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SIGNIFICANT ACCOUNTING POLICIES | 9 Months Ended
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Feb. 28, 2025
Accounting Policies [Abstract] |
SIGNIFICANT ACCOUNTING POLICIES | 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 In order to prepare our consolidated financial statements in conformity with GAAP, we must make a number of 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. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Different assumptions or conditions may cause actual results to differ materially from these estimates. We monitor significant estimates made during the preparation of our financial statements on an ongoing basis. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions. We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us. These relate to revenue recognition, bad debts, inventory overhead application, inventory reserves, lease liabilities, right-of-use assets and share-based compensation. We believe estimates and assumptions related to these critical accounting policies are appropriate under the circumstances; however, should future events or occurrences result in unanticipated consequences, there could be a material impact on our future financial conditions or results of operations. We suggest that our significant accounting policies be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q. MARKETS AND METHODS OF DISTRIBUTION The majority of the Company’s revenues come from the sale of products it manufactures in the U.S. and Mexico, with certain raw materials sourced from the U.S. Asia and other regions. The Company’s diagnostic business serves a diverse customer base that includes both domestic and international distributors, as well as hospitals, clinical laboratories, medical research institutions, pharmaceutical companies, wholesalers, physicians’ offices, and direct sales to consumers from its website. A significant portion of the Company’s revenues are derived from international sales. The Company employs a Director of Sales and Marketing for Europe and South America, based in Germany, who has over 20 years of experience in diagnostics and life sciences. This individual’s international business experience and multilingual capabilities have facilitated strong relationships across Europe, Eastern Europe, Middle East, Latin America, Canada, and the U.S. The Company expects continued growth through the addition of new distributors and product lines in these regions. The Company markets its diagnostic products through distributors, advertising in medical and trade journals, trade show exhibitions, direct mailings, and through its internal sales team. The two primary markets the Company targets are clinical laboratories and patient point-of-care testing LIQUIDITY AND GOING CONCERN The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $52 million as of February 28, 2025. As of February 28, 2025, the Company had cash and cash equivalents of approximately $3,058,000 and working capital of approximately $4,555,000. On July 21, 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. The 2020 Shelf Registration Statement registered common shares that could be issued by the Company in a maximum aggregate amount of up to $90,000,000. On January 22, 2021, the Company filed a prospectus supplement to the base prospectus included in a registration statement filed with the SEC on July 21, 2020, and declared effective by the SEC on September 30, 2020, for purposes of selling up to $15,000,000 in “at-the-market” offerings, as defined in Rule 415 promulgated under the Securities Act (the “2021 ATM Offering”). During the year ended May 31, 2023, the Company sold 573,889 shares of its common stock at prices ranging from $3.15 to $4.26 pursuant to the 2021 ATM Offering, which resulted in gross proceeds of approximately $2,014,000 and net proceeds to the Company of $1,961,000, after deducting commissions for each sale and legal, accounting, and other fees related to offering in the amount of $53,000. 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. As a result of this public offering, the Company terminated the 2021 ATM Offering. As part of our financing plan, on September 28, 2023, we filed a new “shelf” registration statement on Form S-3 with the SEC, to replace the expiring S-3 that was filed in July 2020, which was declared effective on September 29, 2023, allowing the Company to issue up to $20,000,000 in common shares. Under this registration statement, shares of our common stock may be sold from time to time for up to three years from the filing date. On May 10, 2024, the Company filed a prospectus supplement with the SEC to facilitate the sale of up to $5,500,000 in common stock through ATM offerings, as defined in Rule 415 under the Securities Act (the “2024 ATM Offering”). As part of this transaction, the Company incurred $81,000 in deferred offering costs. The amount of capital that we can raise under the ATM offering is highly dependent upon the trading volume and the trading price of our stock. The average trading volume of our stock over the last three full calendar months is 7,798,345 shares per day and the high and low trading price of our stock during the same period of time was $1.03 and $0.27, respectively. If our stock continues to trade at low volumes and price, the amount of capital that we can raise under the ATM offering will be constrained. The Company intends to use the net proceeds from any funds raised through the ATM offering for general corporate purposes, including, but not limited to, sales and marketing activities, clinical studies and product development, acquisitions of assets, businesses, companies, or securities, capital expenditures, and working capital needs. During the nine months ended February 28, 2025, the Company sold 3,525,359 shares of its common stock at prices ranging from $0.36 to $1.04 pursuant to the May 2024 ATM Offering, which resulted in gross proceeds of approximately $2,143,000 and net proceeds to the Company of $2,015,000 after deducting commissions for each sale and legal, accounting, and other fees related to offering in the amount of $128,000. Management assesses whether the Company has sufficient liquidity to fund its costs for the next twelve months from each financial statement issuance date to determine if there is a substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern over the next twelve months is influenced by several factors, including:
| ● | Our need and ability to generate additional revenue from international opportunities and sales within the US of existing products, and from our new product launches;
| ● | Our need to access the capital and debt markets to meet current obligations and fund operations;
| ● | Our capacity to manage operating expenses and maintain or increase gross margins as we grow;
| ● | Our ability to retain key employees and maintain critical operations with a substantially reduced workforce; and
| ● | Certain SEC regulations that limit the amount of capital the Company can raise through issuance of its equity.
Management has analyzed the Company’s cash flow requirements through May 2026 and beyond. Based on this analysis, we believe our current cash and cash equivalents are insufficient to meet our operating cash requirements and strategic growth objectives for the next twelve months. To address our capital needs and sustain operations beyond the next year, we are actively pursuing strategies to increase sales, reduce expenses, sell non-core assets, seek additional financing through debt or equity, and seek other strategic alternatives. While we are committed to these plans, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements. As part of our efforts to reduce costs, we are executing significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. These measures included a workforce reduction of nearly 15% in July 2024 and a substantial reduction in other operating expenses. Additionally, we have successfully raised $2,015,000 in net proceeds from the May 2024 ATM offering, providing additional liquidity to support our operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Our future viability depends on the successful execution of our strategic plans, securing additional financing, and achieving profitable operations. The Company’s consolidated financial statements as of February 28, 2025 were prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. 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 from any uninsured balances held at these financial institutions. The Company provides credit in the normal course of business to customers throughout the U.S. and in foreign markets. The Company performs ongoing credit evaluations of its customers and requires accelerated prepayment in some circumstances. Consolidated net sales were approximately $1,119,000 and $1,017,000 for the three months ended February 28, 2025, and February 29, 2024, respectively, and approximately $4,562,000 and $4,299,000 for the nine months ended February 28, 2025 and February 29, 2024, respectively For the three months ended February 28, 2025, the Company had three key customers who are located in the United States, Middle East, and Asia which accounted for 61% of net consolidated sales. For the three months ended February 29, 2024, the Company had three key customer who are located in the United States and Asia which accounted for 44% of net consolidated sales. For the nine months ended February 28, 2025, the Company had one key customer who is located in Asia which accounted for 35% 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. As of February 28, 2025, and May 31, 2024, total gross receivables were approximately $1,293,000 and $966,000, respectively. On these dates, the Company had five and four key customers, respectively, located in North America, Europe, Asia, and the Middle East. These customers accounted for 76% and 64% of the gross accounts receivable, respectively. For the three months ended February 28, 2025, the Company had two key vendors who accounted for 39% of the purchases of raw materials. In contrast, for the three months ended February 29, 2024, the Company had one key vendor who accounted for 50% of the purchases of raw materials. For the nine months ended February 28, 2025, the Company had one vendor who accounted for 11% of the purchases of raw materials. For the nine months ended February 29, 2024, there was one vendor who accounted for 18% of the purchases of raw materials. As of February 28, 2025 and May 31, 2024, the Company had two key vendors which accounted for 33% and 69% respectively, of 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 as part of its standard business practices. International customers are typically required to prepay until a credit history with the Company is established, at which point credit levels are determined based on various criteria. Initial credit limits for distributors are approved by designated officers or managers, while any increases require authorization from 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 28, 2025 and May 31, 2024, the Company has established a reserve of approximately $25,000 and $19,000, 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 28, 2025 and May 31, 2024, prepaids were approximately $223,000 and $238,000, 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: SCHEDULE OF NET INVENTORIES
|  | February 28, 2025 |  |  | May 31, 2024 |
Raw materials |  | $ | 1,157,000 |  |  | $ | 1,519,000 |
Work in progress |  |  | 782,000 |  |  |  | 1,145,000 |
Finished products |  |  | 138,000 |  |  |  | 179,000 |
Total gross inventory |  |  | 2,077,000 |  |  |  | 2,843,000 |
Inventory reserves |  |  | (422,000 | ) |  |  | (467,000 | )
Net inventory |  | $ | 1,655,000 |  |  | $ | 2,376,000 |
Reserves for inventory obsolescence are recorded as necessary to reduce obsolete inventory to estimated net realizable value or to specifically reserve for obsolete inventory. As of February 28, 2025, and May 31, 2024, inventory reserves were approximately $422,000 and $467,000, 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 $17,000 and $16,000 for the three months ended February 28, 2025, and February 29, 2024, respectively, and approximately $50,000 and $46,000 for the nine months ended February 28, 2025 and February 29, 2024, 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. 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 $5,000 for the three months ended February 28, 2025, and $4,000 for the corresponding period ended February 29, 2024. For the nine months ended February 28, 2025, and February 29, 2024, the expenses were approximately $14,000 and $13,000, 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 28, 2025, management did not identify any indicators of impairment. During the nine months ended February 29, 2024, management did not identify any indicators of impairment. 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 28, 2025 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 nine months ended February 28, 2025 and February 29, 2024. SHARE-BASED COMPENSATION The Company follows the guidance of ASC 718, Share-based Compensation, 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 Company grants stock options and restricted stock units (“RSUs”) under its equity incentive plans. The Company measures all share-based payment awards at their grant-date fair value. The fair value of each option 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 following summary presents the options granted, exercised, expired, canceled and outstanding for the nine months ended February 28, 2025: SUMMARY OF OPTIONS ACTIVITY
|  | Option Shares |  |  | Weighted Average Exercise Price |
Options Outstanding at May 31, 2024 |  |  | 3,479,616 |  |  | $ | 2.53 |
Granted |  |  | 429,000 |  |  |  | 0.35 |
Exercised |  |  | (19,000 | ) |  |  | 0.82 |
Cancelled or expired |  |  | (545,750 | ) |  |  | 1.68 |
Options Outstanding at February 28, 2025 |  |  | 3,343,866 |  |  | $ | 2.40 |
During the three months ended February 28, 2025, the Company expensed approximately $91,000 in share-based compensation related to stock options, compared to $340,000 for the same period in 2024. For the nine months ended February 28, share-based compensation expenses for stock option grants were approximately $323,000 in 2025 and $633,000 in 2024. The following summary presents the RSUs granted, vested, forfeited and outstanding for the nine months ended February 28, 2025: SCHEDULE OF RSUs ACTIVITY
|  | RSUs |  |  | Weighted Average Grant Date Fair Value |
RSUs Outstanding at May 31, 2024 |  |  | - |  |  | $ | - |
Granted |  |  | 780,000 |  |  |  | 0.31 |
RSUs Outstanding at February 28, 2025 |  |  | 780,000 |  |  | $ | 0.31 |
During the three and nine months ended February 28, 2025, the Company expensed $29,000 related to RSUs. No share-based compensation expense related to RSUs was recognized during the three and nine months ended February 29, 2024. REVENUE RECOGNITION The Company has various contracts with customers, and these contracts specify the recognition of revenue based on the nature of the transaction. 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 title passes. This applies to clinical lab products sold to domestic and international distributors, including hospitals, clinical laboratories, medical research institutions, medical schools, and pharmaceutical companies. OTC products are sold directly to e-commerce customers, and distributors, while physicians’ office products are sold to physicians and distributors. The Company does not allow returns except in cases of defective merchandise, and therefore, does not establish an allowance for returns. Additionally, the Company has contracts with customers that provide purchase discounts contingent on achieving specified sales volumes. These contracts are regularly evaluated, and the Company does not anticipate granting any discounts through the end of the contract period. For diagnostic testing services sold directly to patients or physician offices that require processing by a third-party CLIA-certified lab, we recognize revenue once the lab has completed the test results. For services related to contract manufacturing, revenue is recognized when the service has been performed. Services for some contract work are invoiced and recognized as the project progresses. As of February 28, 2025, the Company had approximately $55,000 in advances from domestic customers, which are prepayments on orders for future shipments. Disaggregation of revenue: The following is a breakdown of revenues according to markets to which the products are sold: SCHEDULE OF DISAGGREGATION REVENUE
|  | February 28, 2025 |  |  | February 29, 2024 |  |  | February 28, 2025 |  |  | February 29, 2024 |
|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, 2025 |  |  | February 29, 2024 |  |  | February 28, 2025 |  |  | February 29, 2024 |
Clinical lab |  | $ | 627,000 |  |  | $ | 404,000 |  |  | $ | 2,683,000 |  |  | $ | 2,683,000 |
Over-the-counter |  |  | 170,000 |  |  |  | 329,000 |  |  |  | 952,000 |  |  |  | 1,078,000 |
Contract manufacturing |  |  | 320,000 |  |  |  | 281,000 |  |  |  | 920,000 |  |  |  | 530,000 |
Physician’s office |  |  | 2,000 |  |  |  | 3,000 |  |  |  | 7,000 |  |  |  | 8,000 |
Total |  | $ | 1,119,000 |  |  | $ | 1,017,000 |  |  | $ | 4,562,000 |  |  | $ | 4,299,000 |
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 $217,000 and $343,000 of research and development costs during the three months ended February 28, 2025 and February 29, 2024, respectively. Similarly, it expensed approximately $771,000 and $1,226,000 of research and development costs during the nine months ended February 28, 2025 and February 29, 2024, respectively. INCOME TAXES During the three and nine months ended February 28, 2025, 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 28, 2025. 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 28, 2025, 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 28, 2025, and February 29, 2024, advertising costs were approximately $4,000 and $25,000, respectively. During the nine months ended February 28, 2025, and February 29, 2024, the costs were approximately $30,000 and $80,000, 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 28, 2025 and February 29, 2024. RIGHT-OF-USE ASSETS AND LEASE LIABILITY In February 2016, the Financial Accounting Standards Board (“FASB”) issued an accounting standard 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 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. A total of 3,343,866 and 3,506,616 anti-dilutive stock options were excluded from the loss per share calculation for the nine months ended February 28, 2025, and February 29, 2024, respectively. Additionally, 780,000 restricted stock units (“RSUs”) were excluded for the nine months ended February 28, 2025, while no RSUs were excluded for the nine months ended February 29, 2024. 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 November 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures.” The ASU includes enhanced disclosure requirements, primarily related to significant segment expenses that are regularly provided to and used by the chief operating decision maker (“CODM”). The amendments are to be applied retrospectively to all prior periods presented in the financial statements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures. In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”. The ASU includes enhanced disclosure requirements, primarily related to the rate reconciliation and income taxes paid information. The amendments are to be applied prospectively in the financial statements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the effect of adopting this pronouncement on our financial statements and disclosures. In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40)”. The ASU includes enhanced disclosure requirements, which mandates enhanced transparency in financial statements by requiring detailed disclosures of specific expenses like inventory purchases, employee compensation, depreciation, and intangible asset amortization. ASU 2024-03 are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this standard and intends to include the required disclosures in its Annual Report on Form 10-K for the fiscal year ended May 31, 2025.

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