BIOMERICA INC Income Taxes Disclosure

NOTE 7: INCOME TAXES

 

Provision for income taxes for the years ended May 31 consists of the following:

 

 SCHEDULE OF PROVISION FOR INCOME TAXES

		2025				2024
		For the Year Ended May 31,
		2025				2024
Current:
U.S. Federal		$	-			$	-
Foreign Taxes Subsidiaries			-				(41,000	)
State and local			(1,000	)			(1,000	)
Total current			(1,000	)			(42,000	)
Deferred:
U.S. Federal			-				-
State and local			-				-
Total deferred			-				-
Income tax expense		$	(1,000	)		$	(42,000	)

 

Provision for income taxes differs from the amounts computed by applying the U.S. Federal income tax rate applicable for each year (21% for 2025 and 2024) to pretax income as a result of the following:

 

 SCHEDULE OF EFFECTIVE INCOME TAX RECONCILIATION

		2025				2024
		For the Year Ended May 31,
		2025				2024
Computed “expected” tax benefit		$	1,044,000			$	1,247,000
Increase (reduction) in income taxes resulting from:
Change in valuation allowance			(1,379,000	)			(1,428,000	)
State income taxes, net of federal benefit			337,000				459,000
Permanent tax differences and other			75,000				(148,000	)
Stock based compensation benefit			(3,000	)			-
Foreign taxes of subsidiaries			(75,000	)			(172,000	)
Income tax expense		$	(1,000	)		$	(42,000	)

 

The tax effect of significant temporary differences is presented below:

 

 SCHEDULE OF DEFERRED TAX ASSETS

		2025				2024
		May 31,
		2025				2024
Deferred tax assets:
Accounts receivable, principally due to allowance for credit losses		$	9,000			$	5,000
Inventory valuation			132,000				131,000
Compensated absences			7,000				144,000
Net operating loss carryforwards			7,840,000				6,658,000
Tax credit carryforwards			89,000				1,380,000
Deferred rent expense/capitalized leases			1,450,000				11,000
Stock options			1,656,000				1,561,000
Sec 174 capitalized costs			1,000				501,000
Losses of foreign subsidiaries and other, net			567,000				2,000
Accumulated depreciation and amortization			(3,000	)			(24,000	)
Total deferred tax assets			11,748,000				10,369,000
Less valuation allowance			(11,748,000	)			(10,369,000	)
Net deferred tax asset		$	-			$	-

 

The Company has provided a valuation allowance of approximately $11,748,000 and $10,369,000 as of May 31, 2025 and 2024, respectively. The net change in the valuation allowance for the years ended May 31, 2025 and 2024 was an increase of $1,379,000 and $1,428,000, respectively. The Company has recorded a full valuation allowance against its United States and foreign deferred tax assets in each of the years ended May 31, 2025 and 2024 because the Company’s management believes that it is more likely than not that these assets will not be realized.

 

On May 31, 2025, the Company has Federal income tax net operating loss carryforwards of approximately $28,378,000. On May 31, 2025, the Company has California state income tax net operating loss carryforwards of approximately $26,921,000. For tax reporting purposes, operating loss carryforwards are available to offset future taxable income; such carryforwards expire in varying amounts beginning in 2025 and 2039 for federal and state purposes, respectively. Federal net operating losses beginning in 2018 have no expiration date.

 

 

As of May 31, 2025, the Company has Federal research and development tax credit carryforward of approximately $978,000. The Federal credits begin to expire in 2028. The Company also had similar credit carryforwards for state purposes of $596,000 on May 31, 2025, which do not expire.

 

Pursuant to Internal Revenue Code (“IRC”) Sections 382 and 383, annual use of the Company’s net operating loss (“NOL”) and credit carryforwards may be limited by statute because of a cumulative change in ownership of more than 50%. Pursuant to Sections 382 and 383 of the IRC, the annual use of the Company’s NOLs and credit carryforwards would be limited if there is a cumulative change of ownership (as that term is defined in Section 382(g) of the IRC of greater than 50% in a three-year period). Management has not performed an analysis to determine if the Company has had a cumulative change in ownership of greater than 50%.

 

For the year ended May 31, 2025, the Company performed an analysis and has not identified any uncertain tax positions as defined under ASC 740. Should such position be identified in the future, and should the Company owe interest and penalties as a result of this, these would be recognized as interest expense and other expense, respectively, in the consolidated financial statements. The Company is generally no longer subject to any income tax examinations by US federal or state tax authorities for years before fiscal 2021.

 

The 2017 Tax Cuts and Jobs Act (TCJA) changed the treatment of Section 174 research and experimental costs beginning January 1, 2022. Historically, taxpayers had the option of expensing Section 174 costs currently or amortizing over five years. The TCJA provision required taxpayers to capitalize such costs and amortize over five years for research conducted domestically or fifteen years if conducted outside of the U.S.

 

The One Big Beautiful Bill Act (“OBBBA”) was signed by President Trump on July 4, 2025. OBBBA generally removes the capitalization requirement for domestic research and development expenditures, allowing the Company the option to expense Section 174 costs again. We do not expect this change in law to have any material effect on the Company.