| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE
2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES
OF CONSOLIDATION The
consolidated financial statements for the years ended May 31, 2024 and 2023, include the accounts of Biomerica, Inc. (“Biomerica”)
as well as its wholly-owned German subsidiary (“BioEurope GmbH”) and Mexican subsidiary (“Biomerica de Mexico”).
All significant intercompany accounts and transactions have been eliminated in consolidation. ACCOUNTING
ESTIMATES The
preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States of
America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements. These estimates
also impact the reported amounts of revenues and expenses during the reporting period. Key estimates include the allowance for
doubtful accounts, based on both current and historical practices with customers; variable consideration in revenue recognition,
estimated based on agreements that include guarantees of specified profit margins, requiring adjustments based on actual sales
performance and market conditions, stock option forfeiture rates, calculated using historical data; and inventory obsolescence,
where inventory is stated at the lower of cost or net realizable value (NRV) and assessed through judgments based on projected and
historical usage of materials. The valuation of lease liabilities and right-of-use assets also involves
assumptions such as the borrowing rate at lease commencement and the likelihood of lease extensions. These
estimates are critical to our financial reporting, and actual results could materially differ from those
estimates. LIQUIDITY AND GOING CONCERN The
Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $ 48 4,170,000 5,527,000 On
January 22, 2021, the Company filed a prospectus supplement to the base prospectus included in a registration statement filed with the
SEC on July 21, 2020, and declared effective by the SEC on September 30, 2020, for purposes of selling up to $ 15,000,000 Under
the ATM Offering, the sales agent uses commercially reasonable efforts to sell on the Company’s behalf all the shares requested
to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between
the agent and the Company. The Company has no obligation to sell any shares under the ATM Offering, and may at any time suspend offers
under, or terminate the ATM Offering. During
the year ended May 31, 2023, the Company sold 573,889 3.15 4.26 2,014,000 1,961,000 53,000 On
March 7, 2023, the Company sold 3,333,333 2.40 700,000 7,300,000 On
September 28, 2023, we filed a “shelf” registration statement on Form S-3 with the SEC, allowing the Company to issue up
to $ 20,000,000 in
common shares. Under this registration statement, shares of our common stock may be sold from time to time for up to three years
from the filing date. On May 10, 2024, the Company filed a prospectus supplement with the SEC, as part of the registration statement
filed on September 28, 2023, which was declared effective on September 29, 2023. This supplement was intended to facilitate the sale
of up to $ 5,500,000 in
common stock through ATM offerings, as defined in Rule 415 under the Securities Act. As part of this transaction, the Company
incurred $ 81,000 in
deferred offering costs. The average trading volume of our stock over the last three full calendar months is
approximately 229,000 shares per day and the high and low trading price of our stock during the same period of time was $1.25 and
$0.50, respectively. The
Company intends to use the net proceeds from this offering for general corporate purposes, including, but not limited to, sales and marketing
activities, clinical studies and product development, acquisitions of assets, businesses, companies, or securities, capital expenditures,
and working capital needs. As
of May 31, 2024 and 2023, the Company had cash and cash equivalents of approximately $ 4,170,000 9,719,000 5,527,000 10,852,000 The
Company’s ability to continue as a going concern over the next twelve months is influenced by several factors, including:
● Our need and ability to generate additional revenue from international
opportunities and our new product launches;
● Our need to access the capital and debt markets to meet current
obligations and fund operations;
● Our capacity to manage operating expenses and maintain gross
margins as we grow; and
● Our ability to retain key employees and maintain critical operations
with a substantially reduced workforce. Management
has analyzed the Company’s cash flow requirements through August 2025 and beyond. Based on this analysis, we believe our current
cash and cash equivalents are insufficient to meet our operating cash requirements and strategic growth objectives for the next twelve months. To
address our capital needs and sustain operations beyond the next year, we are actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, seek additional
financing through debt or equity, and seek other strategic alternatives. While we are committed to these plans, there is no assurance
that these efforts will be successful or sufficient to meet our capital requirements. These
factors raise substantial doubt about the Company’s ability to continue as a going concern. Our future viability depends on the successful
execution of our strategic plans, securing additional financing, and achieving profitable operations. The
Company’s consolidated financial statements as of May 31, 2024 were prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities and commitments in the normal course of business. FAIR
VALUE OF FINANCIAL INSTRUMENTS The
Company has financial instruments whereby the fair market value of the financial instruments could be different than the amount
recorded on a historical basis. The Company’s consolidated financial instruments consist of its cash and cash equivalents,
accounts receivable, and accounts payable. The carrying amounts of the Company’s financial instruments approximate their fair
values. The Company also maintains an investment in privately held company (see below). CONCENTRATION
OF CREDIT RISK The
Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. From time to time,
the Company has uninsured balances. The Company does not believe it is exposed to any significant credit risks. The
Company provides credit in the normal course of business to customers throughout the United States and in foreign markets. The Company
performs ongoing credit evaluations of its customers and requires accelerated prepayment in some circumstances. Our
net sales were approximately $ 5,415,000 for
fiscal 2024, compared to $ 5,339,000 for
fiscal 2023. For the fiscal years ended May 31, 2024, and 2023, the Company had one distributor each year that accounted for 33 %
and 35 %
of our net sales, respectively. Total
gross receivables as of May 31, 2024, and 2023 were approximately $ 966,000 751,000 64 36 64 37 For
the fiscal year ended May 31, 2024, the Company had one vendor which accounted for 16 GEOGRAPHIC
CONCENTRATION As
of May 31, 2024 and 2023, approximately $ 537,000 626,000 As
of May 31, 2024 and 2023, approximately $ 14,000 17,000 CASH
AND CASH EQUIVALENTS Cash
and cash equivalents consist of demand deposits and money market accounts with original maturities of less than three months. ACCOUNTS
RECEIVABLE, NET The
Company extends unsecured credit to its customers on a regular basis. International accounts are usually required to prepay until they
establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria. Based on various
criteria, initial credit levels for individual distributors are approved by designated officers and managers of the Company. All increases
in credit limits are also approved by designated upper-level management. The
Company adopted Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (codified as
Accounting Standards Codification (“ASC”) 326) on June 1, 2023. ASC 326 adds to U.S. GAAP the current expected credit loss
(“CECL”) model, a measurement model based on expected losses rather than incurred losses. Prior to the adoption of ASC 326,
the Company evaluated receivables on a quarterly basis and adjusted the allowance for doubtful accounts accordingly. Balances over ninety
days Occasionally,
certain long-standing customers who routinely place large orders will have unusually large receivable balances relative to the total
gross receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices
before shipping new sales orders. As
of May 31, 2024 and 2023, the Company has established an allowance of approximately $ 19,000 29,000 PREPAID
EXPENSES AND OTHER The
Company occasionally prepays for items such as inventory, insurance, and other items. These items are reported as prepaids, until either
the inventory is physically received or the insurance and other items are utilized. As
of May 31, 2024 and 2023, the prepaids were approximately $ 238,000 300,000 INVENTORIES,
NET The
Company values inventory at the lower of cost (determined using a combination of specific lot identification and the first-in, first-out
methods) or net realizable value. Management periodically reviews inventory for excess quantities and obsolescence. Management evaluates
quantities on hand, physical condition, and technical functionality as these characteristics may be impacted by anticipated customer
demand for current products and new product introductions. The reserve is adjusted based on such evaluation, with a corresponding provision
included in cost of sales. Abnormal amounts of idle facility expenses, freight, handling costs, and wasted material are recognized as
current period charges and the allocation of fixed production overhead is based on the normal capacity of the production facilities. The
following is a summary of approximate net inventories: SCHEDULE OF NET INVENTORIES
2024 2023
May 31,
2024 2023
Raw materials $ 1,519,000 $ 1,677,000
Work in progress 1,145,000 869,000
Finished products 179,000 182,000
Total gross inventory $ 2,843,000 $ 2,728,000
Inventory reserve (467,000 ) (672,000 )
Net inventory $ 2,376,000 $ 2,056,000 Reserves
for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically
reserve for obsolete inventory. As of May 31, 2024 and 2023, inventory reserves were approximately $ 467,000 672,000 PROPERTY
AND EQUIPMENT, NET Property
and equipment are stated at cost. Expenditures for additions and major improvements are capitalized. Repairs and maintenance costs are
charged to operations as incurred. When property and equipment are sold, retired, or otherwise disposed of, the related cost and accumulated
depreciation or amortization are removed from the accounts, and gains or losses from sales, retirements, and dispositions are credited
or charged to income. Depreciation
and amortization are provided over the estimated useful lives of the related assets, ranging from 5 10 63,000 66,000 INTANGIBLE
ASSETS, NET Intangible
assets include trademarks, product rights, technology rights, and patents, and are accounted for based on Accounting Standards Codification
(“ASC”), ASC 350 Intangibles – Goodwill and Other (“ASC 350”). In that regard, intangible assets that have
indefinite useful lives are not amortized but are tested at least annually for impairment or more frequently if events or changes in
circumstances indicate that the asset might be impaired. Intangible
assets are being amortized using the straight-line method over the useful life, not to exceed 18 years for marketing and distribution
rights, 10 15 18,000 The
Company assesses the recoverability of these intangible assets by determining whether the amortization of the asset’s balance over
its remaining life can be recovered through projected undiscounted future cash flows. The Company uses a qualitative assessment to determine
whether there was any impairment. There was no INVESTMENTS The
Company has made investments in a privately held Polish distributor, which is primarily engaged in distributing medical products and
devices, including the distribution of the products sold by the Company. The Company invested approximately $ 165,000 6 Equity
holdings in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence (“Cost Method
Holdings”) are accounted for at the Company’s initial cost, minus any impairment (if any), plus or minus changes resulting
from observable price changes in orderly transactions for the identical or a similar holding or security of the same issuer. Dividends
received are recorded as other dividend and interest income. The
Company assesses its equity holdings for impairment whenever events or changes in circumstances indicate that the carrying value of an
equity holding may not be recoverable. Management reviewed the underlying net assets of the Company’s equity method holding as
of May 31, 2024 and determined that the Company’s proportionate economic interest in the entity indicates that the equity holding
was not impaired. There were no observable price changes in orderly transactions for identical or a similar holding or security of the
Company’s Cost Method Holding during the year ended May 31, 2024. SHARE-BASED
COMPENSATION The
Company follows the guidance of ASC 718, Share-based Compensation (“ASC 718”), which requires the use of the fair-value based
method to determine compensation for all arrangements under which employees and others receive shares of stock or equity instruments
(options). The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses
assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate. The
Company has not paid dividends historically and does not expect to pay them in the foreseeable future. Expected volatilities are based
on weighted averages of the historical volatility of the Company’s common stock estimated over the expected term of the options.
The expected forfeiture rate is based on historical forfeitures experienced. The expected term of options granted is derived using the
“simplified method” which computes expected term as the average of the sum of the vesting term plus the contract term as
historically the Company had limited exercise activity surrounding its options. The risk-free rate is based on the U.S. Treasury yield
curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under
the straight-line attribution method. The
Company expensed approximately $ 837,000 1,185,000 In
applying the Black-Scholes option-pricing model, the following assumptions used in the valuation of awards issued for years ended May
31, 2024 and 2023: SCHEDULE OF SHARE-BASED PAYMENT AWARD, STOCK OPTIONS, VALUATION ASSUMPTIONS
For
the year ended May 31,
2024 2023
Dividend yield 0 % 0 %
Expected volatility 100.54
- 111.98 % 98.81
- 101.77 %
Risk free interest rate 4.0
- 4.59 % 3.12
- 3.35 %
Expected term 4.69 - 6.25 years 6.25
years REVENUE
RECOGNITION The
Company has various contracts with customers, and these contracts specify the recognition of revenue based on the nature of the transaction. Revenues
from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control
of goods has occurred and title passes. This applies to clinical lab products sold to domestic and international distributors, including
hospitals, clinical laboratories, medical research institutions, medical schools, and pharmaceutical companies. OTC products are sold
directly to drug stores, e-commerce customers, and distributors, while physicians’ office products are sold to physicians and distributors.
The Company does not allow returns except in cases of defective merchandise, and therefore, does not establish an allowance for
returns. Additionally, the Company has contracts with customers that provide purchase discounts contingent on achieving specified sales volumes.
These contracts are regularly evaluated, and the Company does not anticipate granting any discounts through the end of the
contract period. Furthermore,
the Company offers margin guarantees to certain retail drug store customers to ensure a minimum profit margin. Should pricing adjustments
cause these margins to fall below the agreed-upon thresholds, the Company is committed to compensating for the shortfall. This arrangement
introduces variable consideration into our revenue recognition process. These considerations are estimated monthly based on actual sales
and potential price reductions, ensuring accurate and compliant revenue reporting. For
diagnostic testing services sold directly to patients or physician offices that require processing by a third-party CLIA-certified lab,
we recognize revenue once the lab has completed the test results. For
services related to contract manufacturing, revenue is recognized when the service has been performed. Services for some contract work
are invoiced and recognized as the project progresses. As
of May 31, 2024, the Company had approximately $ 85,000 Disaggregation
of revenue: The
following is an approximate breakdown of revenues according to primary markets to which the products are sold: SCHEDULE OF DISAGGREGATION REVENUE
2024 2023
For
Year Ended May 31,
2024 2023
Clinical
lab $ 3,236,000 $ 3,310,000
Over-the-counter 1,426,000 1,169,000
Contract
manufacturing 741,000 610,000
Physician’s
office 12,000 250,000
Total $ 5,415,000 $ 5,339,000 See
Note 8 for additional information regarding geographic revenue concentrations. SHIPPING
AND HANDLING FEES The
Company includes shipping and handling fees billed to customers in net sales. RESEARCH
AND DEVELOPMENT Research
and development costs are expensed as incurred. The Company expensed approximately $ 1,491,000 1,584,000 INCOME
TAXES The
Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities
arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial
statements that will result in taxable or deductible amounts in future years and the benefits of net operating loss and tax credit carryforwards.
These temporary differences and the benefits of net operating loss and tax credit carryforwards are measured using enacted tax rates.
A valuation allowance is recorded to reduce deferred tax assets to the extent that management considers it is more likely than not that
a deferred tax asset will not be realized. In determining the valuation allowance, the Company considers factors such as the reversal
of deferred income tax assets, projected taxable income, and the character of income tax assets and tax planning strategies. A change
to these factors could impact the estimated valuation allowance and income tax expense. As of May 31, 2024 and 2023, in accordance with
ASC 740, the Company has a valuation allowance for all of its net deferred tax assets. During the year ended May 31, 2024,
this valuation allowance was increased to $ 10,369,000 10,369,000 The
Company accounts for its uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax positions.
The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more
likely than not, based solely on the technical merits, that the position will be sustained in an audit, including resolution of related
appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize. The amount
of benefit to recognize is measured as the maximum amount which is more likely than not to be realized. The tax position is derecognized
when it is no longer more likely than not capable of being sustained. On subsequent recognition and measurement, the maximum amount which
is more likely than not to be recognized at each reporting date will represent the Company’s best estimate, given the information
available at the reporting date, although the outcome of the tax position is not absolute or final. The Company elected to follow an
accounting policy to classify accrued interest related to liabilities for income taxes within the “Interest expense” line
and penalties related to liabilities for income taxes within the “Other expense” line of the consolidated statements of operations
and comprehensive loss. ADVERTISING
COSTS The
Company reports the cost of all advertising as expense in the period in which those costs are incurred. Advertising costs were approximately
$ 101,000 156,000 FOREIGN
CURRENCY TRANSLATION The
subsidiary located in Mexico operates primarily using the Mexican peso. The subsidiary located in Germany operates primarily using
the U.S. dollar, with an immaterial amount of transactions occurring using the Euro. Accordingly, assets and liabilities of these
subsidiaries are translated using exchange rates in effect at the end of the year, and revenues and costs are translated using
average exchange rates for the year. The resulting adjustments to assets and liabilities are presented as a separate component of
accumulated other comprehensive loss. There are no foreign currency transaction gains or losses that are included in the
consolidated statements of operations for the years ended May 31, 2024 and 2023. RIGHT-OF-USE
ASSETS AND LEASE LIABILITIES In
February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard update which requires lessees
to recognize most leases on the balance sheet with a corresponding right-of-use asset. Right-of-use assets represent the Company’s
right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from
the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value
of fixed lease payments over the lease term. Leases are classified as financing or operating which will drive the expense recognition
pattern. The Company has elected to exclude short-term leases. The Company leases office space and copy machines, all of which are operating
leases. Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options
to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise. The
leases do not include the options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited
by the expected lease term. For additional information, see Note 9-Commitments and Contingencies. NET
LOSS PER SHARE Basic
loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted loss
per share reflects the potential dilution that could occur from common shares issuable through stock options, warrants and other convertible
securities using the treasury stock method. The total amounts of anti-dilutive stock options not included in the loss per share calculation
for the years ended May 31, 2024 and 2023 were 3,479,616 2,342,616 SEGMENT
REPORTING ASC
280, Segment Reporting (“ASC 280”), establishes standards for reporting, by public business enterprises, information about
operating segments, products and services, geographic areas, and major customers. The Company’s operations are analyzed by management
and its chief operating decision maker as being part of a single industry segment: the design, development, marketing, and sales of diagnostic
kits. REPORTING
COMPREHENSIVE LOSS Comprehensive
loss represents net loss and any revenues, expenses, gains and losses that, under GAAP, are excluded from net loss and recognized directly
as a component of shareholders’ equity. Items of other comprehensive loss consist solely of foreign currency translation adjustments
for the years ended May 31, 2024 and 2023. RECENT
ACCOUNTING PRONOUNCEMENTS Recent
ASU’s issued by the FASB and guidance issued by the SEC did not, or are not believed by the management to, have a material effect
on the Company’s present or future consolidated financial statements. In
June 2016, the FASB issued ASU 2016-13. This ASU requires the measurement of all expected credit losses for financial assets, including
trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.
The guidance was initially effective for the Company for annual reporting periods beginning after December 15, 2019, and interim periods
within those fiscal years. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivatives
and Hedging (Topic 815), and Leases (Topic 842): Effective Dates,” which, among other things, defers the effective date of ASU
2016-13 for public filers that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December
15, 2022, including interim periods within those years. Early adoption is permitted. The Company adopted ASU 2016-03 on June 1, 2023,
and the adoption of this update did not have a material impact on the Company’s consolidated financial statements. In
November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07, “Improvements to Reportable Segment
Disclosures.” The ASU includes enhanced disclosure requirements, primarily related to significant segment expenses that are regularly
provided to and used by the chief operating decision maker (“CODM”). The amendments are to be applied retrospectively to all prior periods
presented in the financial statements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with early adoption
permitted. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures. In
December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The ASU includes
enhanced disclosure requirements, primarily related to the rate reconciliation and income taxes paid information. The amendments are
to be applied prospectively in the financial statements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024,
with early adoption permitted. We are currently evaluating the effect of adopting this pronouncement on our financial statements and
disclosures. |
