Accounting Policies, by Policy (Policies)

9 Months Ended

Feb. 28, 2021

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

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.

Use of Estimates, Policy [Policy Text Block]

ACCOUNTING ESTIMATES

The preparation of the condensed 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 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 past practices with a customer; stock option forfeiture rates, which are calculated based on historical data; 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, 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.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

CONCENTRATION OF CREDIT RISK

The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. As of February 28, 2021, the Company had $4,855,448 of uninsured cash.  The Company does not believe it is exposed to significant credit risks at the financial institutions where cash is held.

For the nine months ended February 28, 2021 and February 29, 2020, the Company had two distributors and one distributor which accounted for 65.5% and 43.4% of net consolidated sales, respectively.  At February 28, 2021 and May 31, 2020, the Company had two distributors and three distributors which accounted for a total of 79.3% and 80.0%, respectively, of gross accounts receivable. Of the 79.3% as of February 28, 2021, 49.8% was owed by a distributor in China. 

For the nine months ended February 28, 2021 and February 29, 2020, one vendor accounted for 61.8% and two vendors accounted for 32.8% of the purchases of raw materials, respectively. As of February 28, 2021 and May 31, 2020, the Company had two vendors which accounted for 26.7% and 26.9%, respectively, of accounts payable.

Cash and Cash Equivalents, Policy [Policy Text Block]

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 [Policy Text Block]

ACCOUNTS RECEIVABLE

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. All increases in credit limits are also approved by designated upper-level management.  Management evaluates receivables on a quarterly basis and adjusts the allowance for doubtful accounts accordingly. For receivables over ninety days old, the Company begins to reserve a portion of the balance unless collection is reasonably assured.

Occasionally certain 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 often requires payment of existing invoices before shipping new sales orders.

The Company has established a reserve of $649,419 for doubtful accounts as of February 28, 2021. The majority of this reserve has been established to cover 75% of outstanding accounts receivable from an international distributor.  The distributor continues to make small payments and the Company is continuing to work on collection of this account.

Prepaids Policy [Policy Text Block]

PREPAIDS

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

As of February 28, 2021, approximately $446,000 of the prepaids was an advance payment to one of our suppliers.  As of May 31, 2020, approximately $1 million of the prepaids was an advance payment to one of our suppliers, which was subsequently refunded by the supplier when the Company determined it no longer needed the materials that had been ordered.

Inventory, Policy [Policy Text Block]

INVENTORIES

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.

Inventories approximate the following at:

	February 28, 2021		May 31, 2020
Raw materials	$	1,412,000	$	1,635,000
Work in progress		989,000		988,000
Finished products		459,000		228,000
Total	$	2,860,000	$	2,851,000

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 February 28, 2021 and May 31, 2020, inventory reserves were approximately $1,504,000 and $67,000, respectively. Of the inventory reserve, $1,405,243 was related to a market downturn in our COVID-19 antibody test and materials, as the market shifted to COVID-19 PCR viral tests and antigen tests.

Property, Plant and Equipment, Policy [Policy Text Block]

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 amounted to $25,691 and $23,822 for the three months ended February 28, 2021 and February 29, 2020, and $78,266 and $77,641 for the nine months ended February 28, 2021 and February 29, 2020, respectively.

Goodwill and Intangible Assets, Policy [Policy Text Block]

INTANGIBLE ASSETS, NET

Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on Accounting Standards Codification (“ASC”), ASC 350 Intangibles – Goodwill and Other (“ASC 350”). In that regard, intangible assets that have indefinite useful lives are not amortized but are tested at least annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired. Intangible assets are being amortized using the straight-line method over the useful life, not to exceed 18 years for marketing and distribution rights, 10 years for purchased technology use rights, and 20 years for patents. Amortization expense amounted to $4,424 and $5,405 for the three months ended February 28, 2021 and February 29, 2020 and $16,284 and $17,131 for the nine months ended February 28, 2021 and February 29, 2020, respectively.

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. No impairment adjustment was required as of February 28, 2021 or February 29, 2020.

Investment, Policy [Policy Text Block]

INVESTMENTS

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 investee’s industry), a write-down to estimated fair value is recorded. Investments represent the Company’s investment in a Polish based distributor which is primarily engaged in distributing medical products and devices, and in certain cases, manufacturing the products sold.  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 Payment Arrangement [Policy Text Block]

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 expense 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 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 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 following summary presents the options and warrants granted, exercised, expired, canceled and outstanding for the nine months ended February 28, 2021:

	Option Shares	Exercise Price Weighted Average
Outstanding May 31, 2020	1,789,251	$	2.75
Granted	407,616		6.82
Exercised	(81,750)		1.20
Cancelled or expired	(35,751)		4.26
Outstanding February 28, 2021	2,079,366	$	3.58

During the nine months ended February 28, 2021, options to purchase 81,750 shares of common stock were exercised at prices ranging from $0.82 to $3.62. Total net proceeds to the Company were $96,455.

During the nine months ended February 28, 2021, the Company granted 407,616 options to purchase common stock at an average purchase price of $6.82.

Revenue [Policy Text Block]

REVENUE RECOGNITION

The Company has various contracts with customers.  Most of the contracts specify that ownership transfers, and title to the products passes, to the customer at the time the product is shipped from our facility, customarily referred to as FOB shipping point.  For this reason, the Company recognizes revenue on the date of shipping. The Company generally does not allow for returns 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 they receive purchase discounts for achieving specified sales volumes.  The Company evaluated the status of these contracts as of February 28, 2021 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. Physician’s 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 end-markets to which the products are sold, typically through distributors:

	Nine Months Ended				Three Months Ended
	February 28, 2021		February 29, 2020		February 28, 2021		February 29, 2020
Clinical lab	$	2,441,000	$	2,769,000	$	967,000	$	723,000
Lab Supplies		3,000		-		-		-
OTC		605,000		778,000		148,000		271,000
Physician's office		2,735,000		157,000		2,384,000		32,000
Contract Manufacturing		361,000		264,000		130,000		151,000
Total	$	6,145,000	$	3,968,000	$	3,629,000	$	1,177,000

See Note 4 for additional information regarding revenue concentrations.

Cost of Goods and Service [Policy Text Block]

SHIPPING AND HANDLING FEES

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

Research and Development Expense, Policy [Policy Text Block]

RESEARCH AND DEVELOPMENT

Research and development costs are expensed as incurred. The Company expensed $563,216 and $473,279 of research and development costs during the three months ended February 28, 2021 and February 29, 2020 and $1,824,312 and $1,248,599 during the nine months ended February 28, 2021 and February 29, 2020, respectively.

Income Tax, Policy [Policy Text Block]

INCOME TAXES

The Company has provided a valuation allowance on deferred income tax assets of approximately $4,215,000 and $3,175,000 as of February 28, 2021 and May 31, 2020, respectively.

Foreign Currency Transactions and Translations Policy [Policy Text Block]

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 adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss. There are no adjustments to foreign currency loss that are included in the consolidated statements of operations for the three months ended February 28, 2021 and February 29, 2020 and nine months ended February 28, 2021 and February 29, 2020.

Lessee, Leases [Policy Text Block]

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 Company’s 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 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.

Earnings Per Share, Policy [Policy Text Block]

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 for the three months ended February 28, 2021 and February 29, 2020 was 1,278,617 and 476,358, respectively. The total amount of anti-dilutive stock options not included in the loss per share calculation for the nine months ended February 28, 2021 and February 29, 2020 was 1,360,192 and 483,658, respectively.

New Accounting Pronouncements, Policy [Policy Text Block]

RECENT ACCOUNTING PRONOUNCEMENTS

Recent ASUs 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 Company’s present or future consolidated financial statements.