MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND SELECTED FINANCIAL DATA

CERTAIN INFORMATION CONTAINED HEREIN (AS WELL AS INFORMATION INCLUDED IN ORAL STATEMENTS OR OTHER WRITTEN STATEMENTS MADE OR TO BE MADE BY BIOMERICA) CONTAINS STATEMENTS THAT ARE FORWARD-LOOKING, SUCH AS STATEMENTS RELATING TO ANTICIPATED FUTURE REVENUES OF THE COMPANY AND SUCCESS OR CURRENT PRODUCT OFFERINGS. SUCH FORWARD-LOOKING INFORMATION INVOLVES IMPORTANT RISKS AND UNCERTAINTIES THAT COULD SIGNIFICANTLY AFFECT ANTICIPATED RESULTS IN THE FUTURE, AND ACCORDINGLY, SUCH RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY OR ON BEHALF OF BIOMERICA. THE POTENTIAL RISKS AND UNCERTAINTIES INCLUDE, AMONG OTHERS, FLUCTUATIONS IN THE COMPANY'S OPERATING RESULTS. THESE RISKS AND UNCERTAINTIES ALSO INCLUDE THE SUCCESS OF THE COMPANY IN RAISING NEEDED CAPITAL, THE ABILITY OF THE COMPANY TO MAINTAIN REQUIREMENTS TO BE LISTED ON NASDAQ, THE CONTINUAL DEMAND FOR THE COMPANY'S PRODUCTS, COMPETITIVE AND ECONOMIC FACTORS OF THE MARKETPLACE, AVAILABILITY OF RAW MATERIALS, HEALTH CARE REGULATIONS AND THE STATE OF THE ECONOMY. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE HEREOF, AND THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS.

RESULTS OF OPERATIONS

Consolidated net sales for Biomerica were $2,314,920 for the first six months of fiscal 2009 as compared to $2,367,599 for the same period in the previous year. This represents a decrease of $52,679, or 2.2%. For the quarter then ended net sales were $1,120,575 as compared to $1,027,534 for the same period in the previous year. This represents an increase of $93,041, or 9.1%. The increase in sales for the quarter ended November 30, 2008 as compared to 2007 was a result of increased orders from foreign distributors. This, coupled with lower sales in the first quarter ended August 31, 2008, due to lower sales of the EZ Detect product as compared to the prior year, resulted in a decrease for the six months in sales of $52,679.

For the six months ended November 30, 2008 as compared to 2007, cost of sales increased from $1,276,809, or 53.9% of sales, to $1,448,977, or 62.6% of sales. For the three month period then ended cost of sales increased from $541,188, or 52.7% of sales, to $787,761, or 70.3% of sales. The increase was due to various factors which include the decrease in percentages of labor and overhead applied to work-in-process and finished goods, write-offs of slow-moving inventory in the first and second quarters of fiscal 2009, fixed costs in relationship to sales and the product mix of sales.

For the six months ended November 30, 2008 compared to 2007, selling, general and administrative costs decreased by $32,425, or 4.3%. For the three months then ended these expenses decreased by $51,025, or 12.1%. These decreases were primarily a result of decreased bad debt expense.

For the six months ended November 30, 2008 compared to 2007, research and development decreased by $11,730, or 9.2% and for the three months increased by $11,026, or 18.9%. The decrease for the six months was primarily due to lower wages and the increase for the three months was due to increased materials, supplies and travel expenses.

For the six months ended November 30, 2008, other income of $18,999 was realized as compared to $707,754 in the prior year. For the three months then ended, other income of $6,977 was realized as compared to $8,925 in the prior fiscal year. The decrease for the six months was a result of the non-recurring sale of a marketable security that had been carried on the Company's books at zero value.

For the six months interest expense increased from $15,448 to $17,454. For the three months net interest decreased from $11,830 to $7,783 as a result of lower interest rates and debt balances.

LIQUIDITY AND CAPITAL RESOURCES

As of November 30, 2008, the Company had cash and current available-for-sale securities in the amount of $1,788,572 and working capital of $3,459,852.

During the six months ended November 30, 2008, the Company operations used cash in the amount of $84,472 as compared to cash provided by operations in the amount of $185,130 in the same period in the prior fiscal year. Cash used by financing activities for the six months ended November 30, 2008 was $88,447, primarily due to the repayment of the shareholder loan in the amount of $95,936 as compared to cash provided by financing activities of $146,103 in fiscal 2008, which was primarily due to the borrowing of $119,530 on the equipment loan. Purchases of property and equipment for fiscal 2009 were $60,033 compared to $40,328 in fiscal 2008.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. Note 2 of the Notes to Consolidated Financial Statements contained in the Company's annual report on Form 10KSB for the period ended May 31, 2008, describes the significant accounting policies essential to the consolidated financial statements. The preparation of these financial statements requires estimates and assumptions that affect the reported amounts and disclosures.

We believe the following to be critical accounting policies as they require more significant judgments and estimates used in the preparation of our consolidated financial statements. Although we believe that our judgments and estimates are appropriate and correct, actual future results may differ from our estimates.

In general the critical accounting policies that may require judgments or estimates relate specifically to the Allowance for Doubtful Accounts, Inventory Reserves for Obsolescence and Declines in Market Value, Impairment of Long-Lived Assets, Stock Based Compensation and Income Tax Accruals.

Revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, at which point title passes. When necessary an allowance is established for estimated returns as revenue is recognized.

The Allowance for Doubtful Accounts is established for estimated losses resulting from the inability of our customers to make required payments. The assessment of specific receivable balances and required reserves is performed by management and discussed with the audit committee. We have identified specific customers where collection is not probable and have established specific reserves, but to the extent collection is made, the allowance will be released. Additionally, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Reserves are provided for excess and obsolete inventory, which are estimated based on a comparison of the quantity and cost of inventory on hand to management's forecast of customer demand. Customer demand is dependent on many factors and requires us to use significant judgment in our forecasting process. We must also make assumptions regarding the rate at which new products will be accepted in the marketplace and at which customers will transition from older products to newer products. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of, even if in subsequent periods we forecast demand for the product.

We have been in a loss position for tax purposes in prior years, and have established a valuation allowance against deferred tax assets, as we do not believe it is likely that we will generate sufficient taxable income in future periods to realize the entire benefit of our deferred tax assets. Although the Company has achieved net income in the last three fiscal years, due to the fact that many factors can influence profitability, management determined at May 31, 2008 that $170,000 of the previously allowed for deferred tax assets should be released which resulted an income tax benefit of $170,000 being recognized during fiscal 2008. Predicting future taxable income is difficult, and requires the use of significant judgment. Accruals are made for specific tax exposures and are generally not material to our operating results or financial position, nor do we anticipate material changes to these reserves in the near future. Management re-evaluated this at November 30, 2008, and determined that the deferred tax asset should remain at $170,000.

The consolidated financial statements reflect, for all periods presented, the adoption of the classification or disclosure requirements pursuant to Emerging Issues Task Force ("EITF") 00-10, "Accounting for Shipping and Handling Fees and Costs." The Company has historically classified income from freight charges to customers as sales, which has been offset by shipping and handling costs. The income from freight for the six months ended November 30, 2008 and 2007, respectively, was $53,179 and $56,792 and for the quarters then ended was $28,307 and $21,899. The financial statements presented herein show the income from shipping and handling as a component of sales for both periods and the costs of shipping and handling as a component of cost of goods sold.

Please refer to the annual report on Form 10-KSB for the period ended May 31, 2008 for an in-depth discussion of risk factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS