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COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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May 31, 2021
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies Disclosure [Text Block] | NOTE 9: 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. 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. 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. The monthly rate is currently $3,262. Biomerica, Inc. 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. for fiscal 2021 was $294,759 and 2020 was $300,267. Rent expense for the Mexico facility for fiscal 2021 and 2020 was $25,351 and $43,481, respectively. For purposes of determining straight-line rent expense, the lease term is calculated from the date the Company first takes possession of the facility, including any periods of free rent and any renewal options periods that the Company is reasonably certain of exercising. The Company’s office and equipment leases generally have contractually specified minimum rent and annual rent increases are included in the measurement of the right-of-use asset and related lease liability. 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 Consolidated Statements of Operations and Comprehensive Loss when they are incurred. Supplemental cash flow information related to leases for the year ended May 31:
|  | 2021 |  | 2020
Operating cash flows from operating leases |  | $ | 320,606 |  | $ | 311,742
Right-of-use assets obtained in exchange for new operating lease liabilities |  | $ | 79,159 |  | $ | -
Weighted average remaining lease term (in years) |  |  | 5.27 |  |  | 6.27
Weighted average discount rate |  |  | 6.50% |  |  | 6.50%
Future minimum lease payments under the operating lease as of May 31, 2021 are as follows:
2022 |  | $ | 337,630
2023 |  |  | 350,311
2024 |  |  | 360,769
2025 |  |  | 371,539
2026 |  |  | 382,631
Thereafter |  |  | 103,927
Total undiscounted lease payments |  |  | 1,906,807
Less imputed interest |  |  | 287,293
Total operating lease liabilities |  | $ | 1,619,514
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 IRC 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, 2021. 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 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 Contracts and Licensing Agreements 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 $11,000 and $15,000 is included in cost of sales for the agreement for each of the years ended May 31, 2021 and 2020, respectively. Sales of products manufactured under these agreements comprise approximately 1.5% and 1.8% of total sales for the years ended May 31, 2021 and 2020, 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, 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® IBS products (“IBS Products”) in South Korea. The term of the agreement is for a period of five years following Korean FDA clearance of the product and provides an additional two years for Telcon to attain such Korean FDA clearance. The sequential two-year and five-year terms do not begin until after Biomerica first receives final clearance for sale of the IBS Products in the United States from the FDA. Telcon, at its sole cost and expense, must use its commercially reasonable good faith efforts to obtain Korean FDA for the IBS Product to be sold in South Korea. The agreement may be cancelled if Biomerica has not obtained final USFDA clearance for sale of the IBS Products on or before December 31, 2019. 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. 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 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 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. 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. This test uses the ELISA microplate format that can run on existing open system equipment found in most hospitals and clinical laboratories in the United States. 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 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. No royalty fees have been paid yet on these agreements. On May 7, 2020, the Company entered into an exclusive license agreement (the “UC License Agreements”) with The Regents of the University of California (“UC”) to license all patent rights pertaining to certain licensed technology from UC. This technology is being developed at the University by one of the professors and his team utilizing CRISPR technology. This group is developing a viral detection test for SARS-CoV-2 coronavirus. If this technology development is successful, the Company will work with the University to transfer the technology to Biomerica where the CRISPR based product will need to be further developed, validated and cleared with regulatory agencies for commercial sale into the market. The exclusive UC License Agreements provide for an initial and annual license fee, and a royalty payment on all commercial revenues, to the UC Regents. The UC License Agreement also includes certain investment requirements and milestones the Company will need to meet for the launch of a commercial product based on the licensed technology. The Company paid an initial license fee of $5,000 with the execution of the agreement. An additional $5,000 was paid in September 2020. No royalties have been paid yet on this agreement. A license maintenance fee of $10,000 is due annually. This is creditable against earned royalties due each year in the amount of five percent on net sales of licensed products. Clinical Trial Agreements 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 initial budget was estimated to be $82,472. The work started in October 2017 with charges for work performed being invoiced and paid monthly. This study ended in February 2020. The Company incurred $2,200 in fiscal 2020 and $12,567 in expenses previously invoiced for a total of $14,767. 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. The Company will be invoiced monthly for work performed the previous month. The maximum budget for the study is $181,015. The Company incurred $20,550 and $30,900 in expenses for this study during fiscal 2021 and 2020, respectively. This commitment is approximately 56% billed. The Company has accrued $2,050 in charges as of May 31, 2021. 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. The study began in the first quarter of fiscal 2019. The Company was invoiced monthly for work performed the previous month. The total cost of the study was initially estimated to be $142,000, however the study was expanded and total costs of the trial was approximately $305,000. The Company incurred $0 and $141,640 in expenses for this study during fiscal 2021 and 2020, respectively. This study was closed in February 2020 and no additional costs are expected. On July 12, 2019, the Company entered into a Clinical Trial Agreement with a research management institution for the purpose of conducting a clinical trial of the Biomerica HP Stool Antigen test. 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 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. 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 approximately $107,000. The Company incurred $20,875 in charges during fiscal 2020. This commitment is approximately 31% billed. 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® 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 $136,000. 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. pylori product. The term of the agreement shall be until completion of the work outlined and the charges were invoiced monthly for work performed in the previous month. The maximum budgeted costs will be approximately $57,800. 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 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® 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 approximately $133,000. 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. 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® 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 $135,515. 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® 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 $135,515. 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® 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. 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® IBS clinicals studies in order to accelerate patient enrollment.

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