<DOCUMENT>
<TYPE>10QSB
<SEQUENCE>1
<FILENAME>biomerica_10q-083105.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 August 31, 2005                    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: 5,753,931 shares of common
stock as of October 15, 2005.

<PAGE>

                                 BIOMERICA, INC.

                                      INDEX

PART I

Item 1.  Consolidated Financial Statements:

         Consolidated Statements of Operations and
         Comprehensive Loss (unaudited) - Three Months Ended
         August 31, 2005 and 2004..........................................1 & 2

         Consolidated Balance Sheet (unaudited) -
         August 31, 2005...................................................3 & 4

         Consolidated Statements of Cash Flows (unaudited) -
         Three Months Ended August 31, 2005 and 2004...........................5

         Consolidated Statement of Changes in Shareholders'
         Equity (unaudited) - Three Months Ended August 31, 2005...............6

         Notes to Consolidated Financial Statements (unaudited) ............7-17

Item 2.  Management's Discussion and Analysis of Financial Condition
         and Selected Financial Data.......................................18-22

Item 3.  Quantitative and Qualitative Disclosures about Market Risk........   23

Item 4.  Controls and procedures..............................................23

PART II  Other Information....................................................24

Item 1.  Legal Proceedings....................................................24

Item 2.  Changes in Securities and Use of Proceeds............................24

Item 3.  Defaults upon Senior Securities......................................24

Item 4.  Submission of Matters to a Vote of Security Holders..................24

Item 5.  Other Information....................................................24

Item 6.  Exhibits and Reports on Form 8-K.....................................24

         Signatures...........................................................25


<PAGE>
<TABLE>

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

                                       BIOMERICA, INC.
                            CONSOLIDATED STATEMENTS OF OPERATIONS
                              AND COMPREHENSIVE LOSS (UNAUDITED)

                                                                          Three Months Ended
                                                                               August 31,
                                                                          2005           2004
                                                                       -----------    -----------
<S>                                                                    <C>            <C>
Net sales ..........................................................   $ 2,322,144    $ 2,184,437

     Cost of sales .................................................    (1,579,936)    (1,506,496)
                                                                       -----------    -----------
     Gross profit ..................................................       742,208        677,941
                                                                       -----------    -----------

Operating Expenses:
     Selling, general and administrative ...........................       753,160        710,063
     Research and development ......................................        84,777         71,049
                                                                       -----------    -----------
                                                                           837,937        781,112
                                                                       -----------    -----------

Operating loss from continuing operations ..........................       (95,729)      (103,171)
                                                                       -----------    -----------

Other Expense (income):
     Interest expense ..............................................        11,013          8,118
     Other income, net .............................................       (37,897)       (13,435)
                                                                       -----------    -----------
                                                                           (26,884)        (5,317)
                                                                       -----------    -----------

     Loss from continuing operations, before minority interest
       in net loss of consolidated subsidiaries and income taxes ...       (68,845)       (97,854)

Minority interest in net losses of consolidated subsidiaries .......       132,236         47,709
                                                                       -----------    -----------

Income (loss) from continuing operations, before income taxes ......        63,391        (50,145)

Income tax expense .................................................             0              0
                                                                       -----------    -----------

Net income (loss) from continuing operations .......................        63,391        (50,145)
                                                                       ===========    ===========


                                              1

<PAGE>

                                           BIOMERICA, INC.
                                CONSOLIDATED STATEMENTS OF OPERATIONS
                        AND COMPREHENSIVE GAIN (LOSS) - Continued (UNAUDITED)


Discontinued operations:
  Income (loss) from discontinued operations, net .................              --               --
                                                                      -------------    -------------
Net income (loss) .................................................          63,391          (50,145)

Other comprehensive gain (loss), net of tax
  Unrealized (loss) on available-for-sale securities ..............          (3,358)          (5,590)
                                                                      -------------    -------------

Comprehensive gain (loss) .........................................   $      60,033    $     (55,735)
                                                                      =============    =============

Basic net gain (loss) per common share:

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

Diluted net gain (loss) per common share:
     Net gain (loss) from continuing operations ...................   $         .01    $        (.01)
     Net gain (loss) from discontinued operations .................             .00              .00
                                                                      -------------    -------------

Diluted net gain (loss) per common share ..........................   $         .01    $        (.01)
                                                                      =============    =============

Weighted average number of common and common equivalent shares:
     Basic ........................................................       5,753,686        5,752,431
                                                                      =============    =============
     Diluted ......................................................       6,620,621               --
                                                                      =============    =============


The accompanying notes are an integral part of these statements.

                                              2

<PAGE>


                                      BIOMERICA, INC.

                           CONSOLIDATED BALANCE SHEET (UNAUDITED)

                                                                                August 31,
                                                                                   2005
                                                                                ----------
Assets

Current Assets
    Cash and cash equivalents ...............................................   $  226,702
    Available for-sale securities ...........................................        4,822
    Accounts receivable, less allowance for doubtful accounts of $185,944 ...    1,788,711
    Inventories, net ........................................................    2,248,798
    Notes receivable ........................................................        7,169
    Prepaid expenses and other ..............................................      115,822
                                                                                ----------

          Total Current Assets ..............................................    4,392,024

Inventory, non-current ......................................................      611,000

Property and Equipment, net of accumulated depreciation and amortization ....      941,107

Intangible assets, net of accumulated amortization ..........................       11,644

Other Assets ................................................................       62,240
                                                                                ----------
                                                                                $6,018,015
                                                                                ==========

The accompanying notes are an integral part of these statements.


                                                  3

<PAGE>

                                   BIOMERICA, INC.

                 CONSOLIDATED BALANCE SHEET - Continued (UNAUDITED)

                                                                        August 31,
                                                                           2005
                                                                       ------------

Liabilities and Shareholders' Equity

Current Liabilities

     Line of credit ................................................   $     25,000
     Accounts payable and accrued liabilities ......................      1,142,570
     Accrued compensation ..........................................        584,195
     Current portion of shareholder loan ...........................        295,026
     Net liabilities from discontinued operations ..................        104,579
                                                                       ------------

          Total Current Liabilities ................................      2,151,370

Minority interest ..................................................      2,803,104
                                                                       ------------
Shareholders' Equity

     Common stock, $0.08 par value authorized 25,000,000 shares,
       subscribed or issued and outstanding 5,753,931 ..............        460,313
     Additional paid-in-capital ....................................     17,057,801
     Accumulated other comprehensive gain ..........................         (2,832)
     Accumulated deficit ...........................................    (16,451,741)
                                                                       ------------

Total Shareholders' Equity .........................................   $  1,063,541
                                                                       ------------

Total Liabilities and Equity .......................................   $  6,018,015
                                                                       ============

The accompanying notes are an integral part of these statements.

                                          4




<PAGE>


                                      BIOMERICA, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)


For the three months ended August 31,                                   2005         2004
                                                                     ---------    ---------
Cash flows from operating activities:
Net loss from continuing operations ..............................   $  63,391    $ (50,145)

Adjustments to reconcile net loss to net cash (used in) provided
 by operating activities:
     Depreciation and amortization ...............................      37,644       45,597
     Amortization of warrant expense for extension of loan .......          --       10,400
     Minority interest in net loss of consolidated
       Subsidiary ................................................    (132,236)     (47,709)
     Gain on sales of marketable securities ......................          --       (2,068)
     Common stock, warrants and options issued for services
       rendered ..................................................         234           --
     Provision for losses on accounts receivable .................      17,143       (4,991)
     Changes in current assets and liabilities:
       Accounts Receivable .......................................     (83,641)     (74,830)
       Inventories ...............................................    (158,620)    (195,319)
       Prepaid expenses and other current assets .................      (8,347)      (6,852)
       Accounts payable and other accrued liabilities ............      59,644       80,506
       Accrued compensation ......................................      (9,985)      71,169
                                                                     ---------    ---------

Net cash used in operating activities ............................    (214,773)    (174,242)
                                                                     ---------    ---------

Cash flows from investing activities:
     Sales of available-for-sale securities ......................          --        2,068
     Purchases of property and equipment .........................    (160,043)     (61,585)
                                                                     ---------    ---------
Net cash used in investing activities ............................    (160,043)     (59,517)
                                                                     ---------    ---------

Cash flows from financing activities:
     Change in minority interest .................................      20,500       22,500
     Increase (decrease) in shareholder loan .....................      (6,061)          --
     Exercise of stock options ...................................         398           --
     Decrease in line of credit at subsidiary ....................    (150,000)          --
     Common stock to be issued at subsidiary .....................     384,800           --
                                                                     ---------    ---------

Net cash provided by financing activities ........................     249,637       22,500
                                                                     ---------    ---------

Net cash used in discontinued operations .........................          --           --
                                                                     ---------    ---------

Net decrease in cash and cash equivalents ........................    (125,179)    (211,259)

Cash and cash equivalents at beginning of period .................     351,881      352,374
                                                                     ---------    ---------

Cash and cash equivalents at end of period .......................   $ 226,702    $ 141,115
                                                                     =========    =========

Supplemental disclosures on non-cash investing and financing activity:

  Change in unrealized holding loss on available-for-sale securities $ ( 3,358)   $  (5,590)
                                                                     =========    =========

  Change in minority interest due to subsidiary stock issuance ...   $ (50,185)   $  (4,100)
                                                                     =========    =========


The accompanying notes are an integral part of these statements.


                                             5


<PAGE>

                                                     BIOMERICA, INC.

                          CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
                                       FOR THE THREE MONTHS ENDED AUGUST 31, 2005


                                    Common Stock
                                                                           Accumulated
                             Number                         Additional        Other
                               of                            Paid-in       Comprehensive   Accumulated
                             Shares           Amount         Capital        Gain (loss)       Deficit          Total
                           ------------    ------------    ------------    ------------    ------------    ------------

Balance at
 May 31, 2005 ..........      5,752,431    $    460,193    $ 17,107,474             526    $(16,515,132)   $  1,053,061

Exercise of stock
  Options ..............          1,500             120             278                                             398

Change in
 unrealized
 gain on available
 for sale securities ...                                                         (3,358)                         (3,358)

Expense related to
 issuance of options ...                                            234                                             234

Issuance of stock
 at subsidiary .........                                        (50,185)                                        (50,185)

Net gain ...............                                                                         63,391          63,391
                           ------------    ------------    ------------    ------------    ------------    ------------
                              5,753,931    $    460,313    $ 17,057,801    $     (2,832)   $(16,451,741)   $  1,063,541
                           ============    ============    ============    ============    ============    ============



</TABLE>

                                                            6




<PAGE>

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

August 31, 2005

(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, 2005, for a summary of significant
accounting policies utilized by the Company.

(2) As of August 31, 2005, the Company had cash and available-for-sale
securities in the amount of $231,524 and working capital of $2,240,654. Cash and
working capital totaling $176,933 and $2,007,549, 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. Of the total working capital, negative working
capital of $104,579 relates to the discontinued operation, ReadyScript.

         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 on
September 13, 2003 and was not renewed. The unpaid principal and interest was
converted into a note payable ($313,318) bearing interest at 8% and payable
September 1, 2004. The due date on this note was extended until September 1,
2005 and on August 20, 2005 was extended until September 1, 2006 at the same
terms. Minimum payments of $4,000 per month plus an additional $3,500 per month,
depending on quarterly results of the Company, are being made.

         The Company has suffered substantial recurring losses from operations
over the last several years. Biomerica has funded its operations through debt
and equity financings, and may have to do so in the future. ReadyScript
operations were discontinued in May 2001. ReadyScript was a contributor to the
Company's losses in prior fiscal years. During the fiscal years ended May 31,
2005 and 2004, certain liabilities were forgiven and thus income from
discontinued operations for the years then ended was recorded. The subsidiary is
being reported in the financial statements as a discontinued operation because
it is no longer an operating entity.

         In the last several years the Company has been focusing on reducing
costs where possible and concentrating on its core business in Lancer and
Biomerica to increase sales. Management believes that cash flows from the
current diagnostics operations is sufficient to fund the diagnostics operations
for at least the next twelve months. Should the Company have a downturn in sales
or unanticipated, increased expenses, the result for the Company could be the
inability to continue as a going concern. The Company will continue to have
limited cash resources. Biomerica, as a parent entity, has no open or existing,
operating line of credit or loans on which it can draw any new or additional
debt financing. The Lancer line of credit expired October 15, 2005. Management
at Lancer is in the process of negotiating a renewal of the existing line of
credit. There is no assurance that Lancer management will be able to renew that
line of credit or obtain other such financing.

         Our independent registered public accounting firm has concluded that
there is substantial doubt as to the Company's ability to continue as a going
concern for a reasonable period of time, and have, therefore modified their
report for the year ended May 31, 2005 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.

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

                                      7



<PAGE>

         In December 2002, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "ACCOUNTING
FOR STOCK-BASED COMPENSATION - TRANSITION AND DISCLOSURE - AN AMENDMENT TO SFAS
NO. 123." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value based method on accounting for stock-based
employee compensation. The Company currently does not intend to adopt SFAS No.
123 and the implementation of SFAS No. 148 did not have a material effect on the
Company's consolidated financial position or results of operations.

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

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

(3)

AUGUST 31,                                                  2005         2004
--------------------------------------------------------------------------------
Net income (loss) from continuing
  operations, as reported                               $   63,391   $  (50,145)
Plus: Stock-based employee compensation
  expense included in reported net income (loss)                --           --
Less: Stock-based employee compensation
  expense determined using fair value
  based method                                             (14,692)      (3,892)
 -------------------------------------------------------------------------------
Net income (loss) from continuing operations, pro forma $   48,699   $  (54,037)
================================================================================

Pro forma net income (loss) from
   continuing operations
   per share - basic                                    $     0.01   $    (0.01)
================================================================================
Pro forma net income from
   continuing operations
   per share - diluted                                  $     0.01   $    (0.01)
================================================================================

Net income (loss) from discontinued
  operations, as reported                               $       --           --
Plus: Stock-based employee compensation
  expense included in reported net loss                         --           --
Less: Stock-based employee compensation
  expense determined using fair value
  based method                                                  --           --
--------------------------------------------------------------------------------
Net income(loss) from discontinued operations,
  pro forma                                             $       --   $       --
================================================================================

Pro forma net income (loss) from
   discontinued operations
   per share - basic                                    $      .00   $     0.00
================================================================================
Pro forma net income (loss) from
   discontinued operations
   per share - diluted                                  $      .00   $     0.00
================================================================================

                                      8



<PAGE>

(4) The following summary presents the options granted, exercised, expired, and
outstanding as of August 31, 2005:

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

Outstanding
May 31, 2005         1,427,808          174,829        1,602,637    $      .90

Granted                111,000               --          111,000           .53
Exercised               (1,500)              --           (1,500)          .27
Expired               (112,000)              --         (112,000)         2.03
                    ----------       ----------       ----------    ----------
Outstanding
August 31, 2005      1,425,308          174,829        1,600,137    $     .72
                    ==========       ==========       ==========    ==========

(5) 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.

(6) 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.

(7) 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, 2005, for a description of the investments in
affiliates and consolidated subsidiaries.

(8) Reference is made to Notes 5 & 10 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, 2005, for information on commitments and
contingencies.

(9) Aggregate cost exceeded market value of available-for-sale securities by
approximately $2,832 at August 31, 2005.

(10) 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.


                                      9



<PAGE>

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

                                              For the Three Months Ended August 31, 2005
                                             --------------------------------------------
                                                Income         Shares         Per Share
                                              (Numerator)    (Denominator)      Amount
                                             ------------    ------------    ------------
<S>                                           <C>            <C>              <C>
Basic EPS -
     Income from continuing
       operations ......................     $     63,391              --    $        .01
     Income from discontinued
        operations .....................               --              --             .00
                                             ------------    ------------    ------------
                                             $     63,391       5,753,686    $        .01
                                             ============    ============    ============
Diluted EPS -
     Income attributable to common share -
      holders                                $     63,391       6,620,621    $        .01
                                             ============    ============    ============

                                              For the Three Months Ended August 31, 2004
                                             --------------------------------------------
                                                Income         Shares          Per Share
                                             (Numerator)    (Denominator)       Amount
                                             ------------    ------------    ------------
Basic EPS -
     Loss from continuing
       operations ......................     $    (50,145)             --    $       (.01)
     Income from discontinued
       operations ......................               --              --             .00
                                             ------------    ------------    ------------
                                             $    (50,145)      5,752,431    $       (.01)
                                             ============    ============    ============
Diluted EPS -
     Loss attributable to common share -
      holders                                $    (50,145)      5,752,431    $       (.01)
                                             ============    ============    ============
</TABLE>

         The computation of diluted loss per share in fiscal 2005 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.

(11) In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities". In December 2003, FIN 46 was replaced by FASB
Interpretation No. 46R, "Consolidation of Variable Interest Entities." FIN 46R
clarifies some of the provisions of FIN 46 and exempts certain entities from its
requirements. FIN 46R was effective at the end of the first interim period
ending March 15, 2004. Entities that have adopted FIN 46 prior to this date can
continue to apply provisions of FIN 46 until the effective date of FIN 46R or
early election of FIN 46R. This interpretation clarifies the application of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements,"
relating to consolidation of certain entities. FIN No. 46 requires
identification of the Company's participation in variable interests entities
("VIEs"), which are defined as entities with a level of invested equity that is
not sufficient to fund future activities to permit them to operate on a
stand-alone basis, or whose equity holders lack certain characteristics of a
controlling financial interest. For entities identified as VIEs, FIN No. 46 sets
forth a model to evaluate potential consolidation based on an assessment of
which party to the VIE, if any, bears a majority of the exposure to its expected
losses, or stands to gain from a majority of its expected returns. FIN No. 46
also sets forth certain disclosures regarding interests in VIE that are deemed
significant, even if consolidation is not required. The adoption of FIN No. 46
did not have a material impact on the Company's financial position or results of
operations.

                                      10



<PAGE>

         In December 2004, FASB issued SFAS No. 153, Exchanges of Nonmonetary
Assets- An Amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29,
Accounting for Nonmonetary Transactions, is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged. The guidance in that Opinion, however, included certain
exceptions to that principle. SFAS No. 153 amends Opinion No. 29 to eliminate
the exception for nonmonetary exchanges of similar productive assets and
replaces it with a general exception for exchanges of nonmonetary assets that do
not have commercial substance. A nonmonetary exchange has commercial substance
if the future cash flows of the entity are expected to change significantly as a
result of the exchange. The provisions of SFAS No. 153 are effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after June 15,
2005. Early application was permitted and companies must apply the standard
prospectively. The adoption of this standard is not expected to have a material
effect on the Company's results of operations or financial position.

         In December 2004, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123R). FAS No. 123R revised SFAS No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees, and its related implementation
guidance. SFAS No. 123R will require compensation costs related to share-based
payment transactions to be recognized in the financial statement (with limited
exceptions). The amount of compensation cost will be measured based on the
grant-date fair value of the equity or liability instruments issued.
Compensation cost will be recognized over the period that an employee provides
service in exchange for the award.

         In March 2005, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 107 ("SAB No. 107"), Share-Based Payment,
providing guidance on option valuation methods, the accounting for income tax
effects of share-based payment arrangements upon adoption of SFAS No. 123R, and
the disclosures in MD&A subsequent to the adoption. The Company will provide SAB
No. 107 required disclosures upon adoption of SFAS No. 123R on June 1, 2006 and
is currently evaluating the impact the adoption of the standard will have on the
Company's financial condition, results of operations, and cash flows.

         In April 2005, the Securities and Exchange Commission adopted a new
rule that amends the compliance dates for SFAS No. 123R. The Statement requires
that compensation cost relating to share-based payment transactions be
recognized in financial statements and that this cost be measured based on the
fair value of the equity or liability instruments issued. SFAS No. 123R covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. The Company will adopt SFAS No. 123R on June 1,
2006 and is currently evaluating the impact the adoption of the standard will
have on the Company's results of operations.

         In June 2005, the FASB issued SFAS No. 154, Accounting Changes and
Errors Corrections, a replacement of APB Opinion No. 20 and FAS No. 3. The
Statement applies to all voluntary changes in accounting principle, and changes
the requirements for accounting for and reporting of a change in accounting
principle. SFAS No. 154 requires retrospective application to prior periods'
financial statements of a voluntary change in accounting principle unless it is
impractical.APB Opinion No. 20 previously required that most voluntary changes
in accounting principle be recognized by including in net income of the period
of the change the cumulative effect of changing to the new accounting principle.
SFAS No.154 improves the financial reporting because its requirements enhance
the consistency of financial reporting between periods. The Company does not
believe the adoption of this standard will have an impact on its results of
operations.


                                      11



<PAGE>

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

                                                      For the Three Months Ended
                                                      8/31/05         8/31/04
                                                     ----------      ----------

         Revenues from sales to unaffiliated customers:
         United States                               $  932,000      $1,029,000
         Asia                                           127,000          71,000
         Europe                                         777,000         616,000
         South America                                  143,000          89,000
         Middle East                                     38,000          78,000
         Oceania                                        141,000         160,000
         Other                                          164,000         141,000
                                                     ----------      ----------
                                                     $2,322,000      $2,184,000
                                                     ==========      ==========

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

(13) During fiscal 2005, Lancer obtained a new line of credit with Community
National Bank (formerly Cuyamaca Bank). As of August 31, 2005, borrowings were
made at prime plus 2.0% (8.5% at August 31, 2005) and were for borrowing up to
$400,000 which is limited to 80% of accounts receivable less than 90 days old.
The outstanding balance at August 31, 2005 was $25,000 and the unused portion
available at August 31, 2005 was approximately $340,000.

         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
balance sheet net worth of $2,700,000 and that a zero outstanding balance be
maintained for 30 consecutive days during the term. The agreement prohibits the
advancing of funds to Biomerica. Lancer is not required to maintain compensating
balances in connection with this lending agreement. Lancer was in compliance
with its debt covenants at August 31, 2005.

         The Lancer line of credit expired October 15, 2005. Lancer management
is currently negotiating a renewal of the existing line of credit. There is no
assurance that Lancer management will be able to renew that line of credit or
obtain other such financing.

         Biomerica, Inc. 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. In March 2004 the Company signed a
note payable for the principal and interest due at that time of $313,318 and
agreed to a forbearance of any payments for the length of the agreement. A
warrant for 40,000 shares of restricted common stock exercisable at a price of
$.51 per share was awarded as compensation for the forbearance. The note payable
is secured by all the Company's assets except for the Lancer common stock owned
by Biomerica. The note was due September 1, 2004. On November 19, 2004, the
Company entered into an agreement entitled "Amendment of the Note, Loan and
Modification Agreement" and "Amended And Restated Promissory Note" which were
included as exhibits to the Form 10QSB filed April 14, 2004. The Amendment of
the Note, Loan And Modification Agreement was filed as an exhibit to a Form 8K
filed November 24, 2004. The agreement extended the maturity date of the note
until August 31, 2005 and allows for minimum payments of $4,000 per month and
additional contingent payments of up to $3,500 per month based on the Company's
quarterly performance. Collateral remains the same under The Amendment. There
was $297,087 of outstanding principal and $0 of interest payable under this note
payable at August 31, 2005. As of October 17, 2005, the Company was not in
compliance with the terms of the above agreements. Additional contingent
payments totaling $10,500 that were due after the filing of the Company's Form
10KSB for the year ended May 31, 2005, have not been paid.

(14) During 2004, the Company sold 202,000 shares of common stock at a selling
price of $0.25 per share. Proceeds to the Company were $50,500. Warrants to
purchase 202,000 shares of the Company's restricted common stock at an exercise
price of $0.25 were also granted as part of the private placement.

                                      12

<PAGE>

         During 2004, the Company granted 210,000 and 32,000 warrants to
employees and non-employees, respectively to purchase restricted shares of the
Company's stock. Of the warrants granted, 202,000 were granted to investors in
the private placement and 40,000 were granted as compensation related to the
shareholder promissory note. The purchase price of the warrants ranges from
$0.25 to $0.51. Management recorded $47,442 and $0, respectively during the year
ended May 31, 2004 of expense related to the granting of warrants to employees
and non-employees. These warrants were not granted through one of the employee
stock option plans.

         During 2004 the Company issued 10,000 shares of its common stock as the
result of an exercise of options granted in prior years. Proceeds to the Company
were $2,000.

         During fiscal 2005, Biomerica granted 169,000 stock options to purchase
shares of common stock at an exercise price of $.33 to select employees and
consultants of the Company. The options vest over four years, and have a term of
five years. Management assigned a value of $3,500 to these options. These
options were granted under the Company's existing 1995 and 1999 Stock Option and
Restricted Stock Plan.

         During fiscal 2005, Biomerica granted 75,000 stock options to purchase
shares of common stock at an exercise price of $.40 to outside directors and the
President. The options vest over four years, and have a term of five years.
Management assigned a value of $0 to these options.

         During fiscal 2006 an employee of the Company exercised a stock option
for 750 shares at the purchase price of $.20 per share and 750 shares at the
purchase price of $.33 per share. The total proceeds to the Company was $398.

         In June 2005 the Company granted 111,000 stock options to purchase
shares of common stock at an exercise price of $.53 to several of the Company's
officers. The options vest over four years and have a term of five years.
Management assigned a value of $0 to these options.

         On September 14, 2005, the Company granted 10,000 stock options to
purchase shares of common stock at an exercise price of $.47 to an employee of
the Company. The options vest over four years and have a term of five years.
Management assigned a value of $0 to these options.

         Options and warrants granted to employees are assigned values of $0 if
the options are granted at current market value as quoted on Yahoo Finance as of
the date of grant. If options or warrants are granted at a price which is below
market value, the option or warrant is assigned a value according to the amount
per share it is above market value times the number of shares granted. Options
or shares granted to non-employees are assigned values according to current
market value, using the Black-Sholes model for option valuation. The term used
in the calculation of the options or warrants is the vesting period. A discount
rate equivalent to five-year (or other life of the option or warrant) Treasury
constant maturity interest rates is utilized. The historical volatility of the
stock is calculated using weekly historical closing prices for the prior year as
reported by Yahoo Finance. For purposes of the SFAS 123 footnote disclosure, the
Black-Sholes Model is also used for calculating employee options and warrants
valuations.

         When shares are issued for services or other non-cash consideration,
fair value is measured using the current market value on the day of the board
approval of such issuance.

     SUBSIDIARY SALE OF STOCK

         During the years ended May 31, 2005 and 2004 the Company recognized a
reduction in its additional paid in capital in the amount of $31,494 and
$112,719, respectively, resulting from a decrease in its ownership percentage of
Lancer as a result of Lancer's sale of common stock. During the first quarter of
fiscal 2006 the Company recognized a reduction in its additional paid in capital
in the amount of $50,185, resulting from a decrease in its ownership percentage
of Lancer as a result of Lancer's sale of common stock and for shares issued to
employees in lieu of wages. The Company has treated this reduction in its equity
of the subsidiary as an equity transaction in the accompanying consolidated
statement of stockholder's equity.

                                      13



<PAGE>

     SUBSIDIARY OPTIONS, WARRANTS AND STOCK ACTIVITY

         During fiscal 2004, Lancer issued 91,346 shares of its common stock
valued at $29,000 to its Chief Executive Officer for services rendered from
January 2002 to December 2003.

         During fiscal 2004, Lancer agreed to issue 13,541 shares of its common
stock to the Chairman Of the Board of Lancer for services rendered from January
2002 to December 2003.

         During fiscal 2004, Lancer agreed to issue 13,541 shares of its common
stock to the Chairman of the Board of Lancer for services rendered from January
2004 to May 2004 and 31,250 shares of common stock to the Chief Executive
Officer for services rendered per agreement. At May 31, 2004, these shares were
reported as subscribed stock on Lancer's balance sheet.

         The Lancer Board of Directors approved a private offering of common
stock, effective March 23, 2004, and ending April 12, 2004. The offering, to
officers, board members, and key employees resulted in the sale of 450,000 new
shares at $0.60 per share with total proceeds received of $270,000. In addition,
one warrant exercisable for each share purchased (450,000 warrants) was issued
at $0.85 per share. These warrants shall be exercisable until April 12, 2009.

         During fiscal 2004, Lancer granted its Chief Executive Officer 75,000
stock options to purchase shares of Lancer's common stock at an exercise price
of $0.43. The options vest over three years and have a term of five years.
Management assigned a value of $0 to the options.

         During fiscal 2004, Lancer granted its directors 52,500 options to
purchase shares of Lancer's common stock at an exercise price of $0.43. The
options vest over two years and have a term of five years. Management assigned a
value of $0 to the options.

         During fiscal 2004, Lancer granted 120,000 options to purchase shares
of Lancer's common stock at an exercise price of $0.43 per share pursuant to
terms of the employment agreement between Lancer and Dan Castner, Vice President
of Sales and Marketing at Lancer. The options vest over four years and have a
term of five years. Management assigned a value of $0 to the options.

         During fiscal 2004, Lancer granted 40,000 stock options to purchase
shares of Lancer's common stock at an exercise price of $0.57 to an employee of
Lancer for services rendered. The options vest over four years and have a term
of five years. Management assigned a value of $0 to these options.

         During fiscal 2004, Lancer granted 17,500 stock options to purchase
shares of Lancer's common stock at an exercise price of $.60 to a new member of
the board of directors. The options vest over two years and have a term of five
years. Management assigned a value of $0 with respect to the options.

         During fiscal 2004, Lancer granted 8,000 stock options to purchase
shares of Lancer's common stock at an exercise price of $0.50 to an employee of
Lancer for services rendered. The options vest over 3 years beginning June 30,
2004 and have a term of five years. Management assigned a value of $0 to the
options.

         During fiscal 2004, Lancer issued 450,000 warrants to officers,
directors and key employees who purchased 450,000 shares of the Company's common
stock in a private placement. The warrants have an exercise price of $0.85 and
have a term of five years.

         During fiscal 2005, the Board of Directors of Lancer granted 27,500
stock options to purchase shares of Lancer's common stock at an exercise price
of $.75 to certain employees of Lancer for services rendered. The options vest
over four years and have a term of ten years. Management assigned a value of $0
to the options.

         During fiscal 2005, the Board of Directors of Lancer granted 100,000
stock options to purchase shares of Lancer's common stock at an exercise price
of $.70 to Lancer's President, Dan Castner. The options expire February 1, 2010
and vest 4,167 shares on the first day of each calendar month he is employed by
Lancer, commencing March 1, 2005. Management assigned a value of $0 to the
options.

         During fiscal 2005, an employee of Lancer exercised a stock option for
4,500 shares at the purchase price of $.26 per share. Proceeds to Lancer were
$1,170.

                                      14



<PAGE>

         During the first quarter of fiscal 2006, the Chief Executive Officer of
Lancer was granted a stock option for 100,000 shares of Lancer common stock at
the purchase price of $.65 per share. The options are exercisable one quarter
per year, with the first quarter exercisable immediately, and have a term of
five years.

         During the first quarter of fiscal 2006, a total of 31,538 shares
valued at $20,500 were accrued to be issued to the Chief Executive
Officer/Director and Chairman of the Board of Lancer for services rendered.
Neither Director is taking a cash salary.

         In the first quarter of fiscal 2006 Lancer conducted a private
placement, the purpose of which was to raise funds to proceed with the terms of
the Lingualcare agreement. Lancer sold 592,000 shares of restricted common stock
at the price of $.65 per share. Total gross proceeds to Lancer were $384,800.
The stock was sold primarily to management and directors of Lancer (the
directors are also directors of Biomerica). This private placement further
reduced Biomerica's direct control and ownership percentage in Lancer. As of the
date of this quarterly report, Biomerica's management has not made any
determination whether, as a result of Lancer's most recent equity private
placement (or of any subsequent issuances of Lancer's common stock), Biomerica
will continue to consolidate Lancer's financial statements.

         During September 2005 Lancer sold an additional 130,769 shares of
restricted common stock at a price of $.65 per share, as part of the private
placement. Total gross proceeds were approximately $85,000. The stock was sold
to a director of Lancer.

(15) Reportable business segments for the quarter ended August 31, 2005 and 2004
are as follows:

                                                          2005          2004
                    ------------------------------------------------------------

                    Domestic sales:
                       Orthodontic products         $    748,000   $    831,000
                    ============================================================

                       Medical diagnostic products  $    184,000   $    198,000
                    ============================================================

                    Foreign sales:
                       Orthodontic products         $    629,000   $    650,000
                    ============================================================

                       Medical diagnostic products  $    761,000   $    505,000
                    ============================================================

                    Net sales:
                       Orthodontic products         $  1,377,000   $  1,481,000
                       Medical diagnostic products       945,000        703,000
                    ------------------------------------------------------------

                    Total                           $  2,322,000   $  2,184,000
                    ============================================================

                    Operating gain (loss):
                       Orthodontic products         $   (188,000)  $    (81,000)
                       Medical diagnostic products        92,000        (22,000)
                    ------------------------------------------------------------

                    Total                           $    (96,000)  $   (103,000)
                    ============================================================

                    Operating loss from discontinued segment:
                       ReadyScript                            --             --
                    ------------------------------------------------------------

                    Total                           $         --   $         --
                    ============================================================

                    Domestic long-lived assets:
                       Orthodontic products         $    576,000   $    498,000
                       Medical diagnostic products       110,000        120,000
                    ------------------------------------------------------------

                    Total                           $    686,000   $    618,000
                    ============================================================

                                      15



<PAGE>

                    Foreign long-lived assets:
                       Orthodontic products         $    245,000   $    111,000
                       Medical diagnostic products        10,000         13,000
                    ------------------------------------------------------------

                    Total                           $    255,000   $    124,000
                    ============================================================

                    Total assets:
                       Orthodontic products          $ 4,268,000    $ 4,185,000
                       Medical diagnostic products     1,750,000      1,464,000
                    ------------------------------------------------------------

                    Total                            $ 6,018,000    $ 5,649,000
                    ============================================================

                    Depreciation and amortization
                     expense:
                       Orthodontic products         $     20,000   $     26,000
                       Medical diagnostic products        18,000         20,000
                    ------------------------------------------------------------

                    Total                           $     38,000   $     46,000
                    ============================================================

                    Capital expenditures:
                       Orthodontic products         $    156,000   $     62,000
                       Medical diagnostic products         4,000             --
                    ------------------------------------------------------------

                    Total                           $    160,000   $     62,000
                    ============================================================

The net sales as reflected above consist of sales of unaffiliated customers only
as there were no significant intersegment sales during the quarter ended August
31, 2005 and 2004.

(16) 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
$0.38 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%.

On November 29, 2004, the Board of Directors of Lancer approved a new employment
agreement and the promotion of Mr. Castner to President. The agreement is for a
term of two years. Mr. Castner's salary shall be $155,000 for the first year
with a possible merit increase after the first year. The agreement also called
for the grant of a stock option for 100,000 shares at fair market value at the
time of grant, to be granted no later than May 31, 2005. These options were
granted in February 2005 at an exercise price of $.70 per share. The agreement
was filed as an exhibit to a Form 8-K filed by Lancer November 30, 2004.

(17) 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.

(18) On July 29, 2005, Biomerica entered into an agreement for the research,
development and transfer of certain technology. The total of the project is
estimated to be $55,000.

(19) On August 20, 2005, the Company and the holder of the Note
payable-shareholder agreed to the extension of the note due date until September
1, 2006, at the same terms and conditions as the previous agreement.

(20) In July 2005, Lancer signed a large contract manufacturing agreement with
an orthodontic reseller, wherein the reseller has committed to purchase at least
$960,000 of product from Lancer during the period of July 1, 2005 to October 1,
2006.

                                      16



<PAGE>

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

         As a result of its insurance policy coverage, the Company believes the
estimated fair value of these indemnification agreements is minimal and has no
liabilities recorded for these agreements as of August 31, 2005. 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 and to provide salary continuation during short-term
disability. The maximum potential amount of future payments the Company could be
required to make under these indemnification provisions is unlimited. The
Company has not incurred material costs to defend lawsuits or settle claims
related to these indemnification agreements. As a result, the Company believes
the estimated fair value of these agreements is minimal. Accordingly, the
Company has no liabilities recorded for these agreements as of August 31, 2005.

(22) SUBSEQUENT EVENTS

In August and September (these replace agreements entered into July 21, 2005)
Lancer entered into three equipment finance leases for the purchase of
manufacturing equipment for the Lingualcare project. The lease payments begin in
September and October and have a total of $424,574 due and minimum payments per
month of $8,845. The term of the leases is forty-eight months. These agreements
have varying financing terms.

The Lancer line of credit expired October 15, 2005. Lancer management is in the
process of negotiating a renewal of the existing line of credit.

The Biomerica facilities lease will expire October 31, 2005. Management is
currently negotiating an extension of that lease.

                                      17




<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 ABILITY OF THE COMPANY TO MAINTAIN REQUIREMENTS
TO BE LISTED ON NASDAQ, THE CONTINUAL DEMAND FOR THE COMPANY'S PRODUCTS,
COMPETITIVE AND ECONOMIC FACTORS OF THE MARKETPLACE, AVAILABILITY OF RAW
MATERIALS, HEALTH CARE REGULATIONS AND THE STATE OF THE ECONOMY. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH
SPEAK ONLY AS OF THE DATE HEREOF, AND THE COMPANY UNDERTAKES NO OBLIGATION TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.

RESULTS OF OPERATIONS

         Consolidated net sales for Biomerica were $2,322,144 for the first
quarter of fiscal 2006 as compared to $2,184,437 for the same period in the
previous year. This represents an increase of $137,707, or 6.3%. Of the total
consolidated net sales for fiscal 2006, $1,377,098 is attributable to Lancer,
and $945,046 to Biomerica. Lancer sales decreased by $103,765 over the same
period in the previous fiscal year. The decrease in sales at Lancer was
primarily due to a restructure of the sales force and distributor network, both
of which Lancer is currently rebuilding. Biomerica sales increased by $241,472
primarily due to increased sales to foreign distributors.

         Cost of sales as a percentage of sales decreased from 69.0% to 68.0%.
Lancer's cost of sales as a percentage of sales increased from 72.4% to 77.3%.
This increase was attributable to lower sales without a comparable decrease in
overhead. Biomerica's costs decreased from 62.9% of sales to 55.4% due primarily
to more products being manufactured at the lower cost Mexico manufacturing
operation and higher sales volume in relationship to fixed costs.

         Selling, general and administrative costs increased by $43,096, or
6.1%. Lancer had increased selling, general and administrative costs of $18,466
primarily due to an increase in domestic marketing labor expenses, and an
increase in the bad debt reserve, which were offset by lower administrative
labor expenses. Biomerica had an increase of $24,630, which was due to higher
accounting costs and wages.

         Research and development increased by $13,728, or 19.3%. Lancer had a
decrease in research and development costs of $6,952 due to one project being
moved to production. Biomerica had increased research and development costs of
$20,680 primarily due to the expense of a contract research project.

         For the three months ended August 31, 2005, other income of $37,897 was
realized as compared to $13,435 in the prior year, which resulted in an increase
of $24,462. Lancer had an increase of $1,143 and Biomerica had an increase of
$23,319, primarily due to non-sale income recognized from a contract from a
customer.

         Interest expense increased from $8,118 to $11,013 due to higher line of
credit balances at Lancer.

         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,
2005, for a more in-depth discussion of subsidiaries.

CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY

         The following is the condensed unconsolidated balance sheet for
Biomerica, Inc. as of August 31, 2005, and the condensed unconsolidated
statements of operations for the quarters ended August 31, 2005 and 2004.

                                      18



<PAGE>

                     CONDENSED UNCONSOLIDATED BALANCE SHEET (UNAUDITED)

     AUGUST 31,                                                       2005
     ---------------------------------------------------------------------------
                                     ASSETS

     CURRENT ASSETS:
           CASH                                               $    49,769
           AVAILABLE-FOR-SALE SECURITIES                            4,822
           ACCOUNTS RECEIVABLE, NET                               467,490
           INVENTORIES                                          1,023,686
           NOTES RECEIVABLE                                         7,169
           PREPAID EXPENSES AND OTHER                              44,778
     ---------------------------------------------------------------------------
     TOTAL CURRENT ASSETS                                       1,597,714

     INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED
           SUBSIDIARY, RESTRICTED                                 667,373
     INVENTORY, NON-CURRENT                                        18,000
     PROPERTY AND EQUIPMENT, NET                                  120,000
     INTANGIBLE ASSETS                                             11,644
     OTHER ASSETS                                                  13,419
     ---------------------------------------------------------------------------

                                                              $ 2,428,150
     ===========================================================================

                      LIABILITIES AND SHAREHOLDERS' EQUITY

     CURRENT LIABILITIES:
           ACCOUNTS PAYABLE AND ACCRUED LIABILITIES           $   509,318
           ACCRUED COMPENSATION                                   455,686
           CURRENT PORTION OF NOTES PAYABLE-SHAREHOLDER           295,026
     ---------------------------------------------------------------------------

     TOTAL CURRENT LIABILITIES                                  1,260,030
     ---------------------------------------------------------------------------

     EQUITY IN LOSSES OF UNCONSOLIDATED SUBSIDIARIES,
           NET OF ADVANCES, UNRESTRICTED                          104,579
     ---------------------------------------------------------------------------

     SHAREHOLDERS' EQUITY:
           COMMON STOCK                                           460,313
           ADDITIONAL PAID-IN CAPITAL                          17,057,801
           ACCUMULATED OTHER COMPREHENSIVE INCOME                  (2,832)
           ACCUMULATED DEFICIT                                (16,451,741)
     ---------------------------------------------------------------------------

     TOTAL SHAREHOLDERS' EQUITY                                 1,063,541
     ---------------------------------------------------------------------------

                                                              $ 2,428,150
     ===========================================================================

                CONDENSED UNCONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

     AUGUST 31,                                         2005            2004
     ---------------------------------------------------------------------------
     NET SALES                                      $    945,046   $    703,575
     COST OF SALES                                      (523,856)      (442,694)
     ---------------------------------------------------------------------------

     GROSS PROFIT                                        421,190        260,881
     ---------------------------------------------------------------------------

     OPERATING EXPENSES:
     SELLING, GENERAL AND ADMINISTRATIVE                 272,148        247,518
     RESEARCH AND DEVELOPMENT                             64,621         43,941
     ---------------------------------------------------------------------------

     TOTAL OPERATING EXPENSES                            336,769        291,459
     ---------------------------------------------------------------------------

         OPERATING INCOME (LOSS)                          84,421        (30,578)

         OTHER INCOME (EXPENSE)                           19,389         (3,926)
     ---------------------------------------------------------------------------

                                      19



<PAGE>

INCOME (LOSS) FROM OPERATIONS BEFORE INTEREST
         IN NET LOSS (INCOME) OF CONSOLIDATED
         SUBSIDIARIES AND INCOME TAXES                   103,810        (34,504)

     INTEREST IN NET LOSS (INCOME) OF
         CONSOLIDATED SUBSIDIARIES                        40,419         15,641

     INTEREST IN NET INCOME OF CONSOLIDATED
         SUBSIDIARIES - DISCONTINUED
         OPERATIONS                                           --             --

     INCOME (LOSS) FROM OPERATIONS BEFORE INCOME
     TAXES                                                63,391        (50,145)

     INCOME TAX EXPENSE                                       --             --
     ---------------------------------------------------------------------------

     NET INCOME (LOSS)                              $     63,391   $    (50,145)
     ===========================================================================


LIQUIDITY AND CAPITAL RESOURCES

         As of August 31, 2005, the Company had cash and available-for-sale
securities in the amount of $231,524 and working capital of $2,240,654. Cash and
working capital totaling $176,933 and $2,007,549, 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. Of the total working capital, negative working
capital of $104,579 relates to the discontinued operation, ReadyScript.

         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 on
September 13, 2003 and was not renewed. The unpaid principal and interest was
converted into a note payable ($313,318) bearing interest at 8% and payable
September 1, 2004. The due date on this note was extended until September 1,
2005 and on August 20, 2005 was extended until September 1, 2006 at the same
terms. Minimum payments of $4,000 per month plus an additional $3,500 per month,
depending on quarterly results of the Company, are being made.

         The Company has suffered substantial recurring losses from operations
over the last several years. Biomerica has funded its operations through debt
and equity financings, and may have to do so in the future. ReadyScript
operations were discontinued in May 2001. ReadyScript was a contributor to the
Company's losses in prior fiscal years. During the fiscal years ended May 31,
2005 and 2004, certain liabilities were forgiven and thus income from
discontinued operations for the years then ended was recorded. The subsidiary is
being reported in the financial statements as a discontinued operation because
it is no longer an operating entity.

         In the last several years the Company has been focusing on reducing
costs where possible and concentrating on its core business in Lancer and
Biomerica to increase sales. Management believes that cash flows from current
diagnostics operations is sufficient to fund diagnostics operations for at least
the next twelve months. Should the Company have a downturn in sales or
unanticipated, increased expenses, the result for the Company could be the
inability to continue as a going concern. The Company will continue to have
limited cash resources. Biomerica, as a parent entity, has no open or existing,
operating line of credit or loans on which it can draw any new or additional
debt financing. The Lancer line of credit expired October 15, 2005. Lancer
management is currently negotiating the renewal the existing line of credit.
There is no assurance that Lancer management will be able to renew that line of
credit or obtain other such financing.

         Our independent registered public accounting firm has concluded that
there is substantial doubt as to the Company's ability to continue as a going
concern for a reasonable period of time, and have, therefore modified their
report for the year ended May 31, 2005 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.

                                      20



<PAGE>

         During the quarter ended August 31, 2005, the Company operations used
cash of $214,773. This compares to cash provided by operations of $174,242 in
the same period in the prior fiscal year. Of this there was cash used in
operations of $194,316 and $115,654 at the Lancer subsidiary for the period
ended August 31, 2005 compared to 2004. Cash provided by financing activities
was $249,637 as compared to $22,500 in the prior fiscal year. The increase was
primarily due to $384,800 received in the Lancer private placement, which was
offset by $150,000 paid by Lancer to reduce the outstanding balance on the line
of credit. Cash used in investing activities in fiscal 2006 was $160,043
compared to $59,517 for fiscal 2005. Of this, $156,164 was from purchases of
property and equipment at Lancer. The balance of $3,879 was for purchases of
property and equipment at Biomerica.

         The change in cash and cash equivalents at August 31, 2005 compared to
August 31, 2004 was a decrease of $125,179. Of this Biomerica had a decrease of
$24,952 and Lancer had a decrease of $100,227. Various factors contributed to
the decrease at Lancer, among which were the pay down of the line of credit of
$150,000, increased inventories of $61,537 and increased receivables of $28,325.
Biomerica's decrease was attributable to various factors also, among which were
increased receivables of $48,611, increased inventories of $112,536, which was
offset by increased payables of $26,337 and net income before subsidiary of
$103,810.

         During fiscal 2005, Lancer obtained a new line of credit with Community
National Bank (formerly Cuyamaca Bank). Borrowings were made at prime plus 2.0%
(8.5% at August 31, 2005) and were for borrowing up to $400,000 which is limited
to 80% of accounts receivable less than 90 days old. The outstanding balance at
August 31, 2005 was $25,000 and the unused portion available at August 31, 2005
was approximately $340,000.

         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
balance sheet net worth of $2,700,000 and that a zero outstanding balance be
maintained for 30 consecutive days during the term. The agreement prohibits the
advancing of funds to Biomerica. Lancer is not required to maintain compensating
balances in connection with this lending agreement. The Company was in
compliance with its debt covenants at August 31, 2005.

         The Lancer line of credit expired October 15, 2005. Lancer management
is currently negotiating a renewal of the existing line of credit. There is no
assurance that Lancer management will be able to renew that line of credit or
obtain other such financing.

         Biomerica, Inc. 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. In March 2004 the Company signed a
note payable for the principal and interest due at that time of $313,318 and
agreed to a forbearance of any payments for the length of the agreement. A
warrant for 40,000 shares of restricted common stock exercisable at a price of
$.51 per share was awarded as compensation for the forbearance. The note payable
is secured by all the Company's assets except for the Lancer common stock owned
by Biomerica. The note was due September 1, 2004. On November 19, 2004, the
Company entered into an agreement entitled "Amendment of the Note, Loan and
Modification Agreement" and "Amended And Restated Promissory Note" which were
included as exhibits to the Form 10QSB filed April 14, 2004. The Amendment of
the Note, Loan And Modification Agreement was filed as an exhibit to a Form 8K
filed November 24, 2004. The agreement extended the maturity date of the note
until August 31, 2005 and allows for minimum payments of $4,000 per month and
additional contingent payments of up to $3,500 per month based on the Company's
quarterly performance. Collateral remains the same under The Amendment. There
was $297,087 of outstanding principal and $0 of interest payable under this note
payable at August 31, 2005. As of October 17, 2005, the Company was not in
compliance with the terms of the above agreements. Additional contingent
payments totaling $10,500 that were due after the filing of the Company's Form
10KSB for the year ended May 31, 2005, have not been paid.

                                      21



<PAGE>

CRITICAL ACCOUNTING POLICIES

         The discussion and analysis of our financial condition and results of
operations are based on the consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. Note 2 of the Notes to Consolidated Financial Statements
contained in the Company's annual report on Form 10KSB for the period ended May
31, 2005, describes the significant accounting policies essential to the
consolidated financial statements. The preparation of these financial statements
requires estimates and assumptions that affect the reported amounts and
disclosures.

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

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

         Revenues from product sales are recognized at the time the product is
shipped, customarily FOB shipping point, at which point title passes. An
allowance is established for estimated returns as revenue is recognized.

         The Allowance for Doubtful Accounts is established for estimated losses
resulting from the inability of our customers to make required payments. The
assessment of specific receivable balances and required reserves is performed by
management and discussed with the audit committee. We have identified specific
customers where collection is 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. The Company has
classified certain inventory as long-term since it is estimated that it will not
be used within the next year. Biomerica currently has $18,000 classified as
long-term and Lancer has $593,000.

         In general, we have been 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
August 31, 2005, 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.

         Please refer to the annual report on Form 10-KSB for the period ended
May 31, 2005 for an in-depth discussion of risk factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS

         You should read the following factors in conjunction with the factors
discussed elsewhere in this and our other filings with the SEC and in materials
incorporated by reference in these filings. The following is intended to
highlight certain factors that may affect the financial condition and results of
operations of Biomerica, Inc. and are not meant to be an exhaustive discussion
of risks that apply to companies such as Biomerica, Inc. Like other businesses,
Biomerica, Inc. is susceptible to macroeconomic downturns in the United States
or abroad, as were experienced in fiscal year 2002, that may affect the general
economic climate and performance of Biomerica, Inc. or its customers.

                                      22



<PAGE>

         Aside from general macroeconomic downturns, the additional material
factors that could affect future financial results include, but are not limited
to: Terrorist attacks and the impact of such events; diminished access to raw
materials that directly enter into our manufacturing process; shipping labor
disruption or other major degradation of the ability to ship out products to end
users; inability to successfully control our margins which are affected by many
factors including competition and product mix; protracted shutdown of the U.S.
border due to an escalation of terrorist or counter terrorist activity; the
operating and financial covenants contained in Lancer's credit line which could
limit our operating flexibility; any changes in our business relationships with
international distributors or the economic climate they operate in; any event
that has a material adverse impact on our foreign manufacturing operations may
adversely affect our operations as a whole; failure to manage the future
expansion of our business could have a material adverse affect on our revenues
and profitability; possible costs in complying with government regulations and
the delays in receiving required regulatory approvals or the enactment of new
adverse regulations or regulatory requirements; numerous competitors, some of
which have substantially greater financial and other resources than we do;
potential claims and litigation brought by patients or dental or medical
professionals alleging harm caused by the use of or exposure to our products;
quarterly variations in operating results caused by a number of factors,
including business and industry conditions and other factors beyond our control.
All these factors make it difficult to predict operating results for any
particular period.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

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 August 31, 2005,
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 August 31, 2005, 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.

                                      23




<PAGE>

                           PART II. OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS.  Inapplicable.

Item 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS. Inapplicable.

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.

(a)      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.


                                      24




<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:  October 24, 2005

                                        BIOMERICA, INC.

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


                                      25





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