covenants made by the
Company:

         A.       The Company has all necessary authority to issue, execute and
                  deliver this Warrant and to perform its obligations hereunder.
                  This Warrant has been duly authorized, issued, executed and
                  delivered by the Company and is the valid and binding
                  obligation of the Company, enforceable in accordance with its
                  terms, subject to laws of general application related to
                  bankruptcy, insolvency and the relief of debtors and other
                  laws of general application affecting enforcement of
                  creditors' rights generally, rules of law governing specific
                  performance, injunctive relief or other equitable remedies.

         B.       The shares of Common Stock issuable upon the exercise of this
                  Warrant have been duly authorized and reserved for issuance by
                  the Company and, when issued in accordance with the terms
                  hereof, will be validly issued, fully paid and nonassessable.

                                       3
<PAGE>

All representations and warranties of the Company and the Holder hereof
contained herein shall survive the exercise and conversion of this Warrant (or
any part hereof) or the termination or expiration of the rights hereunder.

         13. AMENDMENT. The terms of this Warrant may be amended, modified or
waived only with the prior written consent of the Holder and the Company.

         14. REPRESENTATIONS AND COVENANTS OF THE HOLDER. This Common Stock
Purchase Warrant has been entered into by the Company in reliance upon the
following representations and covenants of the Holder, which by its execution
hereof the Holder hereby confirms:

         A.       INVESTMENT PURPOSE. This Warrant and the right to acquire the
                  Common Stock issuable upon exercise of the Holder's rights
                  contained herein will be acquired for investment and not with
                  a view to the sale or distribution of any part thereof, and
                  the Holder has no present intention of selling or engaging in
                  any public distribution of the same except pursuant to a
                  registration or exemption.

         B.       ACCREDITED INVESTOR. Holder is an "accredited investor" within
                  the meaning of the Securities and Exchange Commission Rule 501
                  of Regulation D, as presently in effect.

         C.       PRIVATE ISSUE. The Holder understands (i) that the Common
                  Stock issuable upon exercise of the Holder's rights contained
                  herein is not registered under the 1933 Act or qualified under
                  applicable state securities laws on the ground that the
                  issuance contemplated by this Warrant will be exempt from the
                  registration and qualifications requirements thereof, (ii)
                  that the Company's reliance on such exemption is predicated on
                  the representations set forth in this Section 14; and (iii)
                  that the shares issuable upon exercise of this Warrant shall
                  bear a legend substantially similar to the legend on the first
                  page of this Warrant.

         D.       FINANCIAL RISK. The Holder has such knowledge and experience
                  in financial and business matters as to be capable of
                  evaluating the merits and risks of its investment and has the
                  ability to bear the economic risks of its investment.

         15. NOTICES, TRANSFERS, ETC..

         A.       Any notice or written communication required or permitted to
                  be given to the Holder may be given by first class mail or
                  delivered to the Holder at the address most recently provided
                  by the Holder to the Company.

         B.       This Warrant may not be transferred by the Holder with respect
                  to any or all of the shares purchasable hereunder without
                  compliance with applicable federal and state securities laws.
                  Upon surrender of this Warrant to the Company, together with
                  the assignment notice annexed hereto duly executed, for
                  transfer of this Warrant as an entirety by the Holder, the
                  Company shall issue a new warrant of the same denomination to


                                       4
<PAGE>

                  the assignee. Upon surrender of this Warrant to the Company,
                  together with the assignment hereof properly endorsed, by the
                  Holder for transfer with respect to a portion of the shares of
                  Common Stock purchasable hereunder, the Company shall issue a
                  new warrant to the assignee, in such denomination as shall be
                  requested by the Holder hereof, and shall issue to such Holder
                  a new warrant covering the number of shares in respect of
                  which this Warrant shall not have been transferred.

         C.       In case this Warrant shall be mutilated, lost, stolen or
                  destroyed, the Company shall issue a new warrant of like tenor
                  and denomination, and deliver the same (i) in exchange and
                  substitution for and upon surrender and cancellation of any
                  mutilated Warrant, or (ii) in lieu of any Warrant lost, stolen
                  or destroyed, upon receive of an affidavit of the Holder or
                  other evidence reasonably satisfactory to the Company of the
                  loss, theft or destruction of such Warrant and the agreement
                  of Holder to indemnify the Company with respect to such
                  matter.

         16. NO IMPAIRMENT. The Company will not, by amendment of its Articles
or through any reclassification, capital reorganization, consolidation, merger,
sale or conveyance of assets, dissolution, liquidation, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
of performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such action as may be necessary or appropriate in order to protect the rights of
the Holder, provided however, that no issuance of securities, whether
convertible or otherwise, when made in accordance with the Company's Articles
shall be considered an impairment of the Holder's rights hereunder.

         17. GOVERNING LAW. The provisions and terms of this Warrant shall be
governed by and construed in accordance with the internal laws of the State of
California.

         18. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon the
Company's successors and assigns and shall inure to the benefit of the Holder's
successors, legal representatives and permitted assigns.

         19. MARKET STAND-OFF AGREEMENT. The Holder of this Warrant, if
requested by the Company or the lead underwriter of any public offering of the
Common Stock or other securities of the Company (the "Lead Underwriter"), hereby
irrevocably agrees not to sell, contract to sell, grant any option to purchase,
transfer the economic risk of ownership in, make any short sale of, pledge or
otherwise transfer or dispose of any interest in any Common Stock or any
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (except Common Stock included in such
public offering or acquired on the public market after such offering) during the
one hundred and eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act of 1933, as
amended, or such shorter period of time as the Lead Underwriter shall specify.
The Grantee further agrees to sign such documents as may be requested by the


                                       5
<PAGE>

Lead Underwriter to further effect the foregoing and agrees that the Company may
impose stop-transfer instructions with respect to such Common Stock subject
until the end of such period. The Company and the Grantee acknowledge that each
Lead Underwriter of a public offering of the Company's stock, during the period
of such offering and for the one hundred and eighty (180) day period thereafter,
is an intended beneficiary of this Section 19.



                                         BIOMERICA, INC.

                                         By ____________________________________
                                         Name Printed: Zackary S. Irani
                                                       Chairman

                                         Dated:  March 31, 2004


                                       6
<PAGE>



                                     ANNEX A

                                 EXERCISE NOTICE

To:      BIOMERICA, INC.


Date:  _______________

The undersigned hereby elects to exercise the attached Warrant as to shares of
Common Stock covered by this Warrant and hereby tenders the exercise price for
such shares, together with applicable transfer taxes, if any. The certificate(s)
for such shares shall be issued in the name of the undersigned.

The undersigned agrees not to sell or otherwise transfer or dispose of any
Common Stock, Preferred Stock, or other securities of the Company held by the
undersigned during a period of time determined by the Company and its
underwriters (not to exceed 180 days) following the effective date of the
registration statement of the Company filed under the 1933 Act with respect to
the Company's initial public offering. The undersigned further agrees to execute
any standard lock-up agreement that the underwriters require in connection with
such offering. The Company may impose stop-transfer instructions with respect to
the Common Stock, Preferred Stock, or other securities subject to the foregoing
restriction until the end of said period.

In exercising its rights hereby, the undersigned hereby confirms the
representations and statements made in Section 16 of the Warrant with respect to
the shares being acquired upon exercise hereof.

                              Name of Holder: _____________________________

                              Signature of Holder: ________________________

                              Name for Registration: ______________________

                              Mailing Address: ____________________________
                                               ____________________________
                                               ____________________________


<PAGE>



                                     ANNEX B

                                   ASSIGNMENT

For value received, __________________________ hereby sells, assigns and
transfers unto _________________________________________________________________
________________________________________________________________________________
[PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE] the within Warrant, and
does hereby irrevocably constitute and appoint
_________________________________________________ its attorney to transfer the
within Warrant on the books of the within named Company with full power of
substitution on the premises.

Dated:  _______________________________
Name of Holder:  ______________________

By: ___________________________________
Name Printed: _________________________
Title: ________________________________
In the presence of:

_______________________________________



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.3
<SEQUENCE>5
<FILENAME>biomerica_10qex99-3.txt
<TEXT>

<PAGE>

Exhibit 99.3

                      AMENDED AND RESTATED PROMISSORY NOTE



$313,318.00                     March 19, 2004                Irvine, California


Maturity Date: September 1, 2004 (see Section 4 below).

         1. FOR VALUE RECEIVED, BIOMERICA, INC., a Delaware corporation
("BORROWER") promise to pay to the order of JANET MOORE, as Trustee of the JANET
MOORE TRUST DATED AUGUST 21, 1998 ("LENDER"), the principal sum of Three Hundred
Thirteen Thousand Three Hundred Eighteen Dollars ($313,318.00) (as amended,
restated, renewed, extended or otherwise modified from time to time, the
"NOTE"), plus interest as specified in this Note. This Note evidences a loan
(the "LOAN") from Lender to Borrower, which Loan is subject to the terms and
conditions of that certain Loan Modification, Forbearance and Security Agreement
of even date herewith between Borrower and Lender (as amended, restated or
otherwise modified from time to time, the "AGREEMENT").

         2. This Note is secured as described in the Agreement..

         3. The principal sum outstanding from time to time under this Note
shall bear interest at the rate of eight percent (8%) per annum. Interest shall
be calculated on the basis of the actual days elapsed.

         4. The entire principal balance of this Note, together with all accrued
and unpaid interest, shall be due and payable on September 1, 2004 (the
"Maturity Date"). The Agreement contains provisions for the acceleration of the
maturity of this Note.

         5. Borrower may prepay some or all of the principal under this Note,
together with accrued interest thereon, without premium or penalty.

         6. From and after the occurrence of an "Event of Default" as defined
below, all sums owing on this Note (including all unpaid principal, accrued
interest and any other sums outstanding hereunder), at the option of Lender,
shall bear interest until paid in full at an annual rate (the "DEFAULT RATE") of
twelve percent (12%). Compounding of interest may result if outstanding interest
hereunder accrues interest at the Default Rate.

         7. From and after maturity of this Note (whether upon scheduled
maturity, by acceleration or otherwise), all sums then due and payable under
this Note, including all unpaid principal, accrued interest and any other sums
outstanding hereunder, shall bear interest until paid in full at the Default
Rate.

         8. If any of the following "EVENTS OF DEFAULT" occur, all sums of
principal and interest under this Note shall become immediately due and payable
without notice of default, presentment or demand for payment, protest or notice
of nonpayment or dishonor, or other notices or demands of any kind or character:

                                       1
<PAGE>

                  (a) Borrower fails to perform any obligation under this Note
to pay principal or interest, and does not cure that failure within five (5)
days after the date when due; or

                  (b) Borrower fails to perform any other obligation under this
Note to pay money, and does not cure that failure within fourteen (14) days
after written notice from Lender; or

                  (c) Borrower fails to perform any other covenant or agreement
under this Note as and when due, and does not cure that failure within
twenty-one (21) days after written notice from Lender; or

                  (d) Under the Agreement, an Event of Default (as defined
therein) occurs.

         9. It shall be an "Event of Default" under this Note if Borrower
becomes the subject of any bankruptcy or other voluntary or involuntary
proceeding, in or out of court, for the adjustment of debtor-creditor
relationships ("INSOLVENCY PROCEEDING"). If that happens, all sums of principal
and interest under this Note shall automatically become immediately due and
payable without notice of default, presentment or demand for payment, protest or
notice of nonpayment or dishonor, or other notices or demands of any kind or
character.

         10. Unless Lender provides subsequent written instructions to Borrower,
all amounts payable under this Note are payable in lawful money of the United
States at the following address:

                                 c/o Janet Moore
                                 (confidential)

         11. If any lawsuit, reference or arbitration is commenced which arises
out of or relates to this Note, the Agreement or the Loan, the prevailing party
shall be entitled to recover from each other party such sums as the court,
referee or arbitrator may adjudge to be reasonable attorneys' fees in the
action, reference or arbitration, in addition to costs and expenses otherwise
allowed by law. Following an Event of Default, including any matter arising out
of or relating to any Insolvency Proceeding, Borrower agrees to pay all of
Lender's costs and expenses, including attorneys' fees, which may be incurred in
enforcing or protecting Lender's rights or interests. From the time(s) incurred
until paid in full to Lender, all such sums shall bear interest at the Default
Rate.

         12. This Note is governed by the laws of the State of California,
without regard to the choice of law rules of that State.

         13. Borrower agrees that the holder of this Note may accept additional
or substitute security for this Note, or release any security or any party
liable for this Note, or extend or renew this Note, all without notice to
Borrower and without affecting the liability of Borrower.

                                       2
<PAGE>

         14. If Lender delays in exercising or fails to exercise any of its
rights under this Note, that delay or failure shall not constitute a waiver of
any of Lender's rights, or of any breach, default or failure of condition of or
under this Note. No waiver by Lender of any of Lender's rights, or of any such
breach, default or failure of condition shall be effective, unless the waiver is
expressly stated in a writing signed by Lender. All of Lender's remedies in
connection with this Note or under applicable law shall be cumulative, and
Lender's exercise of any one or more of those remedies shall not constitute an
election of remedies.

         15. This Note inures to and binds the heirs, legal representatives,
successors and assigns of Borrower and Lender; provided, however, that Borrower
may not assign this Note or the Loan, or assign or delegate any of its rights or
obligations, without the prior written consent of Lender in each instance.
Lender in Lender's sole and absolute discretion may, at any time, sell,
transfer, or assign this Note and the Agreement, and any and all servicing
rights with respect thereto. If Lender so requests, Borrower shall sign and
deliver a new note under the same terms and conditions to be issued in exchange
for this Note.

         16. As used in this Note, the terms "Lender," "holder" and "holder of
this Note" are interchangeable. As used in this Note, the word "include(s)"
means "include(s), without limitation," and the word "including" means
"including, but not limited to."

         17. It is expressly stipulated and agreed to be the intent of Borrower
and Lender at all times to comply with applicable state law or applicable United
States federal law (to the extent that it permits Lender to contract for,
charge, take, reserve, or receive a greater amount of interest than under state
law) and that this Section shall control every other covenant and agreement in
this Note and the Agreement. If applicable state or federal law should at any
time be judicially interpreted so as to render usurious any amount called for
under this Note or under the Agreement, or contracted for, charged, taken,
reserved, or received with respect to the Loan, or if Lender's exercise of the
option to accelerate the maturity date, or if any prepayment by Borrower results
in Borrower having paid any interest in excess of that permitted by applicable
law, then it is Lender's express intent that all excess amounts theretofore
collected by Lender shall be credited on the principal balance of this Note and
all other indebtedness and the provisions of this Note and the Agreement shall
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
documents, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder or thereunder. All
sums paid or agreed to be paid to Lender for the use, forbearance, or detention
of the Loan shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term of the Loan
until payment in full so that the rate or amount of interest on account of the
Loan does not exceed the maximum lawful rate from time to time in effect and
applicable to the Loan for so long as the Loan is outstanding.

         18. This Note is an amendment and restatement of any and all promissory
notes executed by Borrower in favor of Lender in connection with the Loan.

                                       3
<PAGE>



         IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first above written.



                                           Borrower:


                                           BIOMERICA, INC.,
                                           a Delaware corporation
                                           By:__________________________________
                                           Name: _______________________________
                                           Title: ______________________________

                                       4



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.4
<SEQUENCE>6
<FILENAME>biomerica_10qex99-4.txt
<TEXT>
<PAGE>

Exhibit 99.4

              LOAN MODIFICATION, FORBEARANCE AND SECURITY AGREEMENT
              -----------------------------------------------------


         THIS LOAN MODIFICATION, FORBEARANCE AND SECURITY AGREEMENT (the
"Agreement") is made this 19th day of March, 2004, by and between BIOMERICA,
INC., a Delaware corporation ("Borrower"), JANET MOORE, as Trustee of the JANET
MOORE TRUST DATED AUGUST 21, 1998 ("Lender"), and JANET MOORE, an individual
("Moore").


                                    RECITALS
                                    --------


         A. Borrower and Lender entered into a loan agreement on September 12,
2000, pursuant to which Lender extended a line of credit to Borrower in an
amount not to exceed $500,000 (the "Loan"). Borrower granted to Lender a
security interest in Borrower's accounts receivable and inventory in order to
secure the Loan on September 12, 2000.


         B. The Loan matured on September 12, 2003; however, Pledgor failed to
repay the Loan upon maturity. Pledgor and Secured Party have participated in
ongoing negotiations concerning the repayment of the Loan since the original
maturity date, during which time Secured Party agreed to temporarily refrain
from exercising its rights and remedies in connection with the Loan in order to
give Pledgor time to repay all sums due Secured Party under the Loan. Secured
Party's agreement to temporarily refrain from exercising its rights and remedies
expires on the date hereof.


         C. In order to induce Lender to forbear from exercising its rights and
remedies for an additional period of time and to induce Moore to continue
deferring certain accrued salary payable to Moore and to defer certain future
salary to be payable to Moore, Borrower has agreed to modify certain terms of
the Loan and grant a security interest in additional assets of Borrower to
Lender as security for the Loan. Lender has conditioned such forbearance, and
Moore has conditioned such deferral of accrued and future salary, on the
execution and delivery of this Agreement and the other documents contemplated
hereby.


                                   AGREEMENTS
                                   ----------


         NOW, THEREFORE, in consideration of the premises, the mutual agreements
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Lender hereby
agree as follows:



1. RECITALS. Borrower and Lender agree that the Recitals above are a part of
this Agreement.

2. EXISTING INDEBTEDNESS. As of the date hereof, the outstanding principal
balance of the Loan is Three Hundred Thirteen Thousand Three Hundred Eighteen
Dollars ($313,318), which is evidenced by that certain Amended and Restated
Promissory Note of even date herewith made by Borrower payable to the order of
Lender (as amended, restated or otherwise modified, the "Note").

                                       1
<PAGE>

3. EXISTING COLLATERAL. Borrower hereby ratifies, affirms and restates the
security interests previously granted by Borrower to Lender as collateral for
the Loan as follows: Borrower grants to Lender a security interest in all of
Borrower's now owned or hereafter acquired accounts, inventory and the proceeds
thereof, and Borrower acknowledges and agrees that such security interests are
and shall continue as valid and binding security interests securing the payment
and performance of Borrower's obligations under and in connection with the Loan
and the Note. Borrower acknowledges and agrees that such continuing security
interests granted to Lender include all of Borrower's now owned or hereafter
acquired accounts, chattel paper, instruments and documents (collectively,
"Accounts"), inventory, and all proceeds (cash and non-cash) and products
thereof, and all returned, rejected or repossessed goods, the sale or lease of
which shall have given or shall give rise to an Account and all cash and
non-cash proceeds and products of all such goods.

4. ADDITIONAL COLLATERAL. In order to induce Lender to enter into this
Agreement, Borrower hereby grants a security interest to Lender, to secure the
payment and performance of Borrower's obligations under and in connection with
the Loan and the Note, in all of Borrower's right, title and interest in and to
all assets of Borrower, including, without limitation, all of Borrower's
Equipment, General Intangibles, Investment Property, Letter of Credit Rights,
Documents, Instruments, Inventory, Chattel Paper, Accounts, Deposit Accounts,
Software, patents, patent applications, trademarks and software, wherever
located, whether any of the foregoing is owned now or acquired later, all
accessions, additions, replacements, and substitutions relating to any of the
foregoing, all records of any kind relating to any of the foregoing, all
proceeds relating to any of the foregoing (including insurance, General
Intangibles and other Accounts proceeds); PROVIDED, that, notwithstanding any
provision herein to the contrary, Borrower is not granting to Lender, and Lender
shall have no security interest in, the Excluded Assets as described in Section
5 below. The Borrower's assets which are subject to the security interest of
Lender under this Section and Section 3 are hereinafter referred to as the
"Collateral."

5. EXCLUDED ASSETS. Notwithstanding any provision to the contrary set forth in
this Agreement, Borrower is not granting to Lender, and Lender shall have no
security or other interest in, any capital stock owned or held by Borrower as of
the date of this Agreement in Lancer Orthodontics, Inc., a California
corporation ("Lancer"), or any rights of any kind or nature arising from or
incidental to ownership of said capital stock, including, without limitation,
any rights to cash, stock and other property dividends and any voting rights or
proceeds thereof (the "Excluded Assets"). Furthermore, without limiting the
generality of the foregoing, in the event of the dissolution, liquidation,
bankruptcy, insolvency, default under this or any other agreement by Borrower,
or any other event, Lender agrees not to assert or have, with respect to or on
account of the obligations or indebtedness under or with respect to the Loan or
the Note, any lien on or claim to the Excluded Assets, or the proceeds from any
sale thereof, until after all other creditors of Borrower have been paid,
PROVIDED that, to the extent permitted by applicable law, Lender and Moore may
receive payments or proceeds with respect to the Excluded Assets on account of
indebtedness or obligations owed to Lender or Moore other than on account of or
with respect to the Loan or the Note, including payments on account of accrued
compensation, wages or other rights of Moore as an employee of Borrower.

6. ADDITIONAL WARRANTS. In order to induce the Lender to enter into this
Agreement, in addition to any warrants already granted by Borrower in favor of
Lender, Borrower has agreed to issue to Lender or its designee on the date
hereof, a Warrant, in form and substance satisfactory to Lender, pursuant to


                                       2
<PAGE>

which Lender will have the right to purchase up to 40,000 shares of Borrower's
common stock at a price of No Dollars and Fifty-one Cents ($0.51) per share, to
be exercisable at any time within five (5) years after the date hereof. Borrower
and Lender acknowledge and agree that, as of the date hereof, such additional
warrants are of nominal value.

7. DEFERRAL OF SALARY. Subject to the terms set forth herein, Moore hereby
agrees to continue the deferral of the accrued salary payable to Moore by
Borrower on the date hereof during the Forbearance Period (as hereinafter
defined), and to defer future salary to be payable to Moore by Borrower during
the Forbearance Period for the duration of the Forbearance Period.

8. FORBEARANCE PERIOD. "FORBEARANCE PERIOD" means the period from the date
hereof until the earlier of (a) September 1, 2004, or (b) the occurrence of an
Event of Default hereunder. During the Forbearance Period, Lender agrees that it
will not take any further action against Borrower or exercise or enforce any
right or remedy available to Lender in connection with the Loan, whether at law
or in equity (including taking any action against any property in which Borrower
has any interest), provided that nothing provided for herein shall prevent
Lender from taking such action and enforcing such remedies as provided for
hereunder, upon the expiration of the applicable Forbearance Period.

9. UNCONDITIONAL OBLIGATIONS. The payment and performance by Borrower of
Borrower's obligations under and in connection with the Loan, including without
limitation, Borrower's obligations under this Agreement and the Note, shall be
absolute and unconditional, irrespective of any defense or any rights of
set-off, recoupment or counterclaim it might otherwise have against Lender and
Borrower shall repay the Loan, free of any deductions and without abatement,
diminution or set-off. Until the Loan is fully and finally repaid, Borrower: (a)
will not suspend or discontinue any payments provided for in the Note and (b)
will perform and observe all of its other agreements contained in this
Agreement.

10. AFFIRMATIVE COVENANTS. Until payment in full of the Loan, subject to the
provisions of Section 14 hereof, Borrower shall:

         (a) CORPORATE EXISTENCE. Maintain its corporate existence in the
jurisdiction in which it is incorporated.

         (b) COMPLIANCE WITH LAWS. Comply with all applicable federal, state and
local laws, rules and regulations to which it is subject and the violation of
which would have a material adverse effect on the conduct of its business.

         (c) INSURANCE GENERALLY. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts, and against such risks as
was maintained immediately prior to the date of this Agreement.

         (d) MAINTENANCE OF THE COLLATERAL. Not permit anything to be done to
the Collateral which may materially impair the value thereof, other than actions
taken in the ordinary course of Borrower's business, including, but not limited
to, the sale of inventory or disposition of used equipment.

                                       3
<PAGE>

         (e) OTHER LIENS, SECURITY INTERESTS, ETC. Keep the Collateral free from
all liens, security interests and claims of every kind and nature, other the
security interest granted to Lender, operating and capital leases on equipment
and fixed assets, or liens, security interests and claims which are junior to
the security interest granted to Lender.

         (f) DEFENSE OF TITLE AND FURTHER ASSURANCES. At its expense defend the
title to the Collateral (or any part thereof), and promptly upon request
execute, acknowledge and deliver any financing statement, renewal, affidavit,
deed, assignment, continuation statement, security agreement, certificate or
other document Lender may require in order to perfect, preserve, maintain,
protect, continue and/or extend the lien or security interest granted to Lender
and its priority. All taxes, costs and expenses incurred by Lender in connection
with the preparation, execution, recording and filing of any such document or
instrument shall be added to the principal balance of the Loan.

         (g) ASSIGNMENTS OF ACCOUNTS. Promptly, upon request, during the
existence of an Event of Default (as defined below) hereunder, execute and
deliver to Lender written assignments, in form and content acceptable to Lender,
of specific Accounts or groups of Accounts; provided, however, the lien and/or
security interest granted to Lender shall not be limited in any way to or by the
inclusion or exclusion of Accounts within such assignments.

         (h) NOTICE TO ACCOUNT DEBTORS. In the event an Event of Default exists
hereunder, promptly upon the request of Lender in such form and at such times as
specified by Lender, give notice of Lender's lien on the Accounts to the account
debtors requiring the account debtors to make payments thereon directly to
Lender.

         (i) PLACE OF BUSINESS AND LOCATION OF COLLATERAL. Immediately advise
the Lender in writing of the opening of any new place of business or the closing
of any of its existing places of business, and of any change in the location of
the places where the Collateral, or any part thereof, or the books and records
concerning such Collateral, or any part thereof, are kept.

11. NEGATIVE COVENANTS OF BORROWER. Until payment in full and the performance of
all of Borrower's obligations under and in connection with the Loan, subject to
the provisions of Section 14 hereof, without the prior written consent of Lender
or Moore, the Borrower will not directly or indirectly:

         (a) TRANSFER OF COLLATERAL. Except in the ordinary course of business,
transfer, or permit the transfer, to another location of any material portion of
the Collateral or the books and records related to any of the Collateral.

         (b) INDEBTEDNESS. Create, incur, assume or suffer to exist any
indebtedness for borrowed money, except:

                  (i) the obligations under the Loan and the Note;

                  (ii) accounts payable and accrued expenses arising in the
ordinary course and operating or capital leases for equipment or other fixed
assets; and

                  (iii) indebtedness of Borrower existing on the date hereof and
reflected on Borrower's most recently issued financial statements.

                                       4
<PAGE>

         (c) LOANS AND OTHER TRANSACTIONS. Except as otherwise provided in this
Agreement, (i) guaranty or otherwise become contingently liable for the
indebtedness or obligations of any person or entity, or (iii) make any loans or
advances, or otherwise extend credit to any person, except:

                  (i) any advance to an officer or employee of Borrower for
travel or other business expenses in the ordinary course of business, provided
that the aggregate amount of all such advances by Borrower outstanding at any
time shall not exceed Ten Thousand Dollars ($10,000);

                  (ii) the endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business;

                  (iii) trade credit extended to customers in the ordinary
course of business.

         (d) LIENS. Create, incur, assume or suffer to exist any lien or
encumbrance upon any of its properties or assets, whether now owned or hereafter
acquired, except for liens in favor of Lender securing the Loan, liens or
encumbrances existing on the date hereof, operating or capital leases for
equipment and fixed assets, or liens or encumbrances which are junior in
priority to the liens in favor of Lender securing this Loan.

         (e) COMPENSATION OF ZACKARY IRANI. Pay any salary or cash (excluding
for this purpose advances or reimbursement of expenses incurred as an employee
or officer of Borrower), whether direct or indirect, to Zackary Irani, unless
such salary or cash are paid to Moore on a pro rata basis. Borrower acknowledges
that any such payments to Moore shall not be applied to the Loan.

         (f) CAPITAL EXPENDITURES. Directly or indirectly (by way of the
acquisition of the securities of any entity or otherwise), make any expenditure
for fixed or capital assets (including without limitation, in connection with
any capital lease) in the aggregate in any fiscal year exceeding Ten Thousand
Dollars ($10,000.00).

         (g) MERGER, SALE OF ASSETS; ISSUANCE OF STOCK. (i) Merge or consolidate
with or into any person or entity in a manner effecting a change of control of
Borrower; (ii) sell, convey, transfer, lease or otherwise dispose of (whether in
one transaction or in a series of transactions) all or substantially all of
Borrower's assets (whether now owned or hereafter acquired); or (iii) sell,
convey or otherwise transfer outstanding capital stock of Borrower (including
pursuant to a tender offer) which results in or effects a change of control of
Borrower.

         (h) COMPENSATION. Fail to pay (i) any bonuses, commissions, salaries,
or other cash compensation, whether direct or indirect, to any employee of
Borrower other than Zackary Irani and Moore as and when due, or pay (ii) any and
all payroll or other taxes payable by Borrower in connection therewith as and
when due, including without limitation any and all unemployment, Medicare and/or
Social Security taxes, which failure to pay in the case of clause (i) and (ii)
involves outstanding sums at any one time determined on an aggregate basis of
more than Ten Thousand Dollars ($10,000.00).

                                       5
<PAGE>

         (i) INVENTORY. Store any of Borrower's inventory with a bailee,
warehouseman or similar person without the prior written consent or Moore or
Lender.

         (j) SALE OF ACCOUNTS. Sell, discount, transfer, assign or otherwise
dispose of any of its Accounts, notes receivable, installment or conditional
sales agreements or any other rights to receive income, revenues or moneys,
however evidenced.

12. EVENTS OF DEFAULT. Subject to the provisions of Section 14 hereof, the
occurrence of one or more of the following events (which continues uncured
beyond any applicable grace period set forth below) shall be "Events of Default"
under this Agreement, and the terms "Event of Default" or "default" shall mean,
whenever they are used in this Agreement, any one or more of the following
events:

         (a) FAILURE TO PAY. Borrower shall fail to make any payment of
principal or interest on the Note as and when the same shall become due and
payable.

         (b) BREACH OF REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made herein or in any report, certificate, financial statement or other
instrument furnished in connection with the Loan or with the execution and
delivery of any document or agreement relating to the Loan, shall prove to have
been false or misleading when made in any material respect.

         (c) FAILURE TO COMPLY WITH CERTAIN AFFIRMATIVE COVENANTS. Borrower
shall fail to duly and promptly perform, comply with or observe the terms,
covenants, conditions and agreements set forth in Sections 10(c) and 10(e).

         (d) FAILURE TO COMPLY WITH CERTAIN NEGATIVE COVENANTS. Borrower shall
fail to duly observance any covenant, condition or agreement contained in
Sections 11 (a), (d), (g), (i), and (j) hereof.

         (e) OTHER DEFAULTS. Borrower shall fail to observe or perform any other
term, covenant or agreement herein contained, which failure shall remain
unremedied for thirty (30) days after written notice thereof to Borrower by
Lender.

         (f) DEFAULT UNDER OTHER DOCUMENTS. An event of default shall occur
under the Note and such event of default is not cured within any applicable
grace period provided therein.

         (g) RECEIVER; BANKRUPTCY. Borrower shall (i) apply for or consent to
the appointment of a receiver, trustee or liquidator of itself or any of its
property, (ii) make a general assignment for the benefit of creditors, (iii) be
adjudicated a bankrupt or insolvent, (iv) file a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage of any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against it in
any proceeding under any such law or if corporate action shall be taken by the
Borrower for the purposes of effecting any of the foregoing, or (v) by any act
indicate its consent to, approval of or acquiescence in any such proceeding or
the appointment of any receiver of or trustee for any of its property, or suffer
any such receivership, trusteeship or proceeding to continue undischarged for a
period of sixty (60) days.

                                       6
<PAGE>

         (h) JUDGMENT. Unless adequately insured in the opinion of Lender, the
entry of a final judgment for the payment of money involving more than Ten
Thousand Dollars ($10,000) against Borrower and the failure by Borrower to
discharge the same, or cause it to be discharged, within thirty (30) days from
the date of the order, decree or process under which or pursuant to which such
judgment was entered, or to secure a stay of execution pending appeal of such
judgment.

         (i) EXECUTION; ATTACHMENT. Any execution or attachment shall be levied
against the Collateral, or any part thereof, and such execution or attachment
shall not be set aside, discharged or stayed within thirty (30) days after the
same shall have been levied.

         (j) EXISTENCE. Borrower dissolves, liquidates or otherwise terminates
its existence.

         (k) MOORE AS DIRECTOR AND EMPLOYEE. Borrower causes, directly or
indirectly, or supports the removal of Moore from Borrower's Board of Directors,
or terminates Moore's status as an employee of Borrower or materially alters
Moore's duties as an employee of Borrower (in each case excluding the voluntary
termination or resignation by Moore from such position or status).

13. RIGHTS AND REMEDIES UPON DEFAULT.

         (a) DEMAND; ACCELERATION. Upon the occurrence and during the
continuance of an Event of Default, and in every such event and at any time
thereafter, Lender may declare the Loan due and payable, without presentment,
demand, protest, or any notice of any kind, all of which are hereby expressly
waived, anything contained herein or in any of the other document or agreement
relating to the Loan to the contrary notwithstanding.

         (b) SPECIFIC RIGHTS WITH REGARD TO COLLATERAL. In addition to all other
rights and remedies provided hereunder or as shall exist at law or in equity
from time to time, Lender may, without notice to Borrower:

                  (i) request any account debtor obligated on any of the
Accounts to make payments thereon directly to Lender, with Lender taking control
of the cash and non-cash proceeds thereof;

                  (ii) compromise, extend or renew any of the Collateral or deal
with the same as it may deem advisable;

                  (iii) make exchanges, substitutions or surrenders of all or
any part of the Collateral;

                  (iv) inspect at Borrower's place of business, and make copies
of, all books, records, ledger sheets, correspondence, invoices and documents,
relating to or evidencing any of the Collateral or without cost or expense to
Lender, make such use of Borrower's place(s) of business as may be reasonably
necessary to administer, control and collect the Collateral;

                  (v) repair, alter or supply goods if necessary to fulfill in
whole or in part the purchase order of any account debtor;

                                       7
<PAGE>

                  (vi) demand, collect, receipt for and give renewals,
extensions, discharges and releases of any of the Collateral;

                  (vii) institute and prosecute legal and equitable proceedings
to enforce collection of, or realize upon, any of the Collateral;

                  (viii) settle, renew, extend, compromise, compound, exchange
or adjust claims in respect of any of the Collateral or any legal proceedings
brought in respect thereof;

                  (ix) endorse the name of Borrower upon any items of payment
relating to the Collateral or on any Proof of Claim in bankruptcy against an
account debtor; and

                  (x) notify the United States postal authorities to change the
address for the delivery of mail to Borrower to such address or post office box
as Lender may designate and receive and open all mail addressed to Borrower.

         (c) PERFORMANCE BY LENDER. If Borrower shall fail to repay the
principal of or interest on the Loan as and when due or otherwise fail to
perform, observe or comply with any of the conditions, covenants, terms,
stipulations or agreements contained in this Agreement or any other document or
agreement relating to the Loan, Lender without notice to or demand upon Borrower
and without waiving or releasing any of the obligations of Borrower in
connection with the Loan or any Event of Default, may (but shall be under no
obligation to) at any time thereafter make such payment or perform such act for
the account and at the expense of Borrower, and may enter upon the premises of
Borrower for such purpose and take all such action thereon as Lender may
consider necessary or appropriate to protect Lender's interest in the
Collateral. All sums so paid or advanced by Lender and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
incurred in connection therewith (the "Expense Payments") together with interest
thereon from the date of payment, advance or incurring until paid in full at the
Default Rate described in the Note shall be paid by Borrower to Lender on demand
and shall constitute and become a part of the obligations of Borrower in
connection with the Loan and shall be secured by the Collateral.

         (d) UNIFORM COMMERCIAL CODE AND OTHER REMEDIES. Upon the occurrence of
an Event of Default (and in addition to all of its rights, powers and remedies
under this Agreement), Lender shall have all of the rights and remedies of a
secured party under the California Uniform Commercial Code and other applicable
laws, and Lender is authorized to offset and apply to all or any part of the
principal of or interest on the Loan all moneys, credits and other property of
any nature whatsoever of Borrower now or at any time hereafter in the possession
of, in transit to or from, under the control or custody of, or on deposit with,
Lender. Upon demand by Lender, Borrower shall assemble the Collateral and make
it available to Lender, at a place designated by Lender. Lender or its agents
may enter upon Borrower's premises to take possession of the Collateral, to
remove it, to render it unusable, or to sell or otherwise dispose of it.


         Any written notice of the sale, disposition or other intended action by
Lender with respect to the Collateral which is sent by regular mail, postage
prepaid, to Borrower at Borrower's address set forth in SECTION 15 below, or
such other address of Borrower which may from time to time be shown on Lender's
records, at least ten (10) days prior to such sale, disposition or other action,
shall constitute reasonable notice to Borrower. Borrower shall pay on demand all


                                       8
<PAGE>

costs and expenses, including, without limitation, attorney's fees and expenses,
incurred by or on behalf of Lender in preparing for sale or other disposition,
selling, managing, collecting or otherwise disposing of, the Collateral. All of
such costs and expenses (the "Liquidation Costs") together with interest thereon
from the date incurred until paid in full at the Default Rate set forth in the
Note shall be paid by Borrower to Lender on demand and shall constitute and
become a part of the Loan and shall be secured hereby. Any proceeds of sale or
other disposition of the Collateral will be applied by Lender to the payment of
the Liquidation Costs and Expense Payments, and any balance of such proceeds
will be applied by Lender to the payment of the balance of the Loan in such
order and manner of application as Lender may from time to time in its sole
discretion determine. After such application of the proceeds, any balance shall
be paid to Borrower or to any other party entitled thereto.

14. LENDER'S ACTIONS. Notwithstanding any provision herein to the contrary, any
action or omission which would otherwise constitute or result in an Event of
Default or breach of any covenant under this Agreement or the Note shall not
constitute an Event of Default or breach of such covenant if such action or
omission was either specifically approved or consented to by Lender or by Moore
in any capacity or if such action was caused by Moore's negligence or willful
misconduct, PROVIDED that actions or omissions shall not be considered to be
approved or consented to by Lender or Moore to the extent that Moore was
authorized or directed to take or omit to take such actions by Borrower's Board
of Directors or Chief Executive Officer or if such actions or omissions were the
result of the inability of Borrower to take or to omit to take such actions due
to the absence of available funds or for another reason. Any approval, consent,
action or omission by Lender or Moore which results in the absence of an Event
of Default or breach of a covenant (including, without limitation, any agreement
or consent to the delay in payment of amounts due under the Note or this
Agreement or failure to exercise any of Lender's rights under this Agreement or
the Note) shall not be deemed to constitute a waiver of any future Event of
Default or breach of a covenant, or consent or agreement to any continued delay
in payment or forbearance from asserting rights or remedies under this
Agreement, the Note or at law or in equity or shall preclude the exercise by
Lender of all rights and remedies with respect to such future Event of Default
or breach of any covenant.

15. FURTHER ASSURANCES. Borrower agrees that, from time to time at its own
expense, Borrower will promptly execute and deliver all further instruments and
documents, and take all further actions, that may be necessary or desirable, or
that Lender may reasonably request, in order to perfect, preserve and protect
any security interest granted or purported to be granted by Borrower as security
for the Loan or to enable Lender to exercise and enforce its rights and remedies
hereunder with respect to the Collateral. With respect to the foregoing and the
grant of security interests securing the Loan, Borrower hereby authorizes Lender
to file one or more financing or continuation statements, and amendments
thereto, relative to all or any part of the Collateral as Lender may desire,
including, without limitation, an amendment to any financing statement in order
to clarify the description of the Collateral set forth therein.

16. NO WAIVER OF RIGHTS OR REMEDIES. Except to the extent limited by SECTIONS 13
AND 14 above, the parties hereto acknowledge and agree that Lender (a) shall
retain all rights and remedies it may have with respect to the Loan and
Borrowers' failure to honor or otherwise comply with the terms of the Loan, and
(b) shall have the right to exercise and enforce such rights and remedies upon
termination of the Forbearance Period.

                                       9
<PAGE>

17. MISCELLANEOUS.

         (a) NOTICES. All notices, certificates or other communications
hereunder shall be deemed given when delivered by hand or courier, or when
mailed by certified mail, postage prepaid, return receipt requested, addressed
as follows:

         if to Lender:              c/o Janet Moore
                                    69 Asilomar Road
                                    Laguna Niguel CA 92677

         with a copy to:            Snell & Wilmer, LLP
                                    1920 Main Street, Suite 1200
                                    Irvine, California 92614
                                    Attn: James J. Scheinkman, Esq.


         if to Borrower:            Biomerica, Inc.
                                    1533 Monrovia Avenue
                                    Newport Beach, CA 92663
                                    Attn: Zackary Irani

         (b) CONSENTS AND APPROVALS. If any consent, approval, or authorization
of any state, municipal or other governmental department, agency or authority or
of any person, or any person, corporation, partnership or other entity having
any interest therein, should be necessary to effectuate any sale or other
disposition of the Collateral after and during an Event of Default, Borrower
agrees to execute all such applications and other instruments, and to take all
other action, as may be required in connection with securing any such consent,
approval or authorization.

         (c) REMEDIES, ETC. CUMULATIVE. Each right, power and remedy of Lender
as provided for in this Agreement or in any other document or agreement relating
to the Loan or now or hereafter existing at law or in equity or by statute or
otherwise shall be cumulative and concurrent and shall be in addition to every
other right, power or remedy provided for in this Agreement or in any other
document or agreement relating to the Loan or now or hereafter existing at law
or in equity, by statute or otherwise, and the exercise or beginning of the
exercise by Lender of any one or more of such rights, powers or remedies shall
not preclude the simultaneous or later exercise by Lender of any or all such
other rights, powers or remedies. In order to entitle Lender to exercise any
remedy reserved to it herein, it shall not be necessary to give any notice,
other than such notice as may be expressly required in this Agreement.

         (d) ENTIRE AGREEMENT. This Agreement and the Note shall completely and
fully supersede all other agreements, both written and oral, between Lender and
Borrower relating to the Loan. Neither Lender nor Borrower shall hereafter have
any rights under such prior agreements but shall look solely to this Agreement
and the Note for definition and determination of all of their respective rights,
liabilities and responsibilities relating to the Loan.

                                       10
<PAGE>

         (e) SURVIVAL OF AGREEMENT; SUCCESSORS AND ASSIGNS. All covenants,
agreements, representations and warranties made by Borrower herein and in any
other instruments or documents delivered in connection with the Loan shall
survive the making by Lender of the Loan and the execution and delivery of the
Note, and shall continue in full force and effect so long as any part of the
Loan is outstanding and unpaid. Whenever in this Agreement any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and assigns of such party; and all covenants, promises and agreements by or on
behalf of Borrower, which are contained in this Agreement shall inure to the
benefit of the successors and assigns of Lender, and all covenants, promises and
agreements by or on behalf of Lender which are contained in this Agreement shall
inure to the benefit of the permitted successors and permitted assigns of
Borrower, but this Agreement may not be assigned by Borrower without the prior
written consent of Lender.

         (f) EXPENSES. Lender and Borrower acknowledge that Two Thousand Five
Hundred Dollars ($2,500.00) of Lender's attorneys fees incurred through the date
hereof pursuant to the negotiation and preparation of this Agreement and the
Note are included in the principal balance of the Loan; Lender shall not be
entitled to further reimbursement or payment of Lender's expenses (including
attorney fees and costs) incurred pursuant to the negotiation and preparation of
this Agreement and the Note and the recordation of all financing statements
related thereto. Borrower agrees to pay and reimburse Lender upon demand for all
out-of-pocket expenses (including reasonable attorneys' fees and legal expenses)
incurred by Lender following the occurrence of an Event of Default hereunder in
enforcing and collecting upon any of the obligations or indebtedness of Borrower
under this Agreement, the Note, the Loan or any security therefor, which
agreement shall survive the termination of this Agreement and the repayment of
the Loan.

         (g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts all of which together shall constitute a single instrument.

         (h) GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the laws of the State of California.

         (i) MODIFICATIONS. No modification or waiver of any provision of this
Agreement, nor consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing, and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. No notice to or demand on Borrower in any case shall entitle
Borrower to any other or further notice or demand in the same, similar or other
circumstance.

         (j) DEFINITIONS. Unless otherwise defined, all terms used herein have
the same meaning as used in the California Commercial Code

         (k) ILLEGALITY. If fulfillment of any provision hereof or any
transaction related hereto or to the Note, at the time performance of such
provision shall be due, shall involve transcending the limit of validity
prescribed by law, then IPSO FACTO, the obligation to be fulfilled shall be
reduced to the limit of such validity; and if any clause or provisions herein
contained other than the provisions hereof pertaining to repayment of the Loan
operates or would prospectively operate to invalidate this Agreement in whole or
in part, then such clause or provision only shall be void, as though not herein
contained, and the remainder of this Agreement shall remain operative and in
full force and effect; and if such provision pertains to repayment of the Loan,
then, at the option of Lender, the Loan and all of Borrowers obligations in
connection therewith shall become immediately due and payable.

                                       11
<PAGE>


         IN WITNESS WHEREOF, the parties hereto have signed and sealed this
Agreement on the day and year first above written.


                                             BORROWER:


                                             By:________________________________
                                             Name: _____________________________
                                             Title: ____________________________


                                             LENDER:


                                             -----------------------------------
                                             JANET MOORE, as Trustee of the
                                             JANET MOORE TRUST DATED
                                             AUGUST 21, 1998


                                             MOORE:


                                             -----------------------------------
                                             JANET MOORE


                                       12


</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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