What changed in this filing

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Item 1. Financial Statements

2020-10-15 compared with 2020-04-14 · 160 added, 242 removed, 185 unchanged (68% of the section changed)

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AND COMPREHENSIVE LOSS (UNAUDITED)

Nine Months Ended

Three Months Ended

August 31, 2020

August 31, 2019

Cost of sales

Operating Expense:

Operating Expenses:

Selling, general and administrative

Research and development

Total operating expenses

Total operating expense

Loss from operations

Other Income (Expense):

Other Income:

Dividend and interest income

Interest expense

Total other income

Loss before income taxes

Provision for income taxes

Basic net loss per common share

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CONDENSED CONSOLIDATED BALANCE SHEETS

August 31, 2020

Current Assets:

Cash and cash equivalents

Accounts receivable, less allowance for doubtful accounts of

$76,681 and $73,110 as of February 29, 2020 and May 31, 2019,

Accounts receivable, less allowance for doubtful accounts

of $272,356 and $70,981 as of August 31, 2020 and May 31, 2020, respectively

Inventories, net

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Total current assets

Property and Equipment, net of accumulated depreciation and

amortization of $1,688,685 and $1,762,344 as of February 29, 2020

and May 31, 2019, respectively

Right of Use Assets, net of amortization

Intangible Assets, net

Liabilities and Shareholders' Equity

Property and Equipment, net of accumulated depreciation and amortization

of $1,894,375 and $1,867,643 as of August 31, 2020 and May 31, 2020,

Right of Use Assets, net of accumulated amortization of $288,746 and $231,489

as of August 31, 2020 and May 31, 2020, respectively

Intangible Assets, net of accumulated amortization of $501,962 and $496,124 as

of August 31, 2020 and May 31, 2020, respectively

The accompanying notes are an integral part of these statements.

BIOMERICA, INC.

AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS - Continued

August 31, 2020

Current Liabilities:

1 unchanged sentence

Accrued compensation

Equity financing deposit-officer

Lease liability, current portion

2 unchanged sentences

Total Liabilities

Commitments and Contingencies (Note 6 and 7)

Commitments and Contingencies (Notes 5 and 6)

Shareholders' Equity:

Preferred stock, Series A 5% convertible,

$0.08 par value, 571,429 shares authorized, issued and outstanding

at February 29, 2020 and no shares authorized, issued and outstanding

at May 31 2019

Preferred stock, undesignated, no par value, authorized 4,428,571

and 5,000,000 shares, at February 29, 2020 and none at May 31,

2019, respectively and none issued and outstanding at

February 29, 2020 and May 31, 2019

Common stock, $0.08 par value authorized 25,000,000 shares, issued

and outstanding 10,310,355 and 9,677,188 at February 29, 2020 and

May 31, 2019, respectively

Preferred stock, Series A 5% convertible, $0.08 par value,

571,429 shares authorized, 321,429 issued and outstanding at August 31, 2020

and May 31, 2020

Preferred stock, undesignated, no par value,

4,428,571 shares authorized, none issued and outstanding at August 31, 2020

and May 31, 2020

Common stock, $0.08 par value,

25,000,000 shares authorized, 11,752,589 and 11,740,089 issued and outstanding

at August 31, 2020 and May 31, 2020, respectively

Additional paid-in-capital

Common stock subscribed

Accumulated other comprehensive loss

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CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited)

Nine Months Ended February 29, 2020

Preferred Stock

Subscriptions

Comprehensive

Three Months Ended August 31, 2020

Series A 5% Convertible Preferred Stock

Paid-in Capital

Other Comprehensive

Balances, May 31, 2020

Exercise of stock options

Issuance of preferred stock

Foreign currency translation

Compensation expense in connection with options granted

Balances, February 29, 2020

Balances, August 31, 2020

The accompanying notes are an integral part of these statements.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

Three Months Ended

August 31, 2020

August 31, 2019

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in

operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

2 unchanged sentences

Stock option expense

Reduction (increase)_ in deferred rent liability

Reduction in deferred rent liability

Amortization of right-of-use asset

1 unchanged sentence

Accounts receivable

Prepaid expenses and other

Prepaid expenses and other assets

Reduction in lease liability

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Net cash used in investing activities

Net cash flows from financing activities:

Proceeds from sales of common stock, net

Proceeds from sale of convertible preferred stock, net

Cash flows from financing activities:

Proceeds from sale of common stock, net

Proceeds from exercise of stock options

Proceeds from equity financing-officer

Common stock subscribed

Net cash provided by financing activities

Effect of exchange rate changes in cash

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

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The diagnostic test kits are used to analyze blood, urine or fecal samples from patients in the diagnosis of various diseases and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens or other substances, which may exist in a patients body, stools, or blood, often in extremely small concentrations.

The information set forth in these condensed consolidated statements is unaudited and 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.

and subsidiaries (collectively the Company), for the periods indicated.

The information set forth in these condensed consolidated financial statements is unaudited and 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.

and subsidiaries, 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 flows in conformity with accounting principles generally accepted in the United States of America.

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The condensed consolidated financial statements include the accounts of Biomerica, Inc.

as well as the Companys German subsidiary (BioEurope GmbH) and Mexican subsidiary (Biomerica de Mexico).

as well as its German subsidiary (BioEurope GmbH) and Mexican subsidiary (Biomerica de Mexico).

All significant intercompany accounts and transactions have been eliminated in consolidation.

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The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported period.

Estimates that are made include the reserve for bad debt, which is estimated based on current as well as historical data with a customer;

Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical past practices with a customer;

stock option forfeiture rates, which are calculated based on historical data;

inventory reserves, which are based on projected and historical usage of materials;

inventory obsolescence, which are based on projected and historical usage of materials;

and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, likelihood of lease extensions to occur, asset valuation, among other things;

(and other items that may be necessary to estimate using current, historical and judgment based).

(and other items that may be necessary to estimate using current, historical and judgment based information).

Actual results could materially differ from those estimates.

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

As of August 31, 2020, the Company had approximately $6,758,700 of uninsured cash.

The Company does not believe it is exposed to significant credit risks.

The Company provides credit in the normal course of business to customers throughout the United States and foreign markets.

At February 29, 2020 and May 31, 2019, the Company had two customers which accounted for 52.7% and two customers which accounted for 68.1%, respectively, of gross accounts receivable.

The Company performs ongoing credit evaluations of its customers and requires accelerated prepayment in some circumstances.

The Company had one customer which accounted for approximately 43.4% and 46.8%, of consolidated sales for the nine months ended February 29, 2020 and February 28, 2019, respectively.

For the nine months ended February 29, 2020 and February 28, 2019, two vendors accounted for approximately 32.8% and 33.4%, of the purchases of raw materials, respectively.

At February 29, 2020 and May 31, 2019 there were two companies which accounted for 46.1% and one company which accounted for 32.1% of accounts payable, respectively.

For the quarters ended August 31, 2020 and August 31, 2019, the Company had two distributors and one distributor which accounted for 40.1% and 45.8% of net consolidated sales, respectively.

At August 31, 2020 and May 31, 2020 the Company had two distributors and three distributors which accounted for a total of 62.1% and 80.0%, respectively, of gross accounts receivable.

Of the 62.1% as of August 31, 2020, 43.6% was owed by a distributor in South America.

For the quarters ended August 31, 2020 and 2019, two vendors accounted for approximately 63.8% and two vendors which accounted for 47.5% of the purchases or raw materials, respectively.

As of August 31, 2020 and May 31, 2020 the Company had 3 vendors and 2 vendors which accounted for 50.0% and 26.9%, respectively, of accounts payable.

CASH AND CASH EQUIVALENTS

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ACCOUNTS RECEIVABLE

The Company extends unsecured credit to its customers on a regular basis.

International accounts are 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.

The Company extends unsecured credit to its customers located throughout the United States and the world.

International accounts are normally 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.

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Management evaluates receivables on a quarterly basis and adjusts the allowance for doubtful accounts accordingly.

Balances over ninety days old are usually reserved for unless collection is reasonably assured.

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large accounts receivables balances relative to the total gross accounts receivables.

For receivables over ninety days old, the Company begins to reserve a portion of the balance unless collection is reasonably assured.

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large receivables 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.

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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 Companys production facilities.

The approximate balances of inventories are the following at:

Inventories approximate the following at:

August 31,2020

Raw materials

1 unchanged sentence

Finished products

Reserves for inventory obsolescence are increased as necessary to reduce obsolete inventory to estimated realizable value or to specifically reserve for obsolete inventory that the Company intends to dispose of.

As of February 29, 2020 and May 31, 2019, inventory reserves were approximately $55,000 and $49,000, respectively.

Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated realizable value or to specifically reserve for obsolete inventory that the Company intends to dispose of.

As of August 31, 2020 and May 31, 2020, inventory reserves were approximately $72,000 and $67,000, respectively.

PROPERTY AND EQUIPMENT, NET

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Repairs and maintenance costs are charged to operations as incurred.

When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation or amortization is removed from the accounts, and gains or losses from retirements and dispositions are credited or charged to income.

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 to 10 years, using the straight-line method.

Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the lease.

Depreciation and amortization expense on property and equipment and leasehold improvements amounted to $23,822 and $22,436 for the three months ended February 29, 2020 and February 28, 2019, respectively, and $77,641 and $78,118 for the nine months ended February 29, 2020 and February 28, 2019, respectively.

Intangible Assets, net

Intangible assets include trademarks, product rights, licenses, technology rights and patents, and are accounted for based on Accounting Standards Codification (ASC) 350 Intangibles Goodwill and Other (ASC 350).

Depreciation and amortization expense on property and equipment amounted to $26,732 and $29,498 for the three months ended August 31, 2020 and 2019, respectively.

INTANGIBLES 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 years for purchased technology use rights, licenses, and 17 years for patents.

Amortization amounted to $5,405 and $16,666 for the three months ended February 29, 2020 and February 28, 2019, respectively, and $17,131 and $49,996 for the nine months ended February 29, 2020 and February 28, 2019, respectively.

Amortization amounted to $5,838 and $5,780 for the three months ended August 31, 2020 and 2019, respectively.

The Company assesses the recoverability of these intangible assets by determining whether the amortization of the assets balances 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.

No impairment adjustment was required as of August 31, 2020 or 2019.

From time-to-time, the Company makes investments in privately-held companies.

The Company determines whether the fair values of any investments in privately-held entities have declined below their carrying value whenever adverse events or changes in circumstances indicate that recorded values may not be recoverable.

If the Company considers any such decline to be other than temporary (based on various factors, including historical financial results, and the overall health of the investees industry), a write-down to estimated fair value is recorded.

Investments represent the Companys investment in a Polish distributor which is primarily engaged in distributing medical products and devices.

The Company currently has not written down the investment and no events have occurred which could indicate the carrying value to be greater than the fair value.

The Company owns approximately 6% of the investee, and accordingly, applies the cost method to account for the investment.

Under the cost method, investments are recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received.

SHARE-BASED COMPENSATION

The Company follows the guidance of the accounting provisions 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 valuation model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate.

Expected volatilities are based on weighted averages of the historical volatility of the Companys stock and other factors estimated over the expected term of the 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 future.

Expected volatilities are based on weighted averages of the historical volatility of the Companys common stock estimated over the expected term of the options.

The expected forfeiture rate is based on historical forfeitures experienced.

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Treasury yield curve in effect at the time of grant for the period of the expected term.

The Company has not paid dividends historically and does not expect to pay them in the future.

The following summary presents the options and warrants granted, exercised, expired, cancelled and outstanding as of February 29, 2020:

The following summary presents the options and warrants granted, exercised, expired, cancelled and outstanding as of August 31, 2020:

Option Shares

Outstanding May 31, 2020

Cancelled or expired

Outstanding February 29, 2020

During the nine months ended February 29, 2020, options to purchase 80,375 shares of common stock were exercised at prices ranging from $0.82 to $1.20 per share.

Proceeds to the Company were approximately $79,828.

During the nine months ended February 29, 2020, the Company granted 356,000 options to purchase common stock at an average purchase price of $2.79.

Outstanding August 31, 2020

During the three months ended August 31, 2020, options to purchase 12,500 shares of common stock were exercised at price of $1.20.

Total net proceeds to the Company were $14,900.

During the three months ended August 31, 2020, the Company granted 171,000 options to purchase common stock at an average purchase price of $7.46.

REVENUE RECOGNITION

The Company has various contracts with customers.

All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, at which point title passes.

Revenue is recognized only when collectability is reasonably assured.

All of the contracts specify that 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 at which point title passes.

The Company does not allow for returns except in the event of defective merchandise and therefore does not establish an allowance for returns.

In conjunction with sales to certain customers, the Company provides free products upon attaining certain levels of purchases by the customer.

The Company accounts for these free products as zero sales and recognizes the cost of the product as part of cost of sales.

In addition, the Company has contracts with customers wherein they receive purchase discounts for achieving specified sales volume.

The Company evaluated the status of these contracts as of February 29, 2020 and does not believe that any additional discounts will be earned through the end of fiscal 2020 or through the end of the contract periods.

In addition, the Company has contracts with customers wherein they receive purchase discounts for achieving specified sales volumes.

The Company evaluated the status of these contracts as of August 31, 2020 and does not believe that any additional discounts will be given through the end of the contract periods.

Services for some contract work are invoiced and recognized for work that has been performed as the project progresses.

The Company sells clinical lab products to domestic and international distributors, including hospitals and clinical laboratories, medical research institutions, medical schools and pharmaceutical companies.

OTC products are sold directly to drug stores and e-commerce customers as well as to distributors.

Physicians office products are sold to physicians and distributors, all of whom are categorized below according to the type of product sold to them.

The Company also manufactures certain components on a contract basis for domestic and international manufacturers.

Disaggregation of revenue:

The following is a breakdown of revenues according to markets to which the products are sold:

Nine Months ended

Three Months Ended

Physicians office

August 31,2020

August 31,2019

Physician's office

Contract Manufacturing

See Note 4 for additional information regarding revenue concentrations.

From time-to-time, the Company makes investments in privately-held companies.

The Company currently has not written down the investment and no events have occurred which could indicate the carrying value to be less than the fair value.

Investments represent the Companys investment in a Polish distributor which is primarily engaged in distributing medical devices.

The Company owns approximately 6% of the investee, and accordingly, applies the cost method to account for the investment.

Under the cost method, investments are recorded at cost, with gains and losses recognized as of the sale date, and income recorded when received.

Shipping and Handling Fees and Costs

Shipping and handling fees billed to customers are required to be classified as net sales, and shipping and handling costs are required to be classified as either cost of sales or disclosed in the notes to the consolidated financial statements.

The Company included shipping and handling fees billed to customers in net sales.

The Company included shipping and handling costs associated with inbound freight and unreimbursed shipping to customers in cost of sales.

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 generally expensed as incurred.

The Company has provided a valuation allowance on deferred income tax assets of approximately $2,821,000 and $2,459,000 as of February 29, 2020 and May 31, 2019, respectively.

Research and development costs are expensed as incurred.

The Company expensed $674,693 and $370,466 of research and development costs during the quarters ended August 31, 2020 and 2019, respectively.

The Company has provided a valuation allowance on deferred income tax assets of approximately $3,522,000 and $3,175,000 as of August 31, 2020 and May 31, 2020, respectively.

FOREIGN CURRENCY TRANSLATION

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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 quarter, and revenues and costs are translated using average exchange rates for the quarter.

Accordingly, assets and liabilities of these subsidiaries are translated using exchange rates in effect at the end of the period, and revenues and costs are translated using average exchange rates for the period.

The resulting adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss.

Lease Liability

Incentive payments received from landlords was recorded as deferred lease incentives and were amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

When the terms of an operating lease provide for periods of free rent, rent concessions, and/or rent escalations, the Company established a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized.

This deferred rent liability was amortized over the underlying lease term on a straight-line basis as a reduction of rent expense.

During the period ended February 29, 2020, the Company adopted ASC 842, Leases.

As a result, the existing deferred rent liability was netted against the Right of Use Asset which was capitalized at that time.

In February 2016, the Financial Accounting Standards Board issued an accounting standards 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 Companys 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 will be classified as financing or operating which will drive the expense recognition pattern.

For lessees, the statement of operations presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively.

The Company has elected to exclude short-term leases.

The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted this guidance as of June 1, 2019, the required effective date, using the effective date transition method.

As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated.

An adjustment to opening accumulated deficit was not required in conjunction with adoption.

The adoption of this statement resulted in a right-of-use asset being recorded in the amount of $1,942,999 and a lease liability being recorded in the amount of $1,980,970.

Both will be amortized over the life of the underlying leases.

For additional information, see Note 6 Leases.

The Company has elected not to reassess whether expired or existing contracts contain leases, or reassess the classification of existing leases as of the adoption date.

There are no adjustments to foreign currency loss that are included in the consolidated statements of operations for the quarters ended August 31, 2020 and 2019.

RIGHT-OF-USE ASSETS AND LEASE LIABILITY

The Company follows the guidance of ASC 842, Leases, which requires lessees to recognize most leases on the balance sheet with a corresponding right-of-use asset.

Right-of-use assets represent the Companys right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease.

The Company leases office space and copy machines, all of which are operating leases.

The Company has elected to exclude short-term leases.

Most leases include the option to renew and the exercise of the renewal options is at the Companys sole discretion.

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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 using the treasury stock method.

The total amount of anti-dilutive options not included in the earnings per share calculation for the three and nine months ended February 29, 2020 was 476,358 and 483,658, respectively.

The total amount of anti-dilutive options not included in the earnings per share calculation for the three and nine months ended February 28, 2019 was 393,865 and 592,080, respectively.

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

Nine Months Ended

Three Months Ended

Denominator for basic loss

per common share

Effect of dilutive securities:

Options and warrants

Denominator for diluted loss

per common share

Basic net loss per common share

Diluted net loss per common share

New Accounting Pronouncements

On February 15, 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-02, Reclassification of Certain Tax Effects From Accumulated Comprehensive Income (ASU 2018-02).

ASU 2018-02 will give companies the option to reclassify stranded tax effects caused by the newly-enacted U.S.

Tax Cuts and Jobs Act (TCJA) from accumulated other comprehensive income (ASCI) to retained earnings.

ASU 2018-02 was effective for all companies for the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Management is taking the provisions of this statement into account in the preparation of the financial statements for the nine months ended February 29, 2020.

The adoption of this standard has not had a significant impact on the Companys financial statements.

On June 20, 2018, the FASB issued ASU 2018-07, CompensationStock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07).

ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external legal counsel, suppliers, etc.).

ASU 2018-07 was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

During the nine months ended February 29, 2020 the Company adopted the provisions of this statement and is taking them into account in the preparation of the financial statements for the nine months ended February 29, 2020.

The adoption of this standard has not had a significant impact on the Companys financial statements.

Other recent ASU's issued by the FASB and guidance issued by the Securities and Exchange Commission did not, or are not believed by management to, have a material effect on the Companys present or future consolidated financial statements.

Accounts Payable and Accrued Expenses

The Companys accounts payable and accrued expenses consist of the following at:

Accounts payable

Deferred rent

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 amount of anti-dilutive stock options not included in the loss per share calculation for the three months ended August 31, 2020 and 2019 was 1,925,750 and 1,416,584, respectively.

The Company also has outstanding 321,429 of series A 5% convertible preferred stock, which may be converted at any time to common stock.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent ASU's issued by the FASB and guidance issued by the Securities and Exchange Commission (SEC) did not, or are not believed by management to, have a material effect on the Companys present or future consolidated financial statements.

SHAREHOLDERS EQUITY

As described in the Companys Form S-3 Registration Statement and Prospectus filed on June 30, 2017 and December 4, 2017, respectively, the Company entered into an At Market Issuance Sales Agreement, whereby, the Company may raise additional working capital and funds for continued development of current research projects.

During the quarter that ended February 29, 2020, the Company received $58,572 in net proceeds from the sale of its common stock through this Agreement (including $15,583 from a subscription receivable as of November 30, 2019) .

The Company also recorded a subscription receivable during the quarter in the net amount of $1,156,311 for sales of common stock but which proceeds were not received until after February 29, 2020.

During the nine months ended February 29, 2020, the Company received $366,258 in net proceeds from the sale of its common stock through this Agreement as well as a subscription receivable of $1,156,311, as described above.

On February 26,2020, Biomerica, Inc.

issued stock under a Stock Purchase Agreement (the Stock Purchase Agreement) with Palm Global Small Cap Master Fund LP (Palm) pursuant to which the Company issued 571,429 shares of the Companys Series A 5% Convertible Preferred Stock, for a purchase price of approximately $2 million, or $3.50 per Series A 5% Convertible Preferred share.

The Company incurred approximately $82,000 in issuance costs associated with this stock purchase.

The issuance and sale of the Series A 5% Convertible Preferred shares was a private placement exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Regulation D promulgated thereunder.

The Stock Purchase Agreement contains certain anti-dilutive provisions for Palm until the third anniversary.

In addition, the Company entered into a Registration Rights Agreement wherein the Company agreed to register for resale with the Securities and Exchange Commission the shares of common stock, $0.08 par value per share, issuable upon conversion of the Series A 5% Convertible Preferred Shares based on certain conditions.

The Series A 5% Convertible Preferred Shares are convertible at the option of the holder at any time into an equal number of common stock shares (Conversion Shares).

The conversion price may be adjusted for stock splits or other common stock issuances.

The Company may require the conversion of all of the outstanding Series A 5% Convertible Preferred shares if the closing sale price of the Companys common stock equals or exceeds $9.00 for a period of five consecutive trading days with a minimum average trading volume of 35,000 shares per day over such period;

provided, that, on such date, the Conversion Shares are registered for resale.

The Series A 5% Convertible Preferred shares accrue annual preferred dividends at a rate of $0.175 per Series A 5% Convertible Preferred share.

The shares of Series A 5% Convertible Preferred shares are also entitled to receive participating dividends.

The shares of Series A 5% Convertible Preferred shares have no voting rights.

In the event of a liquidation, dissolution or winding up of the Company, or a deemed liquidation event, the holders of Series A 5% Convertible Preferred shares are eligible to receive the greater of (i) an amount equal to the Series A 5% Convertible Preferred original issue price, plus an amount equal to accrued and unpaid dividends thereon, or (ii) such amount per share as would have been payable had all Series A 5% Convertible Preferred shares been converted into common stock immediately prior to such liquidation, dissolution, winding up or deemed liquidation event.

The Series A 5% Convertible Preferred shares contain certain protective provisions, and require the consent of the holders of a majority of the Series A 5% Convertible Preferred Shares prior to the Company taking certain actions that would impair or reduce the rights of the Series A 5% Convertible Preferred shares, among other things;

for a period of three years following the issuance date.

Please refer to the Form 8-K filed with the Securities and Exchange Commission on February 27, 2020 for further details of the Stock Purchase Agreement and related agreements.

In November 2019, the Chief Executive Officer (CEO) deposited $200,000 with the Company to be used in a proposed financing where, under the terms being negotiated, the CEO would be co-investing with Palm (and other outside investors).

Ultimately, on February 28, 2020, in conjunction with the issuance of the Series A 5% Convertible Preferred shares to Palm, the funds deposited in November 2019 into the Company by the CEO were converted into shares of common stock through the Companys At Market Issuance Sales Agreement and were included in the common stock subscribed as of February 29, 2020.

A total of 78,431 shares were purchased at a purchase price of $2.85 per share, of which 70,175 were paid for from the $200,000 which had been deposited with the Company in November 2019.

The additional 8,256 shares were purchased in error through the Companys ATM broker and were paid for by the CEO.

On July 20, 2020, the Companys outstanding SEC Form S-3 Shelf registration statement dated July 20, 2017 expired.

This prior registration statement registered an indeterminant number of shares equating to a maximum aggregate offering amount of $45,000,000 of shares.

On July 21, 2020, the Company filed with the SEC a new Form S-3 Shelf registration statement to replace the registration statement that expired on July 20, 2020.

The new registration statement registers common shares to be issued in a maximum aggregate amount of $90,000,000.

Included in this registration statement was the registration of all of the common shares issued, or to be issued, to Palm Global Small Cap Master Fund LP upon conversion of their Series A 5% Convertible Preferred Stock into common shares.

This S-3 registration statement became effective September 30, 2020.

GEOGRAPHIC INFORMATION

Financial information about foreign and domestic operations and export sales is approximately as follows:

Nine Months Ended

Three Months Ended

August 31, 2020

August 31, 2019

Revenues from sales to unaffiliated customers:

1 unchanged sentence

South America

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

As of February 29, 2020 and May 31, 2019, approximately $629,000 and $665,000, of Biomericas gross inventory and approximately $33,000 and $39,000, of Biomericas property and equipment, net of accumulated depreciation, was located in Mexicali, Mexico, respectively.

As of August 31, 2020 and May 31, 2020, approximately $587,000 and $613,000 of Biomericas gross inventory and approximately $30,000 and $31,000, of Biomericas property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

On June 18, 2009, the Company entered into an agreement to lease a building in Irvine, California.

The lease commenced September 1, 2009 and ended August 31, 2016.

The initial base rent was set at $18,490 per month with scheduled annual increases through the end of the lease term.

In November 2015, the Company signed the First Amendment to Lease to extend the lease until August 31, 2021.

The initial base rent for the lease amendment which started September 1, 2016 was $21,000 per month.

In November 2015, the Company signed the First Amendment to extend the lease until August 31, 2021.

As of September 1, 2020, the rent was $23,637 per month.

In November 2016, the Companys Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space with initial base rent of $2,926 per month.

The rent is currently set at $3,239 per month as of November 1, 2019.

The Company has a one 10-year option to renew at the end of the initial lease period.

In November 2016, the Companys Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space.

The rent is currently $3,239 per month.

The Company has one 10-year option to renew at the end of the initial lease period.

Biomerica, Inc.

2 unchanged sentences

In addition, the Company leases a small office on a month-to-month basis in Lindau, Germany, as headquarters for BioEurope GmbH, its Germany subsidiary.

Components of lease expense include fixed lease expense of approximately $257,838 for the nine months ended February 29, 2020.

Components of lease expense include fixed lease expense of $85,946 for the three months ended August 31, 2020.

For purposes of determining straight-line rent expense, the lease term is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any renewal options periods that the Company is reasonably certain of exercising.

The Companys office and equipment leases generally have contractually specified minimum rent and annual rent increases are included in the measurement of the right-of-use asset and related lease liability.

The Companys office and equipment leases generally have contractually specified minimum rent and annual rent increases which are included in the measurement of the right-of-use asset and related lease liability.

Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs.

1 unchanged sentence

Supplemental cash flow information related to leases for

the nine months ended February 29, 2020:

the three months ended August 31, 2020:

Operating cash flows from operating leases

3 unchanged sentences

Weighted average discount rate

The maturity of lease liabilities as of February 29, 2020 are as follows:

Years Ending May 31

The maturity of lease liabilities as of August 31, 2020 are as follows:

Fiscal Years ending May 31st:

COMMITMENTS AND CONTINGENCIES

On December 1, 2017, Biomerica, Inc.

(the Company) entered into an At Market Issuance Sales Agreement (the At Market Issuance Sales Agreement) with an agent (Agent), pursuant to which the Company may offer and sell from time to time up to an aggregate of $7,000,000 of shares of the Companys common stock, par value $0.08 per share (the Placement Shares), through the Agent.

The Placement Shares have been registered under the Securities Act of 1933, as amended (the Securities Act), pursuant to the Registration Statement on Form S-3 (File No.

333-219130) (the Registration Statement), which was originally filed with the Securities and Exchange Commission (SEC) on June 30, 2017 and declared effective by the SEC on July 20, 2017, the base prospectus contained within the Registration Statement, and a prospectus supplement that was filed with the SEC on December 1, 2017.

Sales of the Placement Shares, if any, pursuant to the At Market Issuance Sales Agreement, may be made in sales deemed to be at the market offerings as defined in Rule 415 promulgated under the Securities Act.

The Agent will act as sales agent and will use commercially reasonable efforts to sell on the Companys behalf all of the Placement Shares requested to be sold 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 of the Placement Shares under the At Market Issuance Sales Agreement, and may at any time suspend offers under the At Market Issuance Sales Agreement or terminate the At Market Issuance Sales Agreement.

The Company intends to use the net proceeds from this offering for general corporate purposes, including, without limitation, sales and marketing activities, clinical studies and product development, making acquisitions of assets, businesses, companies or securities, capital expenditures, and for working capital needs.

Placement Shares sold during the nine months and the three months ended February 29, 2020 total 552,792 shares and 433,015 shares, respectively.

Total net proceeds from the sale of Placement Shares during the nine months and the three months ended February 29, 2020 were $366,258 and $58,572, respectively.

In addition, there was a subscription receivable of $1,156,311 for the sale of 418,281 Placement Shares that were sold on February 28, 2020 for which funds had not been received as of February 29, 2020.

These shares were included in the 552,792 and 433,015 shares mentioned above.

On July 22, 2019, the Company entered into a Clinical Trial Agreement with a research institution for the purpose of conducting a clinical trial of the Biomerica Infoods product.

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be approximately $107,000.

In September 2019, the Company agreed to extend MaxHealth Medical International, Limited and MaxHealth Medical Group Co., Ltd.s option to purchase up to 500,000 shares of Biomericas common stock for an additional 90 days at terms described in the agreement signed May 19, 2019.

This option expired at the end of December 2019.

On September 25, 2019, the Company entered into a Clinical Trial Agreement with a large, multi-physician medical group for the purpose of conducting a clinical trial of the Biomerica Infoods product.

Contracts and Licensing Agreements

On May 25, 2016, the Company entered into an Exclusive Marketing License Agreement (Telcon Agreement) with Celtis Pharm Co., Ltd., who subsequently changed their name to Telcon Pharmaceutical Co., LTD (Telcon), a medical company in the South Korea.

The Telcon Agreement grants to Telcon an exclusive license to market and sell Biomericas new InFoods® IBS products (IBS Products) in South Korea.

The term of the agreement is for a period of five years following Korean FDA clearance of the product and provides an additional two years for Telcon to attain such Korean FDA clearance.

The sequential two-year and five-year terms do not begin until after Biomerica first receives final clearance for sale of the IBS Products in the United States from the US FDA.

Telcon, at its sole cost and expense, must use its commercially reasonable good faith efforts to obtain Korean FDA for the IBS Product to be sold in South Korea.

The agreement may be cancelled if Biomerica has not obtained final US FDA clearance for sale of the IBS Products on or before December 31, 2019.

Biomerica is also obligated to maintain a full quality assurance system for the IBS Products following the harmonized standards according to Annex IV of Directive 98/79/EC.

The terms of the Telcon Agreement provide up to $1.25 million in exclusivity fees based on certain milestones including Biomericas starting clinical trials in the United States, receipt of US FDA clearance and Telcons first sales of IBS Products in Korea.

If Biomerica commences FDA Trials and Telcon pays the initial $250,000 milestone-based exclusivity fees, and the Agreement is subsequently terminated by either party for lack of performance, then Biomerica shall issue to Telcon 83,333 shares of Biomerica common in consideration for the $250,000 of paid exclusivity fee.

No exclusivity fees have yet been paid.

Additionally, the Telcon Agreement provides for a royalty of 15% paid to Biomerica on all sales in Korea of the IBS Product, and further sets the pricing of IBS Products sold to Telcon.

In order to retain the exclusivity within South Korean, Telcon must meet certain annual minimum royalty payments to Biomerica following Telcons receipt of Korean FDA approval or clearance for the IBS Product to be sold in Korea, which in no case will be later than May 31, 2019.

In September 2017, the Telcon Agreement was amended to extend the date by which Telcon must attain Korean FDA approval until April 30, 2020.

During the quarter ended August 31, 2020, a second amendment was signed extending the required FDA approval date to December 31, 2021.

On June 25, 2020, the Company entered into a Clinical Trial Agreement with the University of Texas Health Science Center for the purpose of conducting a clinical trial of the Biomerica InFoods product.

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be $139,850.

In December 2019, the Board of Directors approved the 2020 Stock Option and Incentive Plan.

The Plan is for the issuance of 900,000 options to purchase the Companys common stock from time to time at the discretion of the Board of Directors.

The Plan will be submitted for approval by the shareholders in December 2020.

In December 2019, the Company entered into a Clinical Trial Agreement with a research institution for the purpose of conducting a clinical trial of the Biomerica InFoods product.

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be approximately $133,000.

In December 2019, the Company entered into a Clinical Trial Agreement with a research institution for the purpose of conducting a clinical trial of the Biomerica H.

pylori product.

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be approximately $57,800.

On February 21, 2020, Biomerica, Inc.

(the Company) entered into a Stock Purchase Agreement (the Stock Purchase Agreement) with Palm Global Small Cap Master Fund LP (Palm) pursuant to which the Company agreed to sell and issue to Palm, and Palm agreed to purchase from the Company, 571,429 shares of the Companys Series A 5% Convertible Preferred Stock, $0.08 par value per share for a purchase price (the Purchase Price) of approximately $2 million, or $3.50 per Series A Preferred Share (such transaction, the Share Issuance).

The Company incurred approximately $82,000 in issuance costs associated with this stock purchase.

See Note 4, Shareholders Equity for further details of this transaction.

As disclosed in the Form 10K filed with the SEC on August 31, 2020, on July 2, 2020, the Company received a notice of investigation and subpoena to produce information and documents from the Division of Enforcement of the SEC.

The subpoena seeks information and documents related to events and circumstances leading up to our March 17, 2020 announcement that we had commenced shipping samples of our COVID-19 IgG/IgM Rapid Test to countries outside of the United States, and had initiated the application process with the United States Food and Drug Administration under the COVID-19 Emergency Use Authorization for approval to market and sell the test in the United States.

The subpoena also seeks information and documents about the identity of any persons who were aware of the substance of the March 17, 2020 announcement prior to that date.

The Company is continuing to cooperate fully with the SECs investigation and provide information as requested.

At this time, the Company is unable to predict the duration, scope or outcome of this investigation.

SUBSEQUENT EVENTS

Subsequent to February 29, 2020 the Coronovirus pandemic, which started in China at the end of 2019, has spread throughout the world, including the U.S.

The impact it will have on the Companys operations is unknown at this time.

The Company may face supply chain disruptions, loss of contracts and/or customers, closure of the Companys manufacturing or distribution facilities or of the facilities of the Companys partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities.

On March 17, 2020, the Company announced it had commenced shipping initial samples of its COVID-19 IgG/IgM Rapid Test (qualitative membrane-based immunoassay for the detection of IgG and IgM antibodies to SARS-CoV-2 in whole blood or serum) to countries outside the US for evaluation.

The test is a finger prick blood test that the Company expects will show results in approximately 10 minutes and can be performed by trained professionals at any location, including airports, schools, work, pharmacies and doctors offices.

The evaluation test kits have been requested by Ministries of Health in multiple countries through our distribution partners who are working with their government agencies to assess the tests and forecast demand.

In addition, the Company has begun the application process with the FDA under the COVID-19 Emergency Use Authorization aimed at the possible clearance and eventual use of the test in the US.

On March 20, 2020, the Company filed a prospectus supplement to the base prospectus dated July 20, 2017 for purposes of raising up to $12,500,000 from time to time pursuant to the terms of the At Market Issuance Agreement.

Subsequent to February 29, 2020 and through April 14, 2020, the Company sold 716,335 shares of common stock through the At Market Issuance Sales Agreement.

Net proceeds to the Company were approximately $5,391,000.

Subsequent to February 29, 2020, 28,500 stock options were exercised at prices ranging from $0.82 to $3.62 per share.

Net proceeds to the Company were approximately $41,740.

On March 23, 2020, Palm elected to convert 250,000 shares of Series A Convertible Preferred Stock to 250,000 shares of common stock.

There were no costs for the conversion.

On April 1, 2020, the Company entered into two separate non-exclusive license agreements (the License Agreements) with the Mount Sinai Icahn School of Medicine in New York (Mount Sinai) to license technology from Mount Sinai that the Company intends to use to scale up and manufacture a laboratory version serological test for SARS-CoV-2 coronavirus.

This test uses the ELISA microplate format that can run on existing open system equipment found in most hospitals and clinical laboratories in the United States.

The non-exclusive License Agreements provide for royalty payments to Mount Sinai based on a percentage of gross sales of commercial products manufactured and sold by Biomerica that incorporate the Mount Sinai technology licensed under the License Agreements.

On September 15, 2020, the Company entered into an agreement with Public Health England research institution for the purpose of evaluating the Companys COVID-19 Rapid Test.

On October 5, 2020, the Company entered into a sales agreement with a Ukrainian distributor.

The agreement covers a four-year period and the total contract is valued at $480,000.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements