What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-08-27 compared with 2020-08-31 · 273 added, 248 removed, 586 unchanged (47% of the section changed)

44 unchanged sentences

All schedules have been omitted as the pertinent information is either not required, not applicable, or otherwise included in the financial statements and notes thereto.

Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on September 22, 1971 (incorporated by reference to Exhibit 3.1 filed with Amendment No.

1 to Registration Statement on Form S-1, Commission File No.

Certificate of Amendment to Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on February 6, 1978 (incorporated by reference to Exhibit 3.1 filed with Amendment No.

1 to Registration Statement on Form S-1, Commission File No.

Certificate of Amendment to Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on February 4, 1983 (incorporated by reference to Exhibit 3.1 filed with Amendment No.

1 to Registration Statement on Form S-1, Commission File No.

Certificate of Amendment to Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on January 19, 1987 (incorporated by reference to Exhibit 3.4 filed with Form 8 Amendment No.

1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended May 31, 1987).

Certificate of Amendment of Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on November 4, 1987 (incorporated by reference to Exhibit 3.1 filed with Amendment No.

1 to Registration Statement on Form S-1, Commission File No.

Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 filed with Amendment No.

1 to Registration Statement on Form S-1, Commission File No.

Certificate of Amendment of Certificate of Incorporation of Registrant filed with the Secretary of the State of Delaware on December 20, 1994 (incorporated by reference to Exhibit 3.7 filed with Registrant's Annual Report on Form 10-KSB for the fiscal year ended May 31, 1995).

First Amended and Restated Certificate of Incorporation of Biomerica, Inc.

filed with the Secretary of State of Delaware on August 1, 2000 (incorporated by reference to Exhibit 3.8 filed with the Registrant's Annual Report on Form 10-KSB for the fiscal year ended May 31, 2000).

Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 filed with Amendment No.

1 to Registration Statement on Form S-1, Commission File No.

Specimen Stock Certificate of Common Stock of Registrant (incorporated by reference to Exhibit 4.1 filed with Registrant's Registration Statement on Form SB-2, Commission No.

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2017 Stock Incentive Plan of Registrant (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 10, 2018).

2020 Stock Incentive Plan as approved by the Board on December 11, 2019, and to be voted on by shareholders at the shareholder meeting to be held December 20, 2020.

Consent of Independent Registered Public Accounting Firm (PKF, LLP).

2020 Stock Incentive Plan of Registrant (incorporated by reference to Exhibit 10.1 to Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 21, 2021).

Form of Executive Stock Option Agreement (attached herein)

Listing of Subsidiaries (attached herein)

Consent of Independent Registered Public Accounting Firm (PKF San Diego, LLP).

Certification of Chief Executive Officer pursuant to 18 U.S.C.

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/s/ Zackary S.

August 27, 2021

Director, Chief Executive Officer

/s/ Janet Moore

Secretary, Director, Chief Financial Officer

/s/ Steve Sloan

August 27, 2021

Chief Financial Officer

/s/ Francis R.

August 27, 2021

/s/ Allen Barbieri

August 27, 2021

Allen Barbieri

Director, Audit Committee Member

Director, Vice-Chairman

/s/ Jane Emerson, M.D., Ph.D.

August 27, 2021

Jane Emerson, M.D., Ph.D

Director, Audit Committee Member

/s/ Mark Sirgo, Pharm.D.

Mark Sirgo, Pharm.D., Audit Committee Member

August 27, 2021

Mark Sirgo, Pharm.D.

/s/ Catherine Coste, CPA

August 27, 2021

Catherine Coste, CPA

BIOMERICA, INC.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of Inventory and Accounts Receivable Allowances

The Company recorded allowances for inventory and accounts receivable of approximately $1,600,000 and $840,000, respectively, as of May 31, 2021 primarily related to COVID-19 inventory items that have been slow moving and accounts receivable from foreign customers where collectability is questionable.

As described in Note 2, these allowances are adjusted based on management’s ongoing evaluations and assessments based on current conditions.

Auditing the Company’s estimates for inventory and accounts receivable allowances was challenging due to the assumptions made by management based on anticipated future results of customers and marketplace developments.

We obtained an understanding and evaluated the assumptions, criteria and process used by management to determine the allowances for inventory items and accounts receivable.

To test the valuation and accuracy of allowances for inventory and accounts receivable, our audit procedures included, among others, observation and testing of the cost and the valuation allowance for inventory items on hand, examining recent sales of items, testing of aging of accounts receivable balances, confirmation and testing of subsequent cash receipts on accounts receivable, and discussions with management.

/s/PKF San Diego, LLP

(formerly PKF, LLP)

We have served as the Company’s auditor since 2004.

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Cash and cash equivalents

Accounts receivable, less allowance for doubtful accounts of $70,981 and $73,110, respectively

Accounts receivable, less allowance for doubtful accounts

of $837,415 and $70,981 as of May 31, 2021 and 2020, respectively

Inventories, net

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Total current assets

PROPERTY AND EQUIPMENT:

Furniture, fixtures and leasehold improvements

Total property and equipment

Accumulated depreciation

Net property and equipment

INTANGIBLE ASSETS, net of accumulated amortization

RIGHT OF USE ASSETS, net of accumulated amortization

Property and equipment, net of accumulated depreciation and amortization

of $1,972,357 and $1,867,643 as of May 31, 2021 and 2020, respectively

Right of use assets, net of accumulated amortization of $469,077 and $231,489

as of May 31, 2021 and 2020, respectively

Intangible assets, net of accumulated amortization of $126,769 and $496,124 as

of May 31, 2021 and 2020, respectively

Liabilities and Shareholders' Equity

6 unchanged sentences

Total Liabilities

COMMITMENTS AND CONTINGENCIES (NOTE 8)

Commitments and contingencies (Notes 1 and 9)

Shareholders' Equity:

Preferred stock, Series A 5%, convertible,

$0.08 par value, 571,429 shares authorized, 321,429 issued and outstanding

at May 31, 2020 and no shares authorized, issued and outstanding

at May 31, 2019

Preferred stock, undesignated, no par value, authorized 4,428,571

and 5,000,000 shares, at May 31, 2020 and May 31,

2019, respectively and none issued and outstanding at

May 31, 2020 and May 31, 2019

Preferred stock, Series A 5% convertible, $0.08 par value,

571,429 shares authorized, none issued and outstanding at May 31, 2021 and 321,429

issued and outstanding at May 31, 2020

Preferred stock, undesignated, no par value,

4,428,571 shares authorized, none issued and outstanding at May 31, 2021 and 2020

Common stock, $0.08 par value,

25,000,000 shares authorized;

11,740,089 and 9,677,188 shares issued and outstanding at May 31, 2020 and 2019, respectively

25,000,000 shares authorized, 12,307,157 and 11,740,089 issued and outstanding at

May 31, 2021 and 2020, respectively

Additional paid-in-capital

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

FOR THE YEARS ENDED MAY 31,

For The Years Ended

Cost of sales

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Research and development

Total operating expenses

Total operating expense

Loss from operations

OTHER INCOME (EXPENSE):

Other Income:

Dividend and interest income

Interest expense

Interest and dividend income

Total other income

Loss before income taxes

INCOME TAX EXPENSE

Provision for income taxes

Basic net loss per common share

Diluted net loss per common share

WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES

OTHER COMPREHENSIVE LOSS:

Weighted average number of common and

common equivalent shares:

Other comprehensive loss, net of tax:

Foreign currency translation

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS ' EQUITY

YEARS ENDED MAY 31, 2020 AND 2019

FOR THE YEARS ENDED MAY 31, 2021 AND 2020

Series A 5% Convertible

Preferred Stock

Paid-in Capital

Comprehensive

Subscriptions

Balances, May 31, 2019

1 unchanged sentence

Net proceeds from ATM

Stock subscription

Foreign currency

Compensation expense in

connection with options

Issuance of preferred stock

Foreign currency translation

Conversion of preferred to common stock

Compensation expense in connection with options granted

Balances, May 31, 2020

1 unchanged sentence

Net proceeds from ATM

Issuance of preferred

Foreign currency

Conversion of preferred

to common stock

Compensation expense in

connection with options

Foreign currency translation

Conversion of preferred to common stock

Compensation expense in connection with options granted

Balances, May 31, 2021

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended May 31,

For The Years Ended

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Change in provision for allowance for doubtful accounts

Change in allowance on accounts receivable

Inventory reserve

Stock option expense

Reduction (increase) in deferred rent liability

Decrease in deferred tax asset

Reduction in deferred rent liability

Amortization of right-of-use asset

1 unchanged sentence

Accounts receivable

Prepaid expenses and other

Prepaid expenses

Reduction in lease liability

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Cash flows from financing activities:

Common stock subscribed

Proceeds from sale of common stock, net

Proceeds from sale of convertible preferred stock, net

Proceeds from sales of common stock, net

Proceeds from exercise of stock options

Net cash provided by financing activities

Effect of exchange rate changes on cash

Net increase (decrease) in cash and cash equivalents

CASH AND CASH EQUIVALENTS, beginning of year

CASH AND CASH EQUIVALENTS, end of year

Effect of exchange rate changes in cash

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental Disclosure of Cash-Flow Information:

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Non-cash investing and financing activities:

Establishment of Right-of-use asset per ASC 842

Establishment of Lease liability per ASC 842

Increase in right of use asset due to lease extension or establishment

Increase in lease liability due to lease extension or establishment

The accompanying notes are an integral part of these statements

4 unchanged sentences

Biomerica Inc.

and Subsidiaries (collectively the “Company”, “we”, “us”, or “our”) develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians' offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases.

and Subsidiaries (collectively the “Company”, “Biomerica”, “we”, “us”, or “our”) develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (physicians' offices and over-the-counter through drugstores and online) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases.

Our diagnostic test kits are used to analyze blood, urine or fecal material from patients in the diagnosis of various diseases, food intolerances and other medical complications, or to measure the level of specific hormones, antibodies, antigens or other substances, which may exist in the human body in extremely small concentrations.

The Company's products are designed to enhance the health and well-being of people, while reducing total healthcare costs.

We are a global biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products used at the point-of-care (in home and in physicians' offices) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases.

The Company's products are designed to enhance the health and well-being of people, while reducing total healthcare costs.

Our primary focus is the research and development of revolutionary, patented, diagnostic-guided therapy (“DGT”) products to treat gastrointestinal diseases, such as irritable bowel syndrome, and other inflammatory diseases.

These products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets.

If these DGT products prove effective in their clinical trials, and are ultimately cleared for sale by the U.S.

Food and Drug Administrations (“FDA”), the revenues potential to the Company is significant.

Due to the global 2019 SARS-CoV-2 novel coronavirus (“COVID-19”) pandemic, in March 2020 we began redirecting and focused a majority of our resources to develop, test, validate, seek regulatory approval for, and sell diagnostic products that indicate if a person has been exposed to COVID-19.

Our medical diagnostic products are sold worldwide primarily in two markets:

1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter drugstores).

The diagnostic test kits are used to analyze blood, urine, or fecal specimens from patients in the diagnosis of various diseases and other medical complications, by measuring or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens or other substances, which may exist in a patient’s body, stools, or blood, often in extremely small concentrations.

Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began redirecting and focusing a majority of our resources to develop, test, validate, seek regulatory approval for, and sell diagnostic products that indicate if a person has been infected by COVID-19.

During fiscal 2021, we sold 2 primary types of Covid 19 tests;

1) antibody diagnostic tests that use a patient’s blood sample to detect if the patient has certain antibodies to COVID-19 that were created as part of their body’s immune response to a COVID-19 infection, even if the infection was asymptomatic, and 2) antigen tests that use a patient’s nasal fluid sample to detect if a patient is currently infected with the virus.

Aside from the COVID-19 products we offer, the other products we sell are primarily focused on gastrointestinal diseases, food intolerances, diabetes and certain esoteric tests.

These diagnostic test products utilize immunoassay technology.

Most of our products are CE marked and/or sold for diagnostic use where they are registered by each country’s regulatory agency.

In addition, some products are cleared for sale in the U.S.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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stock option forfeiture rates, which are calculated based on historical data;

and inventory obsolescence, which are based on projected and historical usage of materials;

and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, likelihood of lease extensions to occur, asset valuation, among other things;

(and other items that may be necessary to estimate using current, historical and judgment based).

inventory obsolescence, which are based on projected and historical usage of materials;

and lease liability and right-of-use assets, which are calculated based on certain assumptions such as borrowing rate, the likelihood of lease extensions to occur, asset valuation, among other things;

and other items that may be necessary to estimate using current, historical and judgment based information.

Actual results could materially differ from those estimates.

MARKETS AND METHODS OF DISTRIBUTION

Due to the Coronavirus global pandemic, the Company’s operations have been negatively impacted.

The Company has faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, loss of contracts and/or customers, closure of the Company’s manufacturing or distribution facilities or of the facilities of the Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells its products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities.

These ongoing pandemic related disruptions can materially negatively impact the Company’s operations and financial performance and may continue to have significant material negative impacts on the Company.

The Company has incurred net losses and negative cash flows from operations and has an accumulated deficit of approximately $28.4 million as of May 31, 2021.

Management expects to continue to incur significant costs as it advances its trials and development activities.

On January 22, 2021, the Company filed a Prospectus Supplement for purposes of raising up to $15,000,000 to the base prospectus filed with the SEC on July 21, 2020 and declared effective by the SEC on September 30, 2020 and an ATM Agreement.

The Company intends to use the net proceeds from such offering for general corporate purposes, including, without limitation, sales and marketing activities, clinical studies and product development, making acquisitions of assets, businesses, companies or securities, capital expenditures, and for working capital needs.

Under an ATM Agreement, sales of the Placement Shares are deemed to be “at the market offering” as defined in Rule 415 promulgated under the Securities Act.

The agent acts as sales agent under the ATM and uses commercially reasonable efforts to sell on the Company’s behalf all of the Placement Shares requested to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between the agent and the Company.

The Company has no obligation to sell any of the Placement Shares under the ATM Agreement, and may at any time suspend offers under, or terminate the ATM Agreement.

During the year ended May 31, 2021, the Company sold 158,889 shares of its common stock at prices ranging from $7.06 to $7.79 under its Form S-3 Registration Statement ( File No.

333-239980) and ATM Agreement which resulted in gross proceeds of $1,177,394 and net proceeds to the Company of $1,011,475 after deducting commissions for each sale and legal, accounting and other fees related to the filing of the Form S-3.

As a result of cash and cash equivalents on hand at May 31, 2021, management believes the Company has sufficient funds to operate through August 2022 and the ability to raise additional funds through the ATM noted above.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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The Company performs ongoing credit evaluations of its customers and requires accelerated prepayment in some circumstances.

For the years ended May 31, 2020 and 2019, the Company had three distributors and two distributors which accounted for a total of 57.2% and 46.3% of our net consolidated sales, respectively.

For the years ended May 31, 2021 and 2020, the Company had two distributors and three distributors which accounted for a total of 60% and 57% of our net consolidated sales, respectively.

Of this, for the years ended May 31, 2021 and 2020 one of the distributors mentioned above accounted for 33% and 26%, respectively, of net consolidated sales.

At May 31, 2020 and 2019, the Company had three distributors and two distributors which accounted for a total of 80.0% and 68.1%, respectively, of gross accounts receivable.

Of the 80.0% as of May 31, 2020, 43.9% was owed by a distributor in Ecuador.

At May 31, 2021 and 2020, the Company had two distributors and three distributors which accounted for a total of 73% and 80%, respectively, of gross accounts receivable.

Of the 73% as of May 31, 2021, 41% was owed by a distributor in China.

Total gross receivables at May 31, 2021 and 2020 were $2,292,466 and $1,836,852, respectively.

For the year ended May 31, 2021, one vendor accounted for 58% of the purchases of raw materials.

For the year ended May 31, 2019, two vendors accounted for a total of 23.8 % of the purchases of raw materials.

For the year ended May 31, 2020, one vendor accounted for a total of 59% of the purchases of raw materials.

GEOGRAPHIC CONCENTRATION

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The Company extends unsecured credit to its customers on a regular basis.

International accounts are required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria.

International accounts are usually required to prepay until they establish a history with the Company and at that time, they are extended credit at levels based on a number of criteria.

Based on various criteria, initial credit levels for individual distributors are approved by designated officers and managers of the Company.

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Management monitors the payments for these large balances closely and very often requires payment of existing invoices before shipping new sales orders.

The Company has established a reserve of $837,415 for doubtful accounts as of May 31, 2021.

The majority of this reserve has been established to cover 100% of outstanding accounts receivable from an international distributor.

The Company occasionally prepays for items such as inventory, insurance and other items.

These items are reported as prepaids, until either the inventory is physically received or the insurance and other items are utilized.

As of May 31, 2021, the prepaids were approximately $370,000, composed of prepayments to insurance and various other suppliers.

As of May 31, 2020, approximately $1 million of the prepaids was an advance payment to one of our suppliers, which was subsequently refunded by the supplier when the Company determined it no longer needed the materials that had been ordered.

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.

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As of May 31, 2021 and 2020, inventory reserves were approximately $1,617,000 and $67,000, respectively.

PROPERTY AND EQUIPMENT

Of the inventory reserve, $1,502,675 was related to a market downturn in our COVID-19 antibody test and materials, as the market shifted to COVID-19 PCR viral tests and antigen tests.

PROPERTY AND EQUIPMENT, NET

Property and equipment are stated at cost.

5 unchanged sentences

Depreciation and amortization expense on property and equipment amounted to $104,715 and $105,299 for the years ended May 31, 2021 and 2020, respectively.

INTANGIBLE ASSETS

INTANGIBLE ASSETS, NET

Intangible assets include trademarks, product rights, technology rights and patents, and are accounted for based on Accounting Standards Codification (“ASC”), ASC 350 Intangibles – Goodwill and Other (“ASC 350”).

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Expected volatility

71.19-107.53%

Risk free interest rate

Expected life

Expected Term

5.50-6.25 Years

5 unchanged sentences

In addition, the Company has contracts with customers wherein they receive purchase discounts for achieving specified sales volumes.

The Company evaluated the status of these contracts as of May 31, 2020 and does not believe that any additional discounts will be given through the end of the contract periods.

The Company evaluated the status of these contracts as of May 31, 2021 and 2020 and does not believe that any additional discounts will be given through the end of the contract periods.

Services for some contract work are invoiced and recognized for work that has been performed as the project progresses.

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

Physicians’ Office

Physician's office

Over-the-counter

Contract manufacturing

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At May 31, 2021 and 2020, in accordance with ASC 740, the Company has a valuation allowance for substantially all of its deferred tax assets.

During the fiscal year ended May 31, 2020, this valuation allowance was increased to approximately $ 3,175,000, which fully covers the net tax asset of $3,175,000 .

During the fiscal year ended May 31, 2021, this valuation allowance was increased to $5,590,000, which fully covers the tax asset of $5,590,000 .

The Company accounts for its uncertain tax provisions by using a two-step approach to recognizing and measuring uncertain tax positions.

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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 will be classified as financing or operating which will drive the expense recognition pattern.

For lessees, the statement of operations presentation and expense recognition pattern for financing and operating leases is similar to the current model for capital and operating leases, respectively.

Leases are classified as financing or operating which will drive the expense recognition pattern.

The Company has elected to exclude short-term leases.

The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted this guidance as of June 1, 2019, the required effective date, using the effective date transition method.

As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated.

An adjustment to opening accumulated deficit was not required in conjunction with adoption.

The adoption of this statement resulted in a right-of-use asset being recorded in the amount of $1,942,999 and a lease liability being recorded in the amount of $1,980,970.

Both will be amortized over the life of the underlying leases.

On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years.

As part of that lease extension agreement, the Company was granted an additional right to extend its lease for five years, up through August 2031.

However, given the recent growth in the Company’s operations, and the expectation that operations will continue to grow in the near future, the Company believes that it will be necessary to relocate into larger facilities by the end of the current lease term.

Therefore, the Company has elected to not book the additional five-year extension option, from August 2026 to August 2031, into its right-of-use asset or its lease liability accounts.

For additional information, see Note 9-Commitments and Contingencies.

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The total amounts of anti-dilutive stock options not included in the loss per share calculation for the years ended May 31, 2021 and 2020 were 2,081,366 and 1,789,251, respectively.

The Company also has outstanding 321,429 of Series A 5% Convertible Preferred Stock, which may be converted at any time to common stock.

The Company also had 0 and 321,429 of Series A 5% Convertible Preferred Stock outstanding for the years ended May 31, 2021 and 2020, respectively.

The 321,429 shares outstanding at May 31, 2020 were converted to common stock during the year ended May 31, 2021.

SEGMENT REPORTING

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RECENT ACCOUNTING PRONOUNCEMENTS

On February 15, 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects From Accumulated Comprehensive Income” (“ASU 2018-02”).

ASU 2018-02 will give companies the option to reclassify stranded tax effects caused by the newly-enacted U.S.

Tax Cuts and Jobs Act (“TCJA”) from accumulated other comprehensive income (“ASCI”) to retained earnings.

ASU 2018-02 was effective for all companies for the fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

Management is taking the provisions of this statement into account in the preparation of the consolidated financial statements for the year ended May 31, 2020.

The adoption of this standard has not had a significant impact on the Company’s consolidated financial statements.

On June 20, 2018, the FASB issued ASU 2018-07, “Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”).

ASU 2018-07 is intended to reduce cost and complexity and to improve financial reporting for share-based payments to nonemployees (service providers, external legal counsel, and suppliers).

ASU 2018-07 was effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

During the year ended May 31, 2020, the Company adopted the provisions of this statement and is taking them into account in the preparation of the consolidated financial statements for the year ended May 31, 2020.

The adoption of this standard has not had a significant impact on the Company’s consolidated financial statements.

Other recent ASU's issued by the FASB and guidance issued by the Securities and Exchange Commission (“SEC”) did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

Recent ASU's issued by the FASB and guidance issued by the SEC did not, or are not believed by management to, have a material effect on the Company’s present or future consolidated financial statements.

PROPERTY AND EQUIPMENT, NET

Property and equipment, net of accumulated depreciation, consist of the following at May 31:

Furniture, fixtures and leasehold improvements

Less accumulated depreciation

Net property and equipment

INTANGIBLE ASSETS, NET

Intangible assets, net of accumulated amortization, consist of the following at May 31:

Less accumulated amortization-

Intangible assets, net

Less accumulated amortization-licenses

Less accumulated amortization-patents

Intangible asssets, net

Expected amortization of intangible assets for the years ending May 31:

1 unchanged sentence

The Company’s accounts payable and accrued expense balances consist of the following at May 31:

Accounts payable and accrued expenses

Deferred rent

As of May 31, 2020 and 2019 the Company had two vendors and one vendor which accounted for 26.9% and 32.1%, respectively, of accounts payable.

Accounts payable

Accrued expense

As of May 31, 2021 and 2020 the Company had one vendor and two vendors which accounted for 17% and 27%, respectively, of accounts payable.

SHAREHOLDERS' EQUITY

1 unchanged sentence

On February 26, 2020, the Company filed with the Secretary of State of Delaware a certificate of correction, correcting certain language defects in the previously filed certificate of designation.

Please see below a description of the Series A 5% Convertible Preferred Stock shares that were issued in February 2020.

Please see below a description of the Series A 5% Convertible Preferred Stock shares that were issued in February 2020, and subsequently converted into registered common shares.

STOCK OPTION AND RESTRICTED STOCK PLANS

In August 2010, the Company adopted a stock option and restricted stock plan (the "2010 Plan") which provides that non-qualified options and incentive stock options and restricted stock covering an aggregate of 850,000 shares of the Company's unissued common stock may be granted to affiliates, employees or consultants of the Company.

In August 2010, the Company adopted a stock option and restricted stock plan (the "2010 Plan") which provided that non-qualified options and incentive stock options and restricted stock covering an aggregate of 850,000 shares of the Company's unissued common stock could be granted to affiliates, employees or consultants of the Company.

This plan was approved by shareholders in December 2010.

The 2010 Plan expires in December 2020.

Options granted under the 2010 Plan will be granted at prices not less than 80% of the then fair market value of the common stock and will expire not more than 10 years after the date of grant.

The 2010 Plan expired in December 2020.

Options granted under the 2010 Plan were granted at prices not less than 80% of the then fair market value of the common stock and will expire not more than 10 years after the date of grant.

In December 2014, the Company adopted a stock option and restricted stock plan (the "2014 Plan") which provides that non-qualified options and incentive stock options and restricted stock covering an aggregate of 850,000 shares of the Company's unissued common stock may be granted to affiliates, employees or consultants of the Company.

6 unchanged sentences

Options granted under the 2017 Plan will be granted at prices not less than 80% of the then fair market value of the common stock and will expire not more than 10 years after the date of grant.

In February 2020, the Board approved the 2020 Stock Incentive Plan (the “2020 Plan”), which will be presented to the Company’s shareholders for final approval and adoption at the Company’s annual meeting to be held in December 2020.

In February 2020, the Board approved the 2020 Stock Incentive Plan (the “2020 Plan”) and on December 11, 2020 the shareholders of the Company approved The Plan.

The 2020 Plan authorizes the issuance of an aggregate number of common stock options and/or restricted common shares to be issued in an amount not to exceed 900,000.

The 2020 Plan authorizes the issuance of common stock options and restricted common shares to employees, directors and consultants of the Company.

During fiscal 2020, certain common stock options were granted under this plan, the actual vesting of which is subject to the plan being approved and adopted by shareholders at our upcoming annual meeting of shareholders.

During fiscal 2020, certain common stock options were granted under this plan.

Stock option expense during fiscal 2021 was $377,391.

This included, by department, $17,892 for research and development, $156,750 in administrative, $2,933 in sales and marketing, $22,895 for production and $0 in Mexico.

In fiscal 2019, stock option expense was $151,224.

This included $3,714 in research and development, $143,299 in administrative, $4,163 in sales and marketing and $48 in Mexico.

This included, by department, $64,491 for research and development, $221,052 for administrative, $18,035 for sales and marketing and $73,813 for production.

Stock option expense during fiscal 2020 was $200,470.

This included, by department, $17,892 for research and development, $156,750 in administrative, $2,933 in sales and marketing and $22,895 for production.

Activity as to aggregate stock options outstanding is as follows:

NUMBER OF STOCK OPTIONS

EXERCISE PRICE RANGE PER SHARE

WEIGHTED AVERAGE EXERCISE PRICE

EXCERCISE PRICE

RANGE PER SHARE

WEIGHTED AVERAGE EXERCISE

Options outstanding at May 31, 2019

Options granted

Options exercised

Options excercised

Options canceled or expired

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Options granted

Options exercised

Options excercised

Options canceled or expired

Options outstanding at May 31, 2021

$1.20 - $6.73

The weighted average fair value of options granted during 2021 and 2020 was $6.73 and $4.47, respectively.

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The aggregate intrinsic value of options vested and exercisable at May 31, 2021 and 2020 was approximately $1,872,000 and $4,442,000, respectively.

Number of non-vested stock options included in table above is as follows:

NUMBER OF SHARES

STOCK OPTIONS WEIGHTED AVERAGE AVERAGE GRANT DATE FAIR VALUE

The number of non-vested stock options included in the table above is as follows:

Stock options

average grant

date fair value

Non-vested shares at May 31, 2020

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These options are comprised of those granted under the 2010, 2014, 2017 and 2020 plans.

RANGE OF EXERCISE PRICES

NUMBER OUTSTANDING

WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE IN YEARS

WEIGHTED AVERAGE EXERCISE PRICE

NUMBER EXERCISABLE AT MAY 31, 2020

WEIGHTED AVERAGE EXERCISE PRICE

$ 1.20-$ 2.81

$ 3.62-$ 8.18

EXERCISE PRICES

LIFE IN YEARS

EXERCISE PRICE

AT MAY 31, 2021

EXERCISE PRICE

COMMON STOCK ACTIVITY

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Total net proceeds to the Company were $223,534.

During the year ended May 31, 2019, options to purchase 163,500 shares of common stock were exercised at prices ranging from $0.71 to $1.04.

Total net proceeds to the Company were $121,790.

On December 1, 2017, the Company entered into an At Market Issuance Sales Agreement (or “ATM Agreement”) with an agent, and filed a prospectus supplement with the SEC pursuant to which the Company could offer and sell from time to time up to an aggregate of $7,000,000 of shares of the Company’s common stock, par value $0.08 per share (the “Placement Shares”), through the agent.

On December 1, 2017, the Company entered into an At Market Issuance Sales Agreement (or “ATM Agreement”) with an agent, and filed a prospectus supplement with the SEC pursuant under which the Company could offer and sell from time to time up to an aggregate of $7,000,000 of shares of the Company’s common stock, par value $0.08 per share (the “Placement Shares”), through the agent.

From December 1, 2017 to March 19, 2020, the Company sold common stock resulting in $6,997,935 of gross proceeds under this ATM Agreement, of which $3,771,048 were sold during the year ended May 31, 2020.

This At Market Issuance Agreement expired on July 20, 2020 upon the expiration of the Company’s S-3 registration statement base prospectus dated July 20, 2017.

The Placement Shares sold and issued under the ATM Agreement have been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Registration Statement on Form S-3 (File No.

This At Market Issuance Agreement expired on July 20, 2020 upon the expiration of the Company’s Form S-3 registration statement base prospectus dated July 20, 2017.

The Placement Shares sold and issued under this ATM Agreement have been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Registration Statement on Form S-3 (File No.

333-219130) (the “Registration Statement”), which was originally filed with the SEC on June 30, 2017 and declared effective by the SEC on July 20, 2017, the base prospectus contained within the Registration Statement, and the prospectus supplement related to the sale of shares under the ATM Agreement was filed with the SEC on December 1, 2017.

On March 20, 2020, the Company filed a new prospectus supplement to the S-3 registration statement base prospectus dated July 20, 2017 for purposes of raising up to $12,500,000 from time to time pursuant to the terms of the ATM Agreement.

This ATM Agreement expired on July 20, 2020 upon the expiration of the Company’s S-3 registration statement base prospectus dated July 20, 2017.

This ATM Agreement expired on July 20, 2020 upon the expiration of the Company’s Form S-3 registration statement base prospectus dated July 20, 2017.

Gross proceeds for the year ended May 31, 2020 were $6,817,330.

Please refer to “Subsequent Events” for a description of the Form S-3 filed with the Securities and Exchange Commission on July 20, 2020.

Combined Placement Shares sold under the ATM during the twelve months ended May 31, 2020 under the two prospectus supplements dated December 1, 2017 and March 20, 2020 totaled 1,674,943 shares.

Total net proceeds from the sale of Placement Shares under the two prospectus supplements during the twelve months ended May 31, 2020 were $10,232,857 after deducting commissions for each sale and legal, accounting, and other fees related to the filing of the Form S-3.

There were no proceeds for the year ended May 31, 2021, for this July 20, 2017 Form S-3 registration statement.

Combined Placement Shares sold under the ATM Agreements during the year ended May 31, 2020 under the two prospectus supplements dated December 1, 2017 and March 20, 2020 totaled 1,674,943 shares.

Total net proceeds from the sale of Placement Shares under the two prospectus supplements during the year ended May 31, 2020 were $10,232,857 after deducting commissions for each sale and legal, accounting, and other fees related to the filing of the Form S-3.

These shares were sold at prices ranging from $2.33 to $9.08 per share.

Under an ATM Agreement, sales of the Placement Shares are deemed to be “at the market offering” as defined in Rule 415 promulgated under the Securities Act.

On September 11, 2020, the Company filed a Pre-Effective Amendment No.

1 to the Form S-3 to register 571,429 shares of Biomerica common stock in connection with the Stock Purchase Agreement dated February 21, 2020, wherein the Company entered into a registration rights agreement with the selling stockholder, pursuant to which we agreed to file a registration statement registering the resale of the shares of our common stock issuable upon conversion of our Series A Preferred Stock issued to the selling stockholder under the Stock Purchase Agreement.

On September 30, 2020, the Company received a Notice of Effectiveness from the Securities and Exchange Commission for the Form S-3 “shelf” Registration Statement filed on July 21, 2020 and amended on September 11, 2020.

During the year ended May 31, 2020, 250,000 shares of common stock were converted from Preferred Stock as described below in “Preferred Stock Activity”.

During the year ended May 31, 2021, options to purchase 86,750 shares of common stock were exercised at prices ranging from $0.82 to $3.62.

Total net proceeds to the Company were $102,255.

On May 21, 2021, in conjunction with the Company’s 2020 Stock Incentive Plan, that was approved by shareholders at the Company’s annual meeting in December 2020, the Company filed an S-8 Registration Statement to register up to 900,000 shares of the Company’s common stock that could be issued under this Plan.

Under an ATM Agreements, sales of the Placement Shares are deemed to be “at the market offering” as defined in Rule 415 promulgated under the Securities Act.

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During the year ended May 31, 2021, 321,429 shares of common stock were converted from Preferred Stock as described below in “Preferred Stock Activity”.

During the year ended May 31, 2020, the Company sold 1,674,943 shares of its common stock at prices ranging from $2.33 to $9.08 under its S-3 Registration Statement which resulted in gross proceeds of $10,588,378 and net proceeds to the Company of $10,232,857 after deducting commissions for each sale and legal, accounting and other fees related to the filing of the Form S-3.

During the year ended May 31, 2019, the Company sold 625,677 shares of its common stock at prices ranging from $2.59 to $4.16 under its S-3 Registration Statement which resulted in gross proceeds of $1,847,662 and net proceeds to the Company of $1,776,575 after deducting commissions for each sale and legal, accounting and other fees related to the filing of the Form S-3.

During the year ended May 31, 2021, the Company sold 158,889 shares of its common stock at prices ranging from $7.06 to $7.79 under its Form S-3 Registration Statement ( File No.

333-239980 ) and ATM Agreement which resulted in gross proceeds of $1,177,394 and net proceeds to the Company of $1,011,475 after deducting commissions for each sale and legal, accounting and other fees related to the filing of the Form S-3.

PREFERRED STOCK ACTIVITY

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Under the terms of the Stock Purchase Agreement, each share of issued Convertible Preferred Stock can be converted at any time by Palm into one share of the Company’s common stock, subject to certain adjustments.

The Series A 5% Convertible Preferred Stock shares are convertible at the option of the holder at any time into an equal number of common stock shares (“Conversion Shares”).

The conversion price may be adjusted for stock splits or other common stock issuances.

The Company may require the conversion of all of the outstanding Series A 5% Convertible Preferred Stock shares if the closing sale price of the Company’s common stock equals or exceeds $9.00 for a period of five consecutive trading days with a minimum average trading volume of 35,000 shares per day over such period;

provided, that, on such date, the Conversion Shares are registered for resale.

The Series A 5% Convertible Preferred Stock shares accrue annual preferred dividends at a rate of $0.175 per Series A 5% Convertible Preferred Stock share.

The shares of Series A 5% Convertible Preferred Stock are also entitled to receive participating dividends.

The shares of Series A 5% Convertible Preferred Stock have no voting rights.

Accruing dividends are payable only when, as, and if declared by the Board and the Company has no obligation to pay such accruing dividends.

As such, since the dividend payment is conditional on events that are deemed unlikely at this time, a liability has not been recorded at year-end for these dividends.

Dividends that have accumulated through May 31, 2020 total approximately $18,000.

The 5% dividend is a cumulative dividend, and is only payable if the Board elects to pay a dividend on the Company’s common shares, at which point the accrued cumulative dividend must be paid current.

At the conversion of any preferred shares into common shares, all accrued, unpaid dividends on the converted preferred shares are canceled and forgiven by Palm.

As part of the purchase, Palm was given the right to appoint a Board Observer to the Board.

The preferred shares have many material preferential rights over common shareholders in the event of a filing for bankruptcy or dissolution of the Company.

For further details on the rights of these preferred shares, please refer to the Company’s disclosures filed under an SEC 8-K on February 26, 2020.

The Series A 5% Convertible Preferred Stock accrued annual preferred dividends at a rate of $0.175 per Series A 5% Convertible Preferred Share.

However, accruing dividends were payable only when, as, and if declared by the Board and the Company had no obligation to pay such accruing dividends.

On March 24, 2020, Palm converted 250,000 shares of Convertible Preferred Stock into 250,000 shares of unregistered common stock.

On July 21, 2020, the Company filed with the SEC a registration statement on Form S-3 that among other things registered all of the common shares issued, or to be issued, to Palm upon conversion of the Convertible Preferred Stock into common shares.

The Company anticipates the registration statement shall become effective promptly following the filing of this annual report on Form 10-K with the SEC.

The Company incurred approximately $82,000 in issuance costs associated with this stock issuance.

Income tax expense from continuing operations for the years ended May 31, 2020 and 2019 consists of the following:

On July 21, 2020, the Company filed with the SEC a registration statement on Form S-3, that among other things, registered 571,429 common shares issued, or to be issued, to Palm upon conversion of the Convertible Preferred Stock into common shares.

On September 30, 2020, the Company received a Notice of Effectiveness from the Securities and Exchange Commission for registration of these shares.

On January 21, 2021 Palm Converted their remaining 321,429 Convertible Preferred Shares into registered common shares.

At May 30, 2021, the Company had no shares of Preferred Stock outstanding.

Under the terms of the Preferred Stock Purchase Agreement, none of the cumulative Dividends were paid to Palm during the period they owned the Preferred Stock.

Once converted to common shares, Palm lost all rights to receive any past cumulative dividends.

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

Years ended May 31,

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Income tax expense

Income tax expense from continuing operations differs from the amounts computed by applying the U.S.

Provision for income taxes differs from the amounts computed by applying the U.S.

Federal income tax rate applicable for each year ( 21 % for 2021 and 2020) to pretax income as a result of the following:

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Deferred rent expense/Capitalized leases

Stock Options

Losses of foreign subsidiaries & Other, net

Accumulated depreciation and amortization

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The net change in the valuation allowance for the years ended May 31, 2021 and 2020 was an increase of $2,102,000 and $1,029,000, respectively.

At May 31, 2020, the Company has Federal income tax NOL carryforwards of approximately $9,213,000.

The Company increased the deferred tax asset and the valuation allowance by $313,000 as of May 31, 2020 based on the outstanding stock options as of May 31, 2020.

This change had no impact on the Company’s consolidated financial statements as our deferred tax asset is fully offset by our valuation allowance.

At May 31, 2021, the Company has Federal income tax net operating loss carryforwards of approximately $12,957,000.

At May 31, 2021, the Company has California state income tax net operating loss carryforwards of approximately $6,768,000.

For tax reporting purposes, operating loss carryforwards are available to offset future taxable income;

such carryforwards expire in varying amounts beginning in 2022 and 2037 for federal and state purposes, respectively.

Federal net operating losses beginning in 2018 have no expiration date.

At May 31, 2021, the Company has Federal research and development tax credit carryforward of approximately $715,000.

The Federal credits begin to expire in 2027.

The Company also had similar credit carryforwards for state purposes of $160,000 at May 31, 2020.

The Company also had similar credit carryforwards for state purposes of $341,000 at May 31, 2021, which don’t 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%.

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Geographic information regarding net sales is approximately as follows:

Years ended May 31,

Revenues from sales to unaffiliated customers:

United States

South America

Other foreign

Total net sales

COMMITMENTS AND CONTINGENCIES

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The initial base rent for the lease extension was $21,000 per month, increasing to $23,637 through August 31, 2021.

The monthly rent is currently $22,948.

On April 9, 2021 the Company exercised its second option to extend its lease for an additional five years through August 2026.

The Company was also granted an additional five years lease extension option through August 2031.

The rent is currently $23,637 per month and will increase on September 1, 2021 to $25,970 per month and be increased 3% each year thereafter.

The security deposit of $22,080 remains the same.

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is not a guarantor of such lease.

Biomerica de Mexico also leases a smaller unit on a month-to-month basis for use in one manufacturing process.

In addition, the Company leases a small office in Lindau, Germany on a month-to-month basis, as headquarters for BioEurope GmbH, its Germany subsidiary.

Total gross rent expense in the U.S.

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Additionally, under these lease arrangements, the Company may be required to pay directly, or reimburse the lessors, for some maintenance and operating costs.

Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liability but are instead recognized as variable lease expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss when they are incurred.

Such amounts are generally variable and therefore not included in the measurement of the right-of-use asset and related lease liability but are instead recognized as variable lease expense in the Consolidated Statements of Operations and Comprehensive Loss when they are incurred.

Supplemental cash flow information related to leases for the year ended May 31:

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Weighted average discount rate

The maturity of lease liabilities as of May 31, 2020 are as follows:

Years ending May 31,

Future minimum lease payments under the operating lease as of May 31, 2021 are as follows:

Total undiscounted lease payments

Less imputed interest

Total operating lease liabilities

According to the terms of the lease in Irvine, the Company is also responsible for routine repairs of the building and for certain increases in property tax.

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On July 2, 2020, we received a notice of investigation and subpoena to produce information and documents from the Division of Enforcement of the SEC.

The subpoena seeks information and documents related to events and circumstances leading up to our March 17, 2020 announcement that we had commenced shipping samples of our COVID-19 IgG/IgM Rapid Test to countries outside of the United States, and had initiated the application process with the United States Food and Drug Administration under the COVID-19 Emergency Use Authorization for approval to market and sell the test in the United States.

The subpoena also seeks information and documents about the identity of any persons who were aware of the substance of the March 17, 2020 announcement prior to that date.

We are cooperating and intends to continue cooperating fully with the SEC’s investigation.

At this time, we are unable to predict the duration, scope or outcome of this investigation.

The subpoena requested information and documents related to events and circumstances leading up to our March 17, 2020 announcement that we had commenced shipping samples of our COVID-19 IgG/IgM Rapid Test to countries outside of the United States, and had initiated the application process with the United States Food and Drug Administration under the COVID-19 Emergency Use Authorization for approval to market and sell the test in the United States.

The subpoena also requested information and documents about the identity of any persons who were aware of the substance of the March 17, 2020 announcement prior to that date.

In addition, on December 15, 2020, the SEC sent a second subpoena related to this investigation to Zack Irani, the Company’s CEO, requesting documents held by Mr.

Irani concerning his past purchases of Company stock, his past communications with certain persons and entities, and other personal and Company documents.

The Company and Mr.

Irani have cooperated fully with the SEC’s investigation and provided information as requested.

At this time, the Company is unable to predict the duration, scope or outcome of these investigations.

Contracts and Licensing Agreements

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The Company has other royalty agreements, however they are not considered material.

On May 25, 2016, the Company entered into an Exclusive Marketing License Agreement (“ Telcon Agreement”) with Celtis Pharm Co., Ltd., who subsequently changed their name to Telcon Pharmaceutical Co., LTD (“Telcon”), a medical company in the South Korea.

On May 25, 2016, the Company entered into an Exclusive Marketing License Agreement (“Telcon Agreement”) with Celtis Pharm Co., Ltd., who subsequently changed their name to Telcon Pharmaceutical Co., LTD (“Telcon”), a medical company in South Korea.

The Telcon Agreement grants to Telcon an exclusive license to market and sell Biomerica’s new InFoods®

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We are working with Telcon management to extend the term of the Telcon Agreement.

The terms of the Telcon Agreement provide up to $1.25 million in exclusivity fees based on certain milestones including Biomerica’s starting clinical trials in the United States, receipt of US FDA clearance and Telcon’s first sales of IBS Products in Korea.

If Biomerica commences FDA Trials and Telcon pays the initial $250,000 milestone-based exclusivity fees, and the Agreement is subsequently terminated by either party for lack of performance, then Biomerica shall issue to Telcon 83,333 shares of Biomerica common in consideration for the $250,000 of paid exclusivity fee.

The terms of the Telcon Agreement provide up to $1.25 million in exclusivity fees based on certain milestones including Biomerica’s starting clinical trials in the United States, receipt of U.S.

FDA clearance and Telcon’s first sales of IBS Products in Korea.

If Biomerica commences FDA Trials and Telcon pays the initial $250,000 milestone-based exclusivity fees, and the Agreement is subsequently terminated by either party for lack of performance, then Biomerica shall issue to Telcon 83,333 shares of Biomerica common stock in consideration for the $250,000 of paid exclusivity fee.

No exclusivity fees have yet been paid.

Additionally, the Telcon Agreement provides for a royalty of 15% paid to Biomerica on all sales in Korea of the IBS Product, and further sets the pricing of IBS Products sold to Telcon.

In order to retain the exclusivity within South Korean, Telcon must meet certain annual minimum royalty payments to Biomerica following Telcon’s receipt of Korean FDA approval or clearance for the IBS Product to be sold in Korea, which in no case will be later than May 31, 2019.

In order to retain the exclusivity within South Korea, Telcon must meet certain annual minimum royalty payments to Biomerica following Telcon’s receipt of Korean FDA approval or clearance for the IBS Product to be sold in Korea, which in no case will be later than May 31, 2019.

In September 2017, an agreement to extend this date was signed extending the date until April 30, 2020.

We are working with Telcon management to extend the date for the completion of this obligation.

In October 2018, the Company entered into an agreement with a customer for the sale of its EZ Detect product in the United States.

The term of the Agreement is for three years and is renewable for one-year terms upon written notice.

The agreement defines the price and rebate to the customer.

There were no sales under this agreement in fiscal 2020.

In December 2018, the Company entered into an agreement with a company for the purpose of procuring and assisting in transactions related to its EZ Detect product with China.

The contract is for a period of twelve months and is cancellable by either party with forty-five days written notice.

The contract specifies 2.5-6% success fees and milestone payments upon certain events transpiring.

During fiscal 2019, the Company incurred $27,579 in expenses for this contract.

There were no expenses incurred in fiscal 2020.

In April 2019, the Company entered into a consulting agreement with the former, retired president of the Company.

The agreement stipulates that he shall be available by consultation if needed for the period of April 8, 2019 through April 7, 2020.

In return, the Company has agreed to allow his stock options in the Company to continue to vest and be exercisable until April 7, 2020.

At that time, no options will vest and any vested, unexercised options must be exercised by July 2, 2020 at which time they will be forfeited.

All options that were eligible to vest according to this agreement were vested and exercised.

There were no fees incurred for this agreement for consultation services.

In May 2019, the Company entered into an agreement with MaxHealth Medical International Limited and MaxHealth China (“MaxHealth”) giving MaxHealth exclusive distribution rights to Biomerica’s EZ Detect Product in China.

Among other things, the Agreement called for MaxHealth to deposit $100,000 upon execution of the agreement, and an additional $900,000 (for a total of $1,000,000 USD) upon clearance of Chinese customs of the initial order of $100,000.

The $1,000,000 was to be used as a prepayment for the first $1,000,000 of purchase orders for the product.

While the Company received the first deposit of $100,000, and shipped $100,000 of product to Maxhealth, the Company has not received the second deposit, and has not shipped any further product, which has placed MaxHealth in Default of the agreement.

MaxHealth and the Company have been negotiating a possible remedy for the default.

There is no assurance these negotiations will be successful or that the default will be rectified.

During the quarter ended August 31, 2020, a second amendment was signed extending the required FDA approval date to December 31, 2021.

On May 29, 2019, the Company entered into an exclusive distribution agreement which contained certain annual minimum sales requirements, with MaxHealth Medical International Limited (a Chinese company) for the distribution of the Company’s EZ Detect Product in China.

On March 15, 2021, the Company terminated this agreement due to MaxHealth’s failure to meet the minimum sales requirements.

On April 1, 2020, the Company entered into two separate non-exclusive license agreements (the “Mount Sinai License Agreements”) with the Mount Sinai Icahn School of Medicine in New York (“Mount Sinai”) to license technology from Mount Sinai that the Company intends to use to scale up and manufacture a laboratory version serological test for SARS-CoV-2 coronavirus.

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The non-exclusive Mount Sinai License Agreements provide for royalty payments to Mount Sinai based on a percentage of gross sales of commercial products manufactured and sold by Biomerica that incorporate the Mount Sinai technology licensed under the Mount Sinai License Agreement.

On June 20, 2020, the Company filed for EUA with the FDA based on this on this technology.

On June 20, 2020, the Company filed for Emergency Use Authorization with the FDA based on this on this technology.

The Company purchased materials in the amount of $5,100 during fiscal 2020 and subsequently to that another $2,850.

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The Company paid an initial license fee of $5,000 with the execution of the agreement.

An additional $5,000 is due in September 2020.

An additional $5,000 was paid in September 2020.

No royalties have been paid yet on this agreement.

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This is creditable against earned royalties due each year in the amount of five percent on net sales of licensed products.

On May 18, 2020, the Company signed a non-exclusive distributor agreement with a company in Russia for the distribution of COVID-19 tests.

The term of the agreement is for an initial two years, however, the agreement may be terminated for breach of contract.

The agreement allows for quantity discounts based on certain milestones.

Clinical Trial Agreements

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In addition, $17,064 in fees has been accrued for unbilled charges as of May 31, 2021.

In November 2017, the Company entered into a Clinical Trial Agreement with the University of Michigan to perform an InFoods 24 Endpoint Determination Study.

In November 2017, the Company entered into a Clinical Trial Agreement with the University of Michigan to perform an InFoods ®

24 Endpoint Determination Study.

The Company will be invoiced monthly for work performed the previous month.

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This commitment is approximately 56% billed.

In January 2018, the Company entered into a Clinical Trial Agreement with Beth Israel Deaconess Medical Center for the purposes of conducting an Antibody Guided Restriction Trial Using Biomerica InFoods 24G Test in patients with a previous diagnosis of Irritable Bowel Syndrome (“IBS”).

The Company has accrued $2,050 in charges as of May 31, 2021.

24G Test in patients with a previous diagnosis of Irritable Bowel Syndrome.

The study began in the first quarter of fiscal 2019.

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The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs was approximately $117,200.

During fiscal 2020, $13,111 in charges were billed and the Company accrued $6,670 in charges as of May 31, 2020.

The maximum budgeted costs were approximately $117,200.

During fiscal 2021 and 2020, $13,111 and $13,355 in charges were billed, respectively.

This study is now closed so no further charges will be incurred.

On July 22, 2019, the Company entered into a Clinical Trial Agreement with a research institution, for the purpose of conducting a clinical trial of the Biomerica Infoods product.

On July 22, 2019, the Company entered into a Clinical Trial Agreement with a research institution, for the purpose of conducting a clinical trial of the Biomerica InFoods®

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

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This commitment is approximately 31% billed.

In addition, the Company accrued $2,650 in unbilled charges as of May 31, 2020.

On September 25, 2019, the Company entered into a Clinical Trial Agreement with a medical practice for the purpose of conducting a clinical trial of the Biomerica Infoods IBS product.

In addition, the Company was billed $12,675 in fiscal 2021 and accrued $19,600 in unbilled charges as of May 31, 2021.

On September 25, 2019, the Company entered into a Clinical Trial Agreement with a medical practice for the purpose of conducting a clinical trial of the Biomerica InFoods®

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be $136,000.

During fiscal 2020, the Company was invoiced $45,250 in expenses.

During fiscal 2021 and 2020, the Company was invoiced $11,725 and $45,250 respectively in expenses.

This commitment is approximately 42% billed.

In addition, the Company accrued $5,975 in unbilled charges as of May 31, 2020.

No charges were accrued at May 31, 2021.

On September 25, 2019, the Company entered into a Clinical Trial Agreement with a research institution for the purpose of conducting a clinical trial of the Biomerica H.

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The Company was invoiced $41,845 in charges during the year ended May 31, 2020.

At May 31, 2020, the commitment was approximately 72% billed and the study has been closed so no further charges will be incurred.

At May 31, 2020, the commitment was approximately 72% billed and the study was closed so no further charges will be incurred.

In December 2019, the Company entered into a Clinical Trial Agreement with Houston Methodist Research Institute for the purpose of conducting a clinical trial of the Biomerica InFoods®

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The maximum budgeted costs will be approximately $133,000.

During the year ended May 31, 2020, the Company was invoiced $4,000 in charges.

During the years ended May 31, 2021 and 2020, the Company was invoiced $0 and $4,000 in charges, respectively.

This commitment is approximately 3% billed.

On May 28, 2020, the Company entered into a Clinical Trial Agreement with the Mayo Clinic Arizona for the purpose of participating in the ongoing end point clinical trial of the Biomerica Infoods IBS product.

The Company accrued $3,550 in charges at May 31, 2021.

On May 28, 2020, the Company entered into a Clinical Trial Agreement with the Mayo Clinic Arizona for the purpose of participating in the ongoing end point clinical trial of the Biomerica InFoods®

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be $135,515.

At May 31, 2020, $17,390 had been invoiced to the Company.

At May 31, 2021 and 2020, $0 and $17,390 had been invoiced to the Company.

The Company has accrued $3,750 in expenses as of May 31, 2021.

This commitment is approximately 13% billed.

On May 28, 2020, the Company entered into a Clinical Trial Agreement with the Mayo Clinic Jacksonville for the purpose of participating in the ongoing end point clinical trial of the Biomerica Infoods IBS product.

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

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The Company has not received any billings as of May 31, 2020, however accrued $17,390 in charges as of that date.

The Company received $22,827 in billings in fiscal 2021 and did not accrue any charges as of May 31, 2021.

As of May 31, 2021, approximately 17% of the commitment had been invoiced.

On June 25, 2020, the Company entered into a Clinical Trial Agreement with the University of Texas Health Science Center for the purpose of conducting a clinical trial of the Biomerica InFoods®

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be $139,850.

As of May 31, 2021, $4,850 had been billed and $3,750 in accruals remained.

As of May 31, 2021, approximately 4% of the commitment had been invoiced.

The addition of both Mayo Clinic sites and other major medical centers were brought into the InFoods®

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SUBSEQUENT EVENTS

Subsequent to May 31, 2020 and through August 31, 2020, 12,500 stock options were exercised at $1.20 per share.

Subsequent to May 31, 2021, options to purchase 1,500 shares of Biomerica common stock were exercised at the exercise price of $2.68 per share.

Proceeds to the Company were approximately $4,000.

Subsequent to May 31, 2021, the Company sold 201,553 shares of its common stock under its Form S-3 “shelf” Registration statement.

The average sale price was $4.16 per share.

Net proceeds to the Company were approximately $824,000.

On June 15, 2020, the Board approved the grant of 52,000 stock options to certain employees.

The options vest one-quarter on June 15, 2021 and then one-quarter per year thereafter.

The options have an exercise price of $5.46 per share and have a ten-year life.

On July 13, 2020, the Board approved the grant of 76,000 stock options to certain employees and consultants.

The options vest one-quarter on July 13, 2021 and then one-quarter per year thereafter.

The options have an exercise price of $8.70 per share and have a ten-year life.

On July 13, 2020, the approved the grant of 7,500 stock options to a consultant.

The options vest one-half on January 13, 2021 and one-half on July 13, 2021.

The options have an exercise price of $8.70 per share and have a ten-year life.

On June 25, 2020, the Company entered into a Clinical Trial Agreement with the University of Texas Health Science Center for the purpose of conducting a clinical trial of the Biomerica Infoods product.

The term of the agreement shall be until completion of the work outlined and the charges will be invoiced monthly for work performed in the previous month.

The maximum budgeted costs will be $139,850.

On July 20, 2020, the Company filed with the SEC a new Form S-3 “Shelf” registration statement to replace the registration statement that expired on that day.

The new registration statement registers common shares to be issued in a maximum aggregate of $90,000,000.

On August 27, 2020, the Board approved the grant of 33,000 stock options to an employee and a board member.

The options vest one-quarter on August 27, 2021 and then one-quarter per year thereafter.

The options have an exercise price of $7.47 per share and have a ten-year life.

On August 27, 2020, the Board approved the grant of 2,500 stock options to a consultant.

The options vest one-half on January 13, 2021 and 50% on July 13, 2021.

The options have an exercise price of $7.47 per share and have a ten-year life.

On June 21, 2021, the Company signed an exclusive distribution and marketing agreement in Canada for its Helicobacter Pylori (H.

Pylori) test.

In June 2021, the Company received a patent in Japan (#6902526) for the System and Method for a Digital Health System Providing a Food Recommendation Based on Food Sensitivity Testing.

This technology is designed to allow for easier implementation of the dietary restrictions that result from InFoods®

diagnostic testing.

This method describes using a smartphone or similar technology to identify prepared or packaged foods that contain restricted food ingredients, using barcodes or product labels.

In August 2021, the Company received a notice of allowance for a patent in Japan whose claims cover the use of the InFoods®

technology to diagnose and treat depression, and covers the compositions, devices and methods of depression sensitivity testing.

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What changed 10-K

Item 9A. Controls and Procedures