8. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

On June 18, 2009, the Company entered into an agreement to lease a building in Irvine, California. The lease commenced September 1, 2009 and ended August 31, 2016. On November 30, 2015, the Company entered into the First Amendment to Lease wherein it exercised its option to extend its lease until August 31, 2021. The initial base rent for the lease extension was $21,000 per month, increasing to $23,637 through August 31, 2021. The security deposit of $22,080 remains the same.

In November 2016, the Company’s subsidiary, Biomerica de Mexico, entered into a ten year lease for approximately 8,104 square feet at a monthly rent of $2,926. The yearly rate is subject to an annual adjustment for inflation according to the United States Bureau of Labor Statistics Consumer Price Index For All Urban Consumers. Biomerica, Inc. is not a guarantor of such lease.

The following is a schedule of rent payments due under the terms of the leases:

Years ending May 31,
2019	$	302,408
2020		311,782
2021		321,449
2022		112,299
2023		42,960
Thereafter		159,256
Total	$	1,250,154

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.

Total gross rent expense in the U.S. for fiscal 2018 and 2017 was $268,550 and $260,393, respectively. Rent expense for the Mexico facility for fiscal 2018 and 2017 was $45,963 and $44,986, respectively.

The Company also has various insignificant leases for office equipment.

RETIREMENT SAVINGS PLAN

Effective September 1, 1986, the Company established a 401(k) plan for the benefit of its employees. The plan permits eligible employees to contribute to the plan up to the maximum percentage of total annual compensation allowable under the limits of Internal Revenue Code Sections 415, 401(k) and 404. The Company, at the discretion of its Board of Directors, may make contributions to the plan in amounts determined by the Board each year. No contributions by the Company have been made since the plan's inception.

LITIGATION

The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot presently be determined because of considerable uncertainties that exist. Therefore, it is possible the outcome of such legal proceedings, claims and litigation could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, based on facts currently available, management believes such matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. There were no legal proceedings pending as of May 31, 2018.

CONTRACTS

The Company has one royalty agreement in which it has obtained rights to manufacture and market certain products for the life of the products. Royalty expense of approximately $19,000 is included in cost of sales for the agreement for each of the years ended May 31, 2018 and 2017. Sales of products manufactured under these agreements comprise approximately 2.6% and 2.5% of total sales for the years ended May 31, 2018 and 2017, respectively. The Company may license other products or technology in the future as it deems necessary for conducting business. The Company has other royalty agreements, however they are not considered material.

On May 25, 2016, Biomerica, Inc. ("Biomerica") entered into an Exclusive Marketing License Agreement “Agreement” with Celtis Pharm Co., Ltd., a medical company in the Republic of Korea (South Korea) (“Celtis”), that grants to Celtis an exclusive license to market Biomerica’s new InFoods® IBS products (“IBS Products”). The IBS Products identify patient-specific trigger foods that exacerbate/alleviate IBS (Irritable Bowel Disease) symptoms. The Agreement only allows for Biomerica’s IBS Products to be sold by Celtis in the Republic of Korea with a possibility of expansion of territory in the future upon mutually agreeable negotiations. The term of the agreement is for a period of five years plus an additional two year term for Korean FDA clearance and begins after Biomerica first receives final clearance for sale of the IBS Products in the United States. The agreement may be cancelled if Biomerica has not obtained final approval or clearance for sale of the IBS Products in the United States from the United States FDA on or before December 31, 2017, or another date mutually agreed upon in writing. Biomerica is also obligated to maintain a full quality assurance system for the IBS Products following the harmonized standards according to Annex IV of Directive 98/79/EC. In September 2017, an agreement to extend the date for final approval or clearance for sale of the IBS Products in the United States from the United States FDA was signed to extend the date to December 31, 2019.

Celtis, at its sole cost and expense, must use its commercially reasonable good faith efforts to obtain Korean FDA approval or clearance of the IBS Products.

The terms of the 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 Celtis’ first sales of IBS Products in Korea. Should Biomerica not receive US FDA clearance for the IBS Products, $250,000 of the up-front exclusivity fee shall convert into Biomerica common stock at the price of $3.00 per share for a total of 83,333 shares.

Additionally, the Agreement provides for royalty fees paid to Biomerica that are based on a percentage of net sales of the IBS Products in Korea. Minimum royalties in order to retain the exclusive South Korean license total $7.25 million starting at Korean FDA approval or clearance, which in no case will be later than May 31, 2019, or a date mutually agreed upon in writing, and continue for five years or longer if Korean FDA approval is obtained earlier than May 31, 2019. In September 2017, an agreement to extend this date was signed extending the date until April 30, 2020. Biomerica will sell the IBS Products to Celtis at a cost plus mark-up basis.

On May 25, 2016, in connection with the Agreement, Biomerica, Inc. consummated a Stock Purchase Agreement with Celtis in which Celtis agreed to purchase 333,334 shares of Biomerica’s common stock at the purchase price of $3.00 per share for an aggregate purchase price of $1,000,002 (the “Private Placement”).

The shares were offered and sold in the Private Placement to Celtis, an accredited investor, without registration under the Securities Act of 1933, as amended (the “Securities Act”), or state securities laws, in reliance on the exemptions provided by Section 4(2) of the Securities Act and Regulation S promulgated thereunder and in reliance on similar exemptions under applicable state laws.

In October 2016, the Company entered into a Clinical Trial Agreement with Vanderbilt University Medical Center for a Specimen Collection Study for H. pylori testing in patients with dyspepsia. The study began in calendar 2017 and the maximum budget for the study is estimated at $85,000.

In September 2017, the Company signed a Clinical Samples Agreement with the University of Southern California for the purpose of providing clinical samples for use by the Company in conducting future clinical trials for one of the products which the Company is developing. The work started in October 2017 with charges for work performed being invoiced and paid monthly. In November 2017, Biomerica announced the enrollment of its first patient at the University of Southern California for the Company’s Helicobacter Pylori test.

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. The maximum budget for the study is $181,015.

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 study began in the first quarter of fiscal 2019. The Company will be invoiced monthly for work performed the previous month. The total cost of the study is estimated to be approximately $142,000.

In April 2018, the Company entered into a Clinical Trial Agreement with Guardian Angel Research Center for the purposes of conducting a Specimen Collection Study Protocol for h. Pylori Testing in Patients with Dyspepsia. The Company will be invoiced monthly for work performed the previous month. The maximum budget for the study is $75,400.