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 $3,688,524 for the first nine months of fiscal 2009 as compared to $3,608,408 for the same period in the previous year. This represents an increase of $80,116, or 2.2%. For the quarter then ended net sales were $1,373,604 as compared to $1,240,809 for the same period in the previous year. This represents an increase of $132,795, or 10.7%. The increase in sales for the quarter ended February 28, 2009 as compared to February 29, 2008 was a result of increased sales to foreign distributors.

For the nine months ended February 28, 2009 as compared to February 29, 2008, cost of sales increased from $2,023,022, or 56.1% of sales, to $2,148,364, or 58.2% of sales. For the three month period then ended cost of sales decreased from $747,690, or 60.3% of sales, to $699,387, or 50.9% of sales. The increase for the nine months was attributable to a variety of factors which included higher wages and royalties as compared to the prior fiscal year. The decrease for the three months was a result of various factors, including the sale of higher margin products in the third quarter of fiscal 2009 and a larger amount of labor and overhead being capitalized into inventory. Capitalization of labor and overhead can vary from quarter to quarter, as the allocation is based on a rolling average of the value of materials used in production which vary based on product mix and direct labor which typically remains constant over a six month time frame.

For the nine months ended February 28, 2009 compared to February 29, 2008, selling, general and administrative costs increased by $37,016, or 3.5%. For the three months then ended these expenses increased by $69,441, or 23.0%. These increases were a result of a variety of factors which included higher commissions, Sarbanes-Oxley consulting, trade show expense, wages, option expense and startup costs for Biomerica Europe GmbH.

For the nine months ended February 28, 2009 compared to February 29, 2008, research and development increased by $3,835, or 1.9% and for the three months increased by $15,565, or 21.4%. The increase for the nine and three months was primarily due to higher wages in fiscal 2009.

For the nine months ended February 28, 2009, other income of $34,540 was realized as compared to $697,125 in the prior year. For the three months then ended, other income of $34,534 was realized as compared to $10 expense in the prior fiscal year. The decrease for the nine months was a result of the non-recurring sale of a marketable security in fiscal 2008 that had been carried on the Company's books at a value of zero.

For the nine months interest expense decreased from $38,288 to $22,418. For the three months interest expense decreased from $12,438 to $4,964 as a result of lower interest rates and debt balances. For the nine months interest income decreased from $26,990 to $22,589 and for the three months interest income decreased from $7,446 to $3,596, primarily due to lower interest rates.

LIQUIDITY AND CAPITAL RESOURCES

As of February 28, 2009, the Company had cash and current available-for-sale securities in the amount of $1,529,688 and working capital of $3,777,345. During the quarter ending February 28, 2009, the Company invested in a Certificate of Deposit for $100,000, which is reflected on the balance sheet as a short-term investment.

On February 13, 2009, the Company entered into a Small Business Banking Agreement with Union Bank of California for a one year business line (the "Line") of credit in the amount of $400,000. The interest rate for the line of credit is the prime rate in effect on the first day of the billing period, as published in the Wall Street Journal Prime West Coast Edition, plus a spread of 1.00%. Minimum monthly payments will be the sum of (i) the amount of interest charge for the billing period, plus (ii) any amount past due, plus (iii) any fees, late charges and/or out-of-pocket expenses assessed. If the Line is not renewed as of the last day of the term of the Line, the entire unpaid balance of the Line, including unpaid fees and charges will be due and payable.

The Company must maintain for not less than thirty consecutive days in every calendar year, a period in which all amounts due under the revolving credit agreements with the Bank are at a zero balance.

On February 13, 2009, the Company entered into a Small Business Bank Agreement for a Business Loan for $133,000. Loan proceeds were disbursed in one single funding on March 5, 2009. The loan was used for the purpose of paying off the business loan, which had been established with Commercial Bank, for the purpose of financing a significant fixed asset purchase. The fixed asset serves as collateral for the loan.

During the nine months ended February 28, 2009, the Company operations used cash in the amount of $220,040 as compared to cash provided by operations in the amount of $365,595 in the same period in the prior fiscal year. Cash used in financing activities for the nine months ended February 28, 2009 was $95,500, primarily due to the repayment of the shareholder loan in the amount of $95,936 as compared to cash provided by financing activities of $166,618 in fiscal 2008, which was primarily due to $112,390 from the borrowings on the loan for equipment purchase and $96,545 from the exercise of stock options and warrants. Net cash used in investing activities during the nine months ended February 28, 2009 was $176,339 as compared to $226,828 in the same period in the prior fiscal year. Cash used in investing for fiscal 2008 related solely to the purchase of property and equipment, whereas, cash used in investing for the nine months ended February 28, 2009 related to investment within a certificate of deposit and purchases of property and equipment.

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 were in a loss position for tax purposes in prior years, and established a partial valuation allowance against deferred tax assets, as we may not be able to 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 February 28, 2009, 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 nine months ended February 28, 2009 and February 29, 2008, respectively, was $87,739 and $84,513 and for the quarters then ended was $34,560 and $27,722. 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