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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended
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May 31, 2020
Accounting Policies [Abstract] |
Significant Accounting Policies [Text Block] | 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The enclosed consolidated financial statements for the years ended May 31, 2020 and 2019 include the accounts of Biomerica, Inc. ("Biomerica") 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 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 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; and 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). Actual results could materially differ from those estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company has financial instruments whereby the fair market value of the financial instruments could be different than that recorded on a historical basis. The Company's financial instruments consist of its cash and cash equivalents, accounts receivable, and accounts payable. The carrying amounts of the Company's financial instruments approximate their fair values. CONCENTRATION OF CREDIT RISK The Company maintains cash balances at certain financial institutions in excess of amounts insured by federal agencies. As of May 31, 2020, the Company had approximately $8,595,241 of uninsured cash. The Company does not believe it is exposed to any significant credit risks. The Company provides credit in the normal course of business to customers throughout the United States and in foreign markets. The Company performs ongoing credit evaluations of its customers and requires accelerated prepayment in some circumstances. For the years ended May 31, 2020 and 2019, the Company had three distributors and two distributors which accounted for a total of 57.2% and 46.3% of our net consolidated sales, respectively. Of this, for the years ended May 31, 2020 and 2019 one of the distributors mentioned above accounted for 25.7% and 36.3%, respectively, of net consolidated sales. At May 31, 2020 and 2019, the Company had three distributors and two distributors which accounted for a total of 80.0% and 68.1%, respectively, of gross accounts receivable. Of the 80.0% as of May 31, 2020, 43.9% was owed by a distributor in Ecuador. Total gross receivables at May 31, 2020 and 2019 were $1,836,852 and $1,527,762, respectively. For the year ended May 31, 2020, one vendor accounted for 59.3% of the purchases of raw materials. For the year ended May 31, 2019, two vendors accounted for a total of 23.8 % of the purchases of raw materials. GEOGRAPHIC CONCENTRATION As of May 31, 2020 and 2019, approximately $613,000 and $665,000 of Biomerica's gross inventory and approximately $31,000 and $39,000, of Biomerica's property and equipment, net of accumulated depreciation, was located in Mexicali, Mexico, respectively. 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. 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. 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 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. 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 May 31:
|  | 2020 |  | 2019
Raw materials |  | $ | 1,635,000 |  | $ | 1,208,000
Work in progress |  |  | 988,000 |  |  | 771,000
Finished products |  |  | 228,000 |  |  | 172,000
Total |  | $ | 2,851,000 |  | $ | 2,151,000
Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically reserve for obsolete inventory that the Company intends to dispose of. As of May 31, 2020 and 2019, inventory reserves were approximately $67,000 and $49,000, respectively. 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 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 $105,299 and $101,216 for the years ended May 31, 2020 and 2019, respectively. INTANGIBLE ASSETS 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 amounted to $23,873 and $61,689 for the years ended May 31, 2020 and 2019, 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 May 31, 2020 or 2019. 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 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 of the investment 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 options-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 Company has not paid dividends historically and does not expect to pay them in the foreseeable future. In applying the Black-Scholes options-pricing model, assumptions used were as follows:
|  | 2020 |  | 2019
Dividend yield |  | 0% |  | 0%
Expected volatility |  | 55.52-72.62% |  | 57.90-60.41%
Risk free interest rate |  | 0.43-1.80% |  | 2.33-2.85%
Expected life |  | 3.75-6.25 years |  | 3.75-6.25 years
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 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 May 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 products sold to them. We also manufacture 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:
|  | Year Ended
|  | May 31, 2020 |  | May 31, 2019
Clinical Lab |  | $ | 2,922,425 |  | $ | 4,043,993
OTC |  |  | 1,269,535 |  |  | 868,605
Physicians’ Office |  |  | 2,194,991 |  |  | 170,871
Contract Manufacturing |  |  | 305,760 |  |  | 117,213
Total |  | $ | 6,692,711 |  | $ | 5,200,682
See Note 7 for additional information regarding 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 $1,910,209 and $1,679,098 of research and development costs during the years ended May 31, 2020 and 2019, respectively. INCOME TAXES The Company accounts for income taxes in accordance with ASC 740, Income Taxes (“ASC 740”). Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future years and the benefits of net operating loss and tax credit carryforwards. These temporary differences and the benefits of net operating loss and tax credit carryforwards are measured using enacted tax rates. A valuation allowance is recorded to reduce deferred tax assets to the extent that management considers it is more likely than not that a deferred tax asset will not be realized. In determining the valuation allowance, the Company considers factors such as the reversal of deferred income tax assets, projected taxable income, and the character of income tax assets and tax planning strategies. A change to these factors could impact the estimated valuation allowance and income tax expense. At May 31, 2020 and 2019, in accordance with ASC 740, the Company has a valuation allowance for substantially all of its deferred tax assets. During the fiscal year ended May 31, 2020, this valuation allowance was increased to approximately $3,175,000, which fully covers the net tax asset of $3,175,000. The Company accounts for its uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not, based solely on the technical merits, that the position will be sustained in an audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the appropriate amount of the benefit to recognize. The amount of benefit to recognize is measured as the maximum amount which is more likely than not to be realized. The tax position is derecognized when it is no longer more likely than not capable of being sustained. On subsequent recognition and measurement the maximum amount which is more likely than not to be recognized at each reporting date will represent the Company’s best estimate, given the information available at the reporting date, although the outcome of the tax position is not absolute or final. Upon adopting the revisions in ASC 740, the Company elected to follow an accounting policy to classify accrued interest related to liabilities for income taxes within the “Interest expense” line and penalties related to liabilities for income taxes within the “Other expense” line of the consolidated statements of operations and comprehensive loss. ADVERTISING COSTS The Company reports the cost of all advertising as expense in the period in which those costs are incurred. Advertising costs were approximately $174 and $0 for the years ended May 31, 2020 and 2019, 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 year, and revenues and costs are translated using average exchange rates for the year. The resulting adjustments to assets and liabilities are presented as a separate component of accumulated other comprehensive loss. There are no adjustments to foreign currency loss that are included in the consolidated statements of operations for the years ended May 31, 2020 and 2019. RIGHT-OF-USE ASSETS AND LEASE LIABILITY 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 was amortized over the underlying lease term on a straight-line basis as a reduction of rent expense. During the year ended May 31, 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 (“FASB”) 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 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 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 8-Commitments and Contingencies. 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. 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 amounts of anti-dilutive stock options not included in the loss per share calculation for the years ended May 31, 2020 and 2019 were 1,789,251 and 1,476,209, 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. SEGMENT REPORTING ASC 280, Segment Reporting (“ASC 280”), establishes standards for reporting, by public business enterprises, information about operating segments, products and services, geographic areas, and major customers. The Company’s operations are analyzed by management and its chief operating decision maker as being part of a single industry segment: the design, development, marketing and sales of diagnostic kits. REPORTING COMPREHENSIVE LOSS Comprehensive loss represents net loss and any revenues, expenses, gains and losses that, under GAAP, are excluded from net loss and recognized directly as a component of shareholders’ equity. Accumulated other comprehensive loss consists solely of foreign currency translation adjustments. RECENT ACCOUNTING PRONOUNCEMENTS On February 15, 2018, the 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 consolidated financial statements for the year ended May 31, 2020. The adoption of this standard has not had a significant impact on the Company’s consolidated financial statements. On June 20, 2018, the FASB issued ASU 2018-07, “Compensation—Stock 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 (service providers, external legal counsel, and suppliers). ASU 2018-07 was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. During the year ended May 31, 2020, the Company adopted the provisions of this statement and is taking them into account in the preparation of the consolidated financial statements for the year ended May 31, 2020. The adoption of this standard has not had a significant impact on the Company’s consolidated financial statements. Other 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 Company’s present or future consolidated financial statements.

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