Quarterly Report for Quarter Ending AUGUST 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our unaudited condensed consolidated financial statements and the accompanying notes thereto included in Part I, Item 1 of this Report and the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended May 31, 2026 (our "2026 Annual Report").

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ("Form 10-Q" or "Quarterly Report") contains forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements in this Quarterly Report, other than statements of historical facts, including, without limitation, statements regarding our strategy, future operations, future operating expenses, future financial position, future revenue, projected costs, prospects, plans, intentions, expectations, goals and objectives may be forward-looking statements. The forward-looking statements in this Quarterly Report do not constitute guarantees of future performance, and actual results could differ materially from those expressed or implied in any forward-looking statements. In some cases, you can identify forward-looking statements by words such as "believe," "expect," "anticipate," "contemplate," "estimate," "project," "forecast," "would," "may," "should," "will," "could," "can," "potential," "possible," "proposed," "plan," "develop," "opportunity," "intend," "initiative," "target," "maintain," "continue," "strive," "progress," "aim," or the negative of these terms or other comparable expressions.

Factors, among others, that could cause actual results and events to differ materially from those expressed or implied in any forward-looking statement include:

	●	the ability to raise additional capital and continue as a going concern;
	●	the accuracy of our estimates regarding expenses, future revenue, capital requirements and the need for additional financing;
	●	the scope of protection we are able to establish and maintain for our intellectual property rights covering our products and technology;
	●	the ability to compete in our industry, including against competitors that have significantly greater financial, technical and marketing resources than we do;
	●	the ability to obtain and maintain government or regulatory certification in the countries and regions in which our products are sold;
	●	the ability to retain existing Centers for Medicare & Medicaid Services ("CMS") payment rate and the Medicare Administrative Contractor claims approvals;
	●	the ability to maintain sales relationships with our key customers, distributors and other commercial partners;
	●	the impact of global economic, trade and political developments on our business, including tariffs and changes in international trade policies, inflation and interest rates, supply-chain disruptions, capital-market disruptions, government shutdowns, wars and geopolitical conflicts, economic sanctions and economic slowdowns or recessions, any of which could adversely affect our operations, costs, revenues, supply chain, the value of our common stock and our ability to access capital markets;
	●	the implementation of our business model and strategic plans for our business, products, and technology;
	●	the risks related to third parties asserting intellectual property infringement claims against us;
	●	the impact of numerous laws and regulations that apply to us and compliance with these laws and regulations, as they currently exist or as modified in the future;
	●	the risks related to product recalls, liability claims, and harm to patients or users of our products; and
	●	the ability to retain the continued service of our key personnel and to identify, hire, and retain additional qualified professionals.

Additional factors that might cause actual results and our current expectations and projections to differ materially include, among other things, those discussed in this Quarterly Report and under the section titled "Risk Factors" and elsewhere in our 2026 Annual Report and the other risks detailed from time to time in our reports and registration statements filed with the Securities and Exchange Commission ("SEC"). We intend that such forward-looking statements be subject to the safe harbors for such statements. These forward-looking statements are based on the current beliefs and expectations of our management and speak only as of the date of this Quarterly Report or, in the case of documents referred to or incorporated by reference, the date of those documents. You should not place undue reliance on these forward-looking statements, which are subject to significant known and unknown risks, uncertainties and other factors, some of which are beyond our control and could materially affect results. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections.

Except as required by law, we do not undertake any obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

OVERVIEW

We are a global biomedical technology company that develops, patents, manufactures, and markets advanced diagnostic and therapeutic products. Our diagnostic test kits are used to analyze blood, urine, nasal, or fecal material from patients to aid in the diagnosis of diseases, food intolerances, and other medical conditions. These tests detect and measure the presence and levels of specific bacteria, hormones, antibodies, antigens, and other substances that may exist in the human body at extremely low concentrations. Our products are designed to enhance patient outcomes and well-being while reducing total healthcare costs.

We sell our portfolio of diagnostic products worldwide, primarily to clinical laboratories and in point-of-care settings, including physicians' offices and OTC channels. We also provide contract development and manufacturing services to third parties that utilize the technology underlying our products. In addition, we are commercializing our inFoods® IBS product through physician-directed and laboratory-based channels, including third-party reimbursement pathways. Most of our products carry Conformité Européenne ("CE") marking and/or are registered with regulatory agencies in various countries for diagnostic use, with several also cleared by the U.S. Food and Drug Administration ("FDA") for sale in the United States.

TECHNOLOGICAL ADVANCEMENTS AND PRODUCT DEVELOPMENT

Technological advances in medical diagnostics have enabled diagnostic tests to be performed not only in clinical laboratories but also at home and at the point-of-care in physicians' offices. We strive to develop and market diagnostic products that are accurate, utilize easily obtained patient specimens and, where appropriate, can be performed without complex instrumentation. Our rapid diagnostic test products for home use (over-the-counter) and professional use, including physicians' offices and clinics, help manage existing medical conditions and support early detection and diagnosis of specific diseases. Traditionally, such tests required the expertise of medical technologists and sophisticated equipment, with results often not available for days. We believe our rapid point-of-care tests, when properly used, can be as accurate as laboratory tests.

RESEARCH AND DEVELOPMENT

We invest resources in the research and development of new diagnostic products and technologies designed to address a range of medical conditions and unmet clinical needs. Our research and development activities include the development and optimization of immunoassays, enzyme-linked immunosorbent assays ("ELISAs"), rapid diagnostic tests, and related diagnostic technologies. These products are either internally developed or developed under contract for customers.

Our experienced and highly trained technical personnel, including Ph.D. level scientists and other scientific and technical professionals, are engaged in new product development, product improvement, contract development projects, and technology transfer activities. Many members of our technical staff have extensive experience in diagnostic product development and manufacturing, including prior experience at large diagnostic companies. We also utilize our Scientific Advisory Board, which includes physicians and clinicians with relevant areas of expertise, to provide scientific and clinical input regarding certain product development programs and clinical studies.

inFoods® IBS COMMERCIALIZATION AND REIMBURSEMENT

A key outcome from our research and development efforts is our patented diagnostic-guided therapy ("DGT") product, developed on the inFoods® technology platform. Our commercially available inFoods® IBS product is intended to inform a physician-directed dietary intervention for patients with irritable bowel syndrome ("IBS"). The inFoods® IBS product utilizes a blood test to identify patient-specific foods associated with heightened immunoreactivity. Eliminating the identified foods from the diet may help reduce IBS symptoms such as pain, bloating, diarrhea, cramping, and constipation.

We continue the phased commercialization of inFoods® IBS through physician-directed and laboratory-based channels, focusing primarily on gastroenterology ("GI") practices. We have also launched an AI-backed inFoods® IBS Trigger Food Navigator designed to help patients follow their personalized dietary plans through meal suggestions, ingredient substitutions and meal-planning tools.

Concurrently with the phased commercialization of inFoods® IBS, we are pursuing distribution, partnership, and licensing opportunities with U.S. companies to support broader commercialization of inFoods® IBS. We may also pursue additional commercial relationships domestically and internationally.

The CMS established a national Medicare payment rate of $300 for inFoods® IBS under the Clinical Laboratory Fee Schedule, applicable to approved claims for dates of service beginning January 1, 2026. The applicable Medicare Administrative Contractor confirmed that claims for inFoods® IBS may be considered on an individual, claim-by-claim basis. Our partner laboratory began submitting Medicare claims after May 31, 2026 under the applicable CPT® Proprietary Laboratory Analyses ("PLA") code. As of October 15, 2026, all initial valid claims processed had been paid at the full CMS payment rate of $300. We continue to expand Medicare billing availability to physicians who currently use or have previously used inFoods® IBS on a cash-pay basis, which we believe may support increased test utilization over time.

As of October 15, 2026, 32 customer locations had been set up for Medicare ordering, compared to 25 as of August 31, 2026. Of these locations, 13 had placed Medicare-related orders, including nine locations that had placed multiple orders.

Following the quarter ended August 31, 2026, Medicare-related test orders increased to 22 in September 2026, compared to 10 in August 2026, representing a 120% increase and the highest monthly order volume recorded through September 2026. These metrics are used by management to monitor the progress of the Company's commercialization efforts. Although these initial results indicate increased ordering activity, future test volumes, reimbursement and revenue remain uncertain.

Claims are currently considered on an individual basis, and payment of any particular claim is not guaranteed. Establishment of a payment rate and payment of initial claims do not guarantee coverage, utilization, or payment of future claims. Revenue earned by Biomerica per test depends on the applicable commercial arrangements. As Medicare reimbursement progresses, we may pursue reimbursement with private payer insurance companies. We believe reduced out-of-pocket costs could support increased adoption and utilization of inFoods® IBS.

hp+detect™ AND ESTABLISHED DIAGNOSTIC PRODUCTS

In December 2023 we received FDA 510(k) clearance for hp+detect™, a diagnostic test designed to detect Helicobacter pylori ("H. pylori") bacteria in the gastrointestinal tract. The hp+detect™ test is marketed directly to laboratories and is intended to provide physicians and medical centers with a tool for diagnosing H. pylori infections and monitoring treatment effectiveness. In February 2026, hp+detect™ received registration from the United Kingdom Medicines and Healthcare products Regulatory Agency ("MHRA"). During fiscal 2026, we received our first commercial order for hp+detect™ from a large European clinical laboratory chain for the United Kingdom market. We subsequently received several reorders from that customer. We continue to market hp+detect™ to laboratories in the United States and Europe and pursue opportunities for broader commercial adoption.

We continue to balance revenue generated from our established diagnostic products and contract manufacturing services with investments in newer diagnostic products, including inFoods® IBS and hp+detect™.

CONTRACT DEVELOPMENT AND MANUFACTURING

We continue to pursue contract development and manufacturing ("CDM") opportunities that leverage our existing manufacturing, quality and technical infrastructure and may provide incremental revenue without requiring significant additional fixed infrastructure.

In May 2026, we entered into a Master Services Agreement ("MSA") with a life sciences company for the development of proprietary in vitro diagnostic assays. The MSA carries an initial contract development target fee of over $1,750,000, to be earned on a milestone completion basis across multiple Statements of Work issued under the MSA over an estimated period of 19 to 25 months. Development work will be performed at our FDA-registered, ISO 13485-certified facility in Irvine, California, utilizing existing personnel, equipment, and infrastructure. The engagement is expected to require minimal incremental costs, and we believe it may improve utilization of our existing manufacturing infrastructure and provide incremental revenue. As of the date of this report, development work under the MSA is progressing in accordance with the applicable Statements of Work.

Revenue is recognized as the applicable performance obligations are satisfied in accordance with the revenue recognition policies described in the accompanying financial statements. Contractual billing milestones may differ from the timing of revenue recognition.

OPERATIONS AND CAPITAL RESOURCES

We continue to manage operating expenses and allocate resources toward activities supporting commercialization, reimbursement, and revenue generation. See "Results of Operations" below for discussion of changes in revenue and operating expenses for the three months ended August 31, 2026 compared with the prior-year period.

On August 26, 2026, we completed a private placement of 1,393,705 shares of common stock at $1.60 per share, generating gross proceeds of approximately $2,231,000. We did not sell any shares under the 2024 ATM Offering during the three months ended August 31, 2026. We continue to evaluate financing and strategic opportunities to support our operations and business objectives. See "Liquidity, Capital Resources, and Going Concern" below for a discussion of our cash flows, financing activities, funding requirements, and substantial doubt about our ability to continue as a going concern.

RESULTS OF OPERATIONS

Three months ended August 31, 2026

Net Sales and Cost of Sales

The following is a breakdown of revenues according to markets to which the products are sold:

		Three Months Ended August 31,								Increase (Decrease)
		2026				2025				$				%
Clinical lab		$	775,000			$	1,024,000			$	(249,000	)			-24	%
Over-the-counter			291,000				161,000				130,000				81	%
Contract manufacturing			197,000				192,000				5,000				3	%
Physician's office			2,000				3,000				(1,000	)			-33	%
Total		$	1,265,000			$	1,380,000			$	(115,000	)			-8	%

For the three months ended August 31, 2026, our net sales were approximately $1,265,000, representing a decrease of $115,000, or 8%, compared to $1,380,000 for the three months ended August 31, 2025. The decrease was primarily attributable to lower clinical laboratory sales, reflecting variability in the timing and periodic nature of customer orders and requested shipment dates. Sales to certain international customers were also affected by delivery difficulties and higher freight costs associated with the ongoing Russia-Ukraine conflict. These decreases were partially offset by higher OTC sales, primarily attributable to sales to a new customer.

Consolidated cost of sales for the three months ended August 31, 2026 was approximately $1,162,000, or 92% of net sales, compared to $956,000, or 69% of net sales, for the three months ended August 31, 2025, representing an increase of approximately $206,000, or 22%. The increase was primarily attributable to higher contract manufacturing costs associated with project activity and mix, higher OTC product costs associated with increased sales and product mix, and higher other direct costs reflecting production timing and inventory activity, partially offset by lower clinical laboratory product costs. Gross margin decreased compared with the prior-year period, reflecting these factors and lower overall net sales.

Operating Expenses

The following is a summary of operating expenses:

		Three Months Ended August 31,
		2026								2025								Increase (Decrease)
		Operating Expense				As a % of Total Revenues				Operating Expense				As a % of Total Revenues				$				%
Selling, General and Administrative Expenses		$	1,124,000				89	%		$	1,330,000				96	%		$	(206,000	)			-15	%
Research and Development		$	206,000				16	%		$	212,000				15	%		$	(6,000	)			-3	%

Selling, General, and Administrative

For the three months ended August 31, 2026, consolidated selling, general, and administrative expenses were approximately $1,124,000, compared to $1,330,000 for the three months ended August 31, 2025, representing a decrease of $206,000, or 15%. The decrease was primarily attributable to lower administrative outside-services expenses of approximately $110,000, reflecting the absence of professional service fees related to Employee Retention Credit ("ERC") filings that were incurred in the same period of the prior year, and lower payroll related expenses across administrative and sales and marketing functions. Lower credit loss expense, share-based compensation expense, and regulatory fees also contributed to the decrease. These decreases were partially offset by an increase in legal expenses of approximately $52,000.

Research and Development

For the three months ended August 31, 2026, consolidated research and development ("R&D") expenses were approximately $206,000, compared to $212,000 for the three months ended August 31, 2025, representing a decrease of $6,000, or 3%. The decrease was primarily attributable to a reduction of approximately $16,000 in personnel-related costs allocated to R&D as employees devoted more time to contract manufacturing projects. This decrease was partially offset by higher hp+detect™ expenses associated with inventory transferred for use in R&D activities.

Dividend, Interest, and Other Income

For the three months ended August 31, 2026, dividend, interest and other income was approximately $1,000, compared to $1,123,000 for the three months ended August 31, 2025, representing a decrease of approximately $1,122,000. The decrease was primarily attributable to the absence of the $1,100,000 ERC benefit recognized in the same period of the prior year in connection with a refund received from the Internal Revenue Service ("IRS") on July 21, 2025.

Provision for Income Taxes

For the three months ended August 31, 2026 and 2025, the provision for income taxes was approximately $6,000 and $3,000, respectively. The increase was primarily attributable to foreign income taxes. We continue to maintain a full valuation allowance against our net deferred tax assets.

LIQUIDITY, CAPITAL RESOURCES, AND GOING CONCERN

The following table presents selected liquidity measures:

		August 31, 2026				May 31, 2026
Cash and cash equivalents		$	2,733,000			$	1,308,000
Working capital including cash and cash equivalents		$	2,572,000			$	1,535,000

We continue to use cash in operating activities and depend on external financing to support our operations. The increase in cash during the quarter primarily reflected proceeds from the Private Placement.

Our ability to continue as a going concern within twelve months following the issuance date of these financial statements is influenced by several factors, including:

	●	Our need and ability to generate additional revenue from international opportunities and sales within the United States of existing products, and from our new product launches;
	●	Our need and ability to raise additional capital through equity and/or debt markets to meet current obligations and fund operations;
	●	Our capacity to manage operating expenses and maintain gross margins;
	●	Our ability to retain key employees and maintain critical operations; and
	●	Certain SEC regulations that limit the amount of capital we can raise through issuance of our equity.

These factors raise substantial doubt about our ability to continue as a going concern within twelve months following the issuance date of these financial statements. Our future viability depends on the successful execution of our strategic plans, securing additional near-term financing, and achieving profitable operations.

Management has analyzed our cash flow requirements through October 2027 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.

During fiscal 2026, we entered into an MSA for CDM services. The parties currently contemplate a multi-phase development program with initial target fees of approximately $1,750,000. Revenue and cash collections depend on performance under the applicable Statements of Work and related contractual terms.

On August 26, 2026, we completed a private placement with accredited investors, issuing 1,393,705 shares of common stock at $1.60 per share and generating gross proceeds of approximately $2,231,000 and net proceeds of approximately $2,120,000 after deducting approximately $111,000 of legal fees and other offering costs. These offering costs were accrued and unpaid as of August 31, 2026. The gross proceeds from the Private Placement are reflected in our August 31, 2026 cash balance.

Management believes the Private Placement, together with our other strategic initiatives, may support near-term liquidity; however, there can be no assurance that these efforts will be sufficient to meet our capital requirements. We expect the proceeds of the Private Placement to strengthen our balance sheet, fund operations, and support our Board of Directors' ongoing evaluation of potential strategic opportunities, including partnerships and business combinations. There can be no assurance that any such strategic opportunity will be completed.

To address our capital needs and sustain operations through the next twelve months and beyond, 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. If we are unable to generate sufficient cash flows from operations or obtain additional financing, we may be required to delay or reduce certain operating activities and expenditures.

As part of our financing plan, on September 28, 2023, we filed the Shelf Registration Statement allowing us to issue up to $20,000,000 in shares of our common stock. On May 10, 2024, the Company filed a prospectus supplement to the Shelf Registration Statement on Form S-3. This prospectus supplement was intended to facilitate the sale of up to $5,500,000 in common stock through the 2024 ATM Offering. We did not sell any shares under the 2024 ATM Offering during the three months ended August 31, 2026.

On September 24, 2026, subsequent to quarter-end, we filed a replacement shelf registration statement on Form S-3 registering up to $250,000,000 of common stock, preferred stock, debt securities and warrants, including unsold common stock carried forward from the Shelf Registration Statement pursuant to Rule 415(a)(6). The replacement shelf registration statement was declared effective by the SEC on October 7, 2026. The replacement shelf registration statement does not represent committed financing. Our ability to raise capital under it is subject to applicable Form S-3 eligibility requirements and offering limitations, including General Instruction I.B.6, and market conditions.

We intend to use the net proceeds from any funds raised through the Private Placement and any future sales under the 2024 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.

In addition, on May 29, 2026, we entered into a Securities Purchase Agreement to sell our investment in Diagnosis S.A. for an aggregate purchase price of $500,000 in a related-party transaction involving our Chief Executive Officer and other purchasers. Pending completion of the applicable share transfers and required procedures under Polish law, the purchasers advanced the $500,000 purchase price to us in exchange for a secured promissory term note to our Chief Executive Officer. The note bears interest at 8% per annum, matures twelve months from May 29, 2026, and is secured by our rights and interests in the Diagnosis S.A. shares. The arrangement is intended to facilitate the monetization of this non-core investment while the applicable share-transfer process is completed. The share transfer remains in process, subject to completion of the applicable procedures required under Polish law.

In connection with the Private Placement, we entered into a Registration Rights Agreement with the investors (the "RRA"), pursuant to which we agreed to file with the SEC a registration statement covering the resale of the shares issued in the Private Placement and to use commercially reasonable efforts to cause the registration statement to become effective and remain effective for the periods specified therein. On September 24, 2026, we filed a resale registration statement registering 1,403,705 shares of our common stock, consisting of 1,393,705 shares issued in the Private Placement and 10,000 shares issued pursuant to a consulting agreement. We will not receive any proceeds from sales of these shares by the selling stockholders.

While we are committed to addressing our capital needs and sustaining operations beyond the next year, there is no assurance that these efforts will be successful or sufficient to meet our capital requirements. Our future viability depends on the successful execution of our strategic plans, securing additional financing, and achieving profitable operations.

Operating Activities

During the three months ended August 31, 2026, net cash used in operating activities was approximately $802,000, primarily reflecting a net loss of $1,232,000, a $114,000 increase in accounts receivable, a $57,000 reduction in operating lease liabilities, and a $36,000 decrease in customer advances. These amounts were partially offset by net noncash adjustments of $191,000, a $216,000 increase in accounts payable and accrued expenses, a $60,000 increase in accrued compensation, and decreases of $97,000 in inventories, $71,000 in prepaid expenses and other current assets, and $2,000 in other assets. Net noncash adjustments included depreciation and amortization, provision for expected credit losses, share-based compensation, and amortization of operating lease right-of-use assets, partially offset by a $24,000 reversal of inventory reserves.

During the three months ended August 31, 2025, cash used in operating activities was approximately $268,000. The primary drivers of this cash outflow included an increase in accounts receivable of $512,000, a decrease in accrued compensation of $63,000, and a decrease in lease liability of $86,000. These were partially offset by a decrease in inventories of $10,000, a decrease in prepaid expenses of $87,000, and non-cash expenses of $280,000.

Investing Activities

During the three months ended August 31, 2026 and 2025, there were no cash flows from investing activities.

Financing Activities

During the three months ended August 31, 2026, net cash provided by financing activities was approximately $2,231,000, consisting of gross proceeds from the Private Placement. Offering-related costs of approximately $111,000 were accrued and unpaid as of August 31, 2026 and therefore did not reduce financing cash flows during the quarter. During the three months ended August 31, 2025, net cash provided by financing activities was approximately $920,000.

OFF BALANCE SHEET ARRANGEMENTS

There were no off-balance sheet arrangements as of August 31, 2026.

CRITICAL ACCOUNTING ESTIMATES

The preparation of our consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. We base our estimates on historical experience and other assumptions that we believe are reasonable under the circumstances. Actual results may differ materially from these estimates.

Our critical accounting estimates primarily relate to revenue recognition, inventory valuation and overhead allocation, expected credit losses on accounts receivable, and share-based compensation. Revenue recognition for certain development arrangements requires estimates of progress toward completion, including technical progress and remaining performance efforts. Inventory valuation requires judgments regarding manufacturing overhead allocation and reserves for excess and obsolete inventory based on production activity, anticipated customer demand, and inventory utilization. Expected credit losses involve estimates of customer collectibility, while share-based compensation involves assumptions regarding expected volatility, expected term, and other valuation inputs. Changes in these assumptions could materially affect our financial condition or results of operations.

There have been no material changes to our critical accounting estimates during the three months ended August 31, 2026, compared with those discussed in our Annual Report on Form 10-K for the fiscal year ended May 31, 2026 and the related consolidated financial statements and notes thereto.