BIOMERICA INC

NOTE 1: BASIS OF PRESENTATION

Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH) is a biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians’ offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. Our diagnostic test kits are used to analyze blood, urine, nasal or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations. The Company’s products are designed to enhance the health and well-being of people, while reducing total healthcare costs.

Our primary focus is the research, development, commercialization and eventual regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products based on our inFoods® Technology platform that treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases. These inFoods based products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. The first product we are launching using this patented inFoods Technology is our inFoods IBS product which uses a simple blood sample to identify patient-specific foods that, when removed from their diet, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping and constipation. Instead of broad and difficult to manage dietary restrictions, the inFoods IBS product works by identifying a patient’s above normal immunoreactivity to a panel of specific foods that have been shown to often be problematic to IBS sufferers. A food identified as positive (causing an abnormally high immune response in the patient) is simply removed from the diet to help alleviate IBS symptoms.

We have successfully launched our product across numerous gastroenterology (“GI”) physician groups in various states and regions. This includes collaboration with one of the largest GI groups in the US, now offering inFoods to their patients. The feedback from the GI specialty has been positive, and we are actively expanding our network by onboarding additional physician practices. These GI practices are beginning to prescribe inFoods IBS to their patients. At the same time, we recognize the potential to extend our product’s application to other physician segments. We are convinced that forming partnerships in these other segments is the most effective strategy for market penetration. Currently, we are engaging in discussions with several potential partners. This strategy enables our newly formed sales team to focus on building strong relationships within the GI segment, capitalizing on the distinct advantages of the inFoods IBS product. Consequently, we anticipate sustained revenue growth from the inFoods IBS product rollout in the upcoming quarters.

In addition to our focus on the inFoods products, during the quarter, we also recently received FDA clearance for a new diagnostic test called hp+detect™, which is used for the detection of the H. pylori bacteria in a patient’s GI tract. The H. pylori bacteria is estimated to infect 35% of the U.S. population and 45% of the population in Europe’s five largest countries. H. pylori infection is the strongest known risk factor for gastric cancer and gastric cancer is the third most common cause of cancer-related death worldwide. Physicians and medical centers will now be able use hp+detect™ to diagnose H. pylori infection and monitor the safety and efficacy of treatment. This diagnostic test is sold directly to labs where patient samples are tested and diagnosis occurs. During the quarter, we hired a small sales team to market this product. We also began making this test available to the end customer labs.

Our other existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians’ offices and over-the-counter at Walmart, CVS Pharmacy and Amazon). The diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances 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 patient’s body, stools, or blood, often in extremely small concentrations.

In March 2020, we began developing COVID-19 diagnostic tests to indicate if a person has been infected by COVID-19 or is currently infected. We began selling these COVID-19 diagnostic tests during fiscal 2021, and we experienced significant revenues from such sales during fiscal 2021 and 2022 with lesser sales in fiscal 2023. Due to falling demand, there were no sales of our COVID-19 related products in the twelve months ended February 29, 2024. As such, our COVID-19 product sales caused significant swings in our revenues over the past over the last four years

Our products that accounted for all of our revenues during the nine months ended February 29, 2024, are primarily focused on gastrointestinal diseases, colorectal diseases, food intolerances, and certain esoteric tests. These diagnostic test products utilize immunoassay technology. Most of our products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency. In addition, some products are cleared for sale in the United States by the FDA.

The unaudited condensed consolidated financial statements herein have been prepared by management pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed consolidated financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited consolidated financial statements for the latest fiscal year ended May 31, 2023. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with United States generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the three and nine months ended February 29, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending May 31, 2024. For further information, refer to the audited consolidated financial statements and notes thereto for the fiscal year ended May 31, 2023 included in the Company’s Annual Report on Form 10-K filed with the SEC on August 25, 2023. Management has evaluated all subsequent events and transactions through the date of filing this report.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

ACCOUNTING ESTIMATES

The preparation of the condensed consolidated financial statements in conformity with 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 condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reported period. Estimates that are made include the allowance for doubtful accounts, which is estimated based on current as well as historical practices with a customer; stock option forfeiture rates, which are calculated based on historical data; inventory obsolescence, which is 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, the 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 information. Actual results could materially differ from those estimates.

MARKETS AND METHODS OF DISTRIBUTION

The Company employs a diverse range of distribution methods to deliver our products to our customers. We currently serve approximately 80 customers in our diagnostic business. Among these, roughly 40 are foreign distributors, 10 are domestic distributors, and the remainder primarily consists of domestic hospital and clinical laboratories, medical research institutions, medical schools, pharmaceutical companies, chain drugstores, wholesalers, physicians’ offices, and e-commerce customers.

The Company derives the majority of its revenues from the sale of domestically manufactured products in the U.S. and Mexico, with some raw materials sourced from Asia and other global regions. Primarily, the Company’s revenue stream is bolstered by international sales of its products. However, the Company’s operations have been adversely affected by various global and economic disruptions stemming from the COVID-19 pandemic, ongoing conflicts such as the war in Ukraine and Israel, and geopolitical tensions between China and the United States.

These challenges have resulted in disruptions across multiple facets of the Company’s operations, including supply chain disruptions, cost inflation, potential loss of contracts and customers, travel restrictions, shipping and logistical challenges, diverse government responses, and inherent international business risks in the Company’s operational regions. Additionally, there is a risk of human capital depletion among the Company, its partners, and customers, as well as potential interruptions to production and customer credit risks. Furthermore, the Company remains vulnerable to general economic downturns.

In light of these prevailing global challenges, the Company remains steadfast in its strategic direction. Our focus continues to be driving inFoods IBS product growth within the U.S. and launching our new H. pylori test which recently received FDA clearance to further strengthen our domestic portfolio. Both products are domestically manufactured and marketed, enhancing the Company’s resilience amidst global uncertainties. Looking ahead, we remain committed to expanding both products in certain international markets in the future.

LIQUIDITY

The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $46,774,000 as of February 29, 2024. Management expects to continue to incur significant costs as it advances its clinical trials, product development, and commercial product launch activities. As of February 29, 2024, the Company had cash and cash equivalents of approximately $5,319,000 and working capital of approximately $6,855,000.

On July 20, 2020, the Company filed with the Securities and Exchange Commission (“SEC”) a Form S-3 shelf registration statement and base prospectus which was declared effective by the SEC on September 30, 2020. This shelf registration statement registered the sale of up to $90,000,000 of the Company’s equity securities during the three years ended September 30, 2023.

Under the Company’s outstanding Registration Statement, on March 7, 2023, the Company sold 3,333,333 shares of common stock in a firm commitment public offering at a gross sales price of $2.40 per share, with net total proceeds, after deducting issuance fees and expenses of $700,000, of approximately $7,300,000. Since the closing of the March 7, 2023 offering, a previously ATM facility has been withdrawn and is not active.

To replace the shelf registration statement that was set to expire on September 30, 2023, on September 27, 2023, the Company filed with the SEC a new Form S-3 shelf registration statement and base prospectus which was declared effective by the SEC on September 29, 2023. This new shelf registration statement registers the sale of up to $20,000,000 of the Company’s equity securities during the three years ending September 29, 2026.

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

Management has analyzed the cash requirements of the Company’s business through at least May 2025. As a result of cash and cash equivalents on hand on February 29, 2024, largely from the public offering, and the ability to raise additional funds if needed through the sale of shares of the Company’s common stock, management believes the Company has sufficient funds to operate through at least May 2025.

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.

Net consolidated sales were approximately $1,017,000 and $1,111,000 for the three months ended February 29, 2024 and February 28, 2023, respectively, and approximately $4,299,000 and $4,231,000 for the nine months ended February 29, 2024 and February 28, 2023, respectively.

For the three months ended February 29, 2024, the Company had three key customers who are located in the United States and Aisa which accounted for 44% of net consolidated sales. For the three months ended February 28, 2023, the Company had one key customer who is located in Asia which accounted for 22% of net consolidated sales. For the nine months ended February 29, 2024, the Company had one key customer who is located in Asia which accounted for 40% of net consolidated sales. For the nine months ended February 28, 2023, the Company had one key customer who is located in Asia which accounted for 38% of net consolidated sales.

Total gross receivables on February 29, 2024 and May 31, 2023 were approximately $1,153,000 and $751,000, respectively. As of February 2024, the Company had three key customers, who are located in the United States and Asia which accounted for a total of 44% of gross accounts receivable. As of May 31, 2023, the Company had one key customer, who is located in Asia which accounted for a total of 36% of gross accounts receivable.

For the three months ended February 29, 2024, the Company had one key vendor which accounted for 50% of the purchases of raw materials. For the three months ended February 28, 2023, the Company had two key vendors which accounted for 31% of the purchase of raw materials. For the nine months ended February 29, 2024, the Company had one vendors which accounted for 18% of the purchases of raw materials. For the nine months ended February 28, 2023, there was no individual vendor that comprised more than 10% of the Company’s purchases.

As of February 29, 2024, the Company had two key vendors which accounted for 52% of gross accounts payable. As of May 31, 2023, the Company had one key vendor which accounted for 23% of gross accounts payable.

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

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 old were usually reserved for unless collection was reasonably assured. Under the application of ASC 326, the Company’s historical credit loss experience provides the basis for the estimation of expected credit losses, as well as current economic and business conditions, and anticipated future economic events that may impact collectability. In developing its expected credit loss estimate, the Company evaluated the appropriate grouping of financial assets based upon its evaluation of risk characteristics, including consideration of the types of products and services sold. Account balances are written off against the allowance for expected credit losses after all means of collection have been exhausted and the potential for recovery is considered remote.

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 February 29, 2024 and May 31, 2023, the Company has established a reserve of approximately $23,000 and $29,000, respectively, for credit losses.

PREPAID EXPENSES AND OTHER

The Company occasionally prepays for items such as inventory, insurance, and other items. These items are reported as prepaid expenses and other, until either the inventory is physically received, or the insurance and other items are expensed.

As of February 29, 2024 and May 31, 2023, the prepaids were approximately $268,000 and $300,000, respectively, composed of prepayments to insurance and various other suppliers.

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.

Net inventories are comprised of approximately the following:

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 February 29, 2024, and May 31, 2023, inventory reserves were approximately $491,000 and $672,000, respectively.

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 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 were approximately $16,000 and $15,000 for the three months ended February 29, 2024 and February 28, 2023, respectively, and approximately $46,000 and $51,000 for the nine months ended February 29, 2024 and February 28, 2023, respectively.

INTANGIBLE ASSETS, NET

Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on ASC 350 Intangibles – Goodwill and Other (“ASC 350”). In that regard, intangible assets that have indefinite useful lives are not amortized but are tested 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, and patents are based on their individual useful lives which average around 15 years. Amortization expense was approximately $4,000 for the three months ended February 29, 2024, and $3,000 for the corresponding period ended February 28, 2023. For the nine months ended February 29, 2024, and February 28, 2023, the expenses were approximately $13,000 and $15,000, respectively. Amortizing intangible assets are tested for impairment if management determines that events or changes in circumstances indicate that the asset might be impaired.

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. During the nine months ended February 29, 2024, management did not identify any indicators of impairment. During the nine months ended February 28, 2023, an impairment adjustment was made of $6,000.

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 into the Polish distributor and owns approximately 6% of the investee.

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 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 February 29, 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 Holdings during the period ended February 29, 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 $633,000 in share-based compensation during the nine months ended February 29, 2024, and $1,006,000 for the same period ended February 28, 2023.

The following summary presents the options granted, exercised, expired, canceled and outstanding for the nine months ended February 29, 2024:

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, which is when the transfer of control of goods has occurred, and at which point title passes.

The Company does not typically allow for returns from customers except in the event of defective merchandise and therefore does not establish an allowance for returns. In addition, the Company has contracts with customers wherein customers receive purchase discounts for achieving specified sales volumes. The Company evaluated the status of these contracts during the nine months ended February 29, 2024 and 2023, and does not believe that any additional discounts will be given through the end of the contract periods.

Services for contract work performed by the Company for others are invoiced and recognized as that work has been performed and 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. Physician’s office products are sold to physicians and distributors, all of whom are categorized below according to the type of products sold to them. We also manufacture certain components on a contract basis for domestic and international manufacturers.

As of February 29, 2024, the Company had approximately $85,000 of advances from domestic customers, which are prepayments on orders for future shipments.

Disaggregation of revenue:

See Note 4 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 $343,000 and $392,000 of research and development costs during the three months ended February 29, 2024 and February 28, 2023, respectively. Similarly, it expensed approximately $1,226,000 and $1,215,000 of research and development costs during the nine months ended February 29, 2024 and February 28, 2023, respectively.

INCOME TAXES

For the three months ended February 29, 2024, the Company had an income tax expense of approximately $4,000. For the nine months ended February 29, 2024, the Company had an income tax expense of approximately $35,000. These expenses consisted of state minimum taxes and miscellaneous foreign taxes. During the three and nine months ended February 29, 2024, the Company had a net operating loss (“NOL”) that generated deferred tax assets for NOL carryforwards. Deferred income tax assets and liabilities are recognized for temporary differences between the financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, the Company has determined that it is more likely than not that these deferred tax assets will not be realized. Accordingly, the Company has established a full valuation allowance against its deferred tax assets as of February 29, 2024.

The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. For the nine months ended February 29, 2024, the Company had no accrued interest or penalties related to uncertain tax positions.

ADVERTISING COSTS

The Company reports the cost of advertising as expense in the period in which those costs are incurred. For the three months ended February 29, 2024, and February 28, 2023, advertising costs were approximately $25,000 and $51,000, respectively. During the nine months ended February 29, 2024, and February 28, 2023, the costs were approximately $80,000 and $87,000, respectively.

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 period, and revenues and costs are translated using average exchange rates for the period. The resulting translation adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss. There are no foreign currency transactions that are included in the condensed consolidated statements of operations and comprehensive loss for the three and nine months ended February 29, 2024 and February 28, 2023.

RIGHT-OF-USE ASSETS AND LEASE LIABILITY

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.

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 amount of anti-dilutive stock options not included in the loss per share calculation was 3,506,616 for February 29, 2024, and 2,336,116 for February 28, 2023, respectively.

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 condensed consolidated financial statements.

NOTE 3: SHAREHOLDERS’ EQUITY

During the six months ended November 30, 2022, the Company sold 564,989 shares of its common stock at prices ranging from $3.15 to 4.26 under its Form S-3 Registration Statement and ATM Offering which resulted in gross proceeds of approximately $1,988,000 and net proceeds to the Company of approximately $1,937,000 after deducting commissions for each sale and legal, accounting, and other fees related to the ATM Offering. In March 2023, we terminated the ATM offering agreement and sold 3,333,333 shares of our common stock in a firm commitment public offering under the Company’s shelf registration statement. Shares sold in the underwritten public offering were sold at a gross sales price of $2.40 per share, resulting in net proceeds from the offering, after deducting issuance fees and expenses, of approximately $7,300,000. On February 29, 2024, the Company did not have an open ATM offering in place. No shares of common stock or other equity securities of the Company were sold under the shelf registration statement during the nine months ended February 29, 2024.

NOTE 4: GEOGRAPHIC INFORMATION

The Company operates asone segment. Geographic information regarding net sales is approximately as follows:

As of February 29, 2024, and May 31, 2023, approximately $575,000 and $626,000 of Biomerica’s gross inventory was located in Mexicali, Mexico, respectively.

As of February 29, 2024, and May 31, 2023, approximately $15,000 and $17,000 of the Company’s property and equipment, net of accumulated depreciation and amortization, was located in Mexicali, Mexico, respectively.

NOTE 5: LEASES

The Company operates through leased facilities. As of February 29, 2024, our corporate headquarters, situated at 17571 Von Karman Avenue in Irvine, California, encompasses approximately 22,000 square feet of floor space, under lease since 2009. The initial lease term for our headquarters expired on August 31, 2016, with the Company exercising its option to extend for an additional sixty-month period through the First Amendment to Lease on November 30, 2015. Subsequently, on April 9, 2021, the Company opted for a second extension, securing an additional five-year term, and was further granted a similar option for future extension. A security deposit of approximately $22,000 was made in conjunction with the lease extension.

In November 2016, our Mexican subsidiary, Biomerica de Mexico, entered a 10-year lease for approximately 8,100 square feet of manufacturing space, with a single 10-year renewal option at lease end. Additionally, Biomerica de Mexico leases a smaller unit on a month-to-month basis for specific manufacturing processes. In addition, our German subsidiary, BioEurope GmbH, maintains a small office in Lindau, Germany, under a month-to-month lease agreement, serving as its headquarters.

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 Company’s 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 liabilities. Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs. Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liabilities but are instead recognized as variable lease expense in the consolidated statements of operations and comprehensive loss when they are incurred.

The following table presents information on our operating leases for the three months and nine months ended February 29, 2024 and February 28, 2023:

The approximate maturity of lease liabilities as of February 29, 2024 are as follows:

The following table summarizes the Company’s other supplemental lease information for the nine months ended February 29, 2024 and February 28, 2023:

The Company also has various insignificant leases for office equipment.

NOTE 6: COMMITMENTS AND CONTINGENCIES

LITIGATION

The Company is, from time to time, involved in legal proceedings, claims, and litigation arising in the ordinary course of business.

There were no material legal proceedings pending as of February 29, 2024.

NOTE 7: SUBSEQUENT EVENTS

None.