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 Company has one 10-year option to renew at the end of the initial lease period. 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.

Total gross rent expense in the U.S. for fiscal 2019 and 2018 was $268,550. Rent expense for the Mexico facility for fiscal 2019 and 2018 was $46,040 and $45,963, respectively.

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

Years ending May 31,
2020	$	311,884
2021		321,556
2022		112,409
2023		43,075
2024		44,712
Thereafter		114,969
Total	$	948,605

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.

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, 2019.

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, 2019 and 2018. Sales of products manufactured under these agreements comprise approximately 2.9% and 2.6% of total sales for the years ended May 31, 2019 and 2018, 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.

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 fiscal 2019 the Company incurred $2,000 in expenses and in fiscal 2018 no expenses were incurred for this study.

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.

The Company incurred $2,200 and $10,367 in expenses for this study in fiscal 2019 and 2018, respectively.

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. The Company incurred $40,885 and $12,500 in expenses for this study during fiscal 2019 and 2018, respectively.

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. The Company incurred $146,760 and $17,000 in expenses for this study during fiscal 2019 and 2018, respectively.

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. No expenses were incurred for this study in fiscal 2019 and 2018.

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 renewal for one-year terms upon written notice. The Agreement defines the price and rebate to the customer.

In February 2019, the Company entered into a consulting agreement with an individual to provide investor relations consulting services for a fee of $2,000 per month. The fee will be reviewed after a six-month period. The contract is for a period of twelve months, but is cancellable at any time after the initial three-month period. During fiscal 2019 the Company incurred $8,000 in expenses for this contract.

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.

In January 2019, the Company entered into a non-exclusive advisory agreement with a company to promote the Company to new investors for a period of ninety days. Expenses related to this agreement were $3,500 during fiscal 2019. The agreement expired after the ninety-day period.

In March 2019, the Company entered into a Clinical Trial Agreement with Dayton Gastroenterology 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 $95,050. The Company did not incur any expenses for this contract during fiscal 2019.

In March 2019, the Company entered into a Distributor Agreement (the “Agreement”) with a company in China for the purposes of distribution of certain of its products. This Agreement replaced the Distribution Agreement in place with another distributor in that territory. The Agreement is for a period of three years and requires minimum purchases each year as agreed upon.

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.

In May 2019, the Company entered into a Distribution Agreement with MaxHealth Medical International Limited in China for its EZ Detect product. Under this Agreement, the initial order placed in June, 2019 was a total of $100,000, and was prepaid. Upon delivery of this first $100,000 order, MaxHealth has agreed to place an additional pre-paid order for $900,000, payable upon the clearance of Chinese customs of the initial order of $100,000. The initial term of the Agreement is for seven years and shall extend automatically unless written notice is given by either party. The Agreement requires certain minimum yearly purchases totaling in aggregate $17,000,000 over the seven-year term.

For a period of ninety days following the signing of the above Agreement, MaxHealth was given the option to purchase up to 500,000 shares of Biomerica’s common stock at a purchase price of either $4.66, if Biomerica has sold a separate private transaction at that price, or 25% above the average public trading price of Biomerica’s stock during the 10 business days preceding the MaxHealth purchase. As of the filing date, the option had not been exercised.