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Significant Accounting Policies
 6 Months Ended
Nov. 30, 2014
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]
Note 2: Significant Accounting Policies 

Principles of Consolidation

The condensed consolidated financial statements include the accounts of Biomerica, Inc. as well as the Company’s German subsidiary and Mexican subsidiary which have limited operations. All significant intercompany accounts and transactions have been eliminated in consolidation.  

Accounting Estimates

The preparation of 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 financial statements, and the reported amounts of revenues and expenses during the reported period. Actual results could materially differ from those estimates.

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 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.  Credit levels are approved by designated upper level management.  Domestic customers are extended initial credit limits until they establish a history with the Company or submit credit information.  All increases in credit limits are also approved by designated upper level management.  Management evaluates receivables on a quarterly basis and adjusts the reserve for bad debt accordingly.  Balances over ninety days old are usually reserved for unless collection is reasonably assured.  Management evaluates quarterly what items to charge off.  

Occasionally certain long-standing customers, who routinely place large orders, will have unusually large accounts receivables balances relative to the total gross accounts receivables. Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.  

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 market. 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 Company’s production facilities.

The approximate balances of inventories are the following at:

 

November 30,
2014

 

May 31,

2014

 

 

Raw materials

$

922,000

 

$

899,000

Work in progress

 

815,000

 

 

635,000

Finished products

 

253,000

 

 

232,000

Total

$

1,990,000

 

$

1,766,000


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

Property and Equipment

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 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.  

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 $44,276 and $43,452 for the three months ended November 30, 2014 and 2013, and $89,516 and $86,231 for the six months ended November 30, 2014 and 2013, respectively. 

Intangible Assets

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). 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 $18,479 and $3,665 for the three months ended November 30, 2014 and 2013, respectively, and $36,660 and $11,121 for the six months ended November 30, 2014 and 2013, respectively.  

Stock-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 Company’s stock and other factors 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 granted, exercised, expired, cancelled and outstanding as of November 30, 2014: 

 

 

 

Exercise

Price

Weighted
Average

 

 

 

 

Option
Shares

 

 

 

 

 

 

 

 

Options Outstanding May 31, 2014

860,500

 

$

0.51

 

 

 

 

 

Granted

24,500

 

$

0.85

 

 

 

 

 

Exercised

(9,000)

 

$

0.39

   

 

 

 

Cancelled or expired

(34,500)

 

$

0.72

 

 

 

 

 

Options Outstanding November 30, 2014

841,500

 

$

0.52


In September 2014 options to purchase 24,500 shares of the Company’s common stock were granted at the exercise price of $0.85.

In the six months ended November 30, 2014, options to acquire 9,000 shares of the Company’s common stock were exercised at exercise prices ranging from $0.38 to $0.43 per share. Net proceeds to the Company were $3,495.

Revenue Recognition

Revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, at which point title passes. An allowance is established when necessary for estimated returns as revenue is recognized. 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 in accordance with ASC 605-50 “Revenue Recognition – Customer Payments and Incentives” and recognizes the cost of the product as part of cost of sales. 

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.  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 Company’s 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 classified as revenues, and shipping and handling costs are classified as cost of sales. 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.

Research and Development

Research and development costs are expensed as incurred.

Income Taxes

The Company has provided a valuation allowance of approximately $180,000 as of November 30, 2014 and $0 as of May 31, 2014.   The Company did not record any income tax benefit for the six months ended November 30, 2014. 

Foreign Currency Translation

The subsidiary located in Germany is accounted for primarily using local functional currency. Accordingly, assets and liabilities of this subsidiary 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 are presented as a separate component of accumulated other comprehensive loss.

Deferred Rent

Incentive payments received from landlords are recorded as deferred lease incentives and are 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 establishes a deferred rent liability for the difference between the scheduled rent payment and the straight-line rent expense recognized. This deferred rent liability is amortized over the underlying lease term on a straight-line basis as a reduction of rent expense. 

Net Loss Per Share

Basic earnings (loss) per share are computed as net loss or income divided by the weighted average number of common shares outstanding for the period. Diluted (loss) income 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 six months ended November 30, 2013 was 372,816 and 379,180, respectively. The total amount of anti-dilutive options not included in the earnings per share calculation for the three and six months ended November 30, 2014 was 344,024 and 371,731, respectively. 

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

 

Six Months Ended
November 30,

 

Three Months Ended

November 30,

 

 

 

2014

 

2013

 

2014

 

2013

Numerator:

 

 

 

 

 

 

 

 

 

 

 

Loss from continuing operations

$

(457,296)

 

$

(411,072)

 

$

(238,028)

 

$

(243,357)

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic net loss Per common share

 

7,549,894

 

 

7,277,659

 

 

7,551,972

 

 

7,278,967

 

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

Options

 

--

 

 

--

 

 

--

 

 

--

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for diluted net loss per common share

 

7,549,894

 

 

7,277,659

 

 

7,551,972

 

 

7,278,967

 

 

 

 

 

 

 

 

 

 

 

 

Basic net loss per common share

$

(0.06)

 

$

(0.06)

 

$

(0.03)

 

$

(0.03)

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net loss per common share

$

(0.06)

 

$

(0.06)

 

$

(0.03)

 

$

(0.03)


New Accounting Pronouncements 

  In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. In adopting, ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning December 15, 2016, and early adoption is not permitted. Management is evaluating the provisions of this statement and has not determined what impact the adoption of ASU 2014-09 will have on the Company’s financial position or results of operations. 

 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 Company’s present or future consolidated financial statements.