XML 27 R15.htm IDEA: XBRL DOCUMENT

COMMITMENTS AND CONTINGENCIES

12 Months Ended

May 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 9: COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

The Company leases its facilities. On May 31, 2022, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, which it has been leasing since 2009. The lease for its headquarters expired on August 31, 2016. The Company had an option to extend the term of its lease for two additional sixty-month periods. On November 30, 2015, the Company exercised its option to extend its lease for an additional sixty-month period and entered into the First Amendment to Lease wherein it extended its lease until August 31, 2021. On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years. When the Company extended its lease in April 2021, it was also granted an additional five-year lease extension option. The current rent is approximately $25,000 per month and will increase on September 1, 2022, to $26,000 per month. The security deposit is approximately $22,000.

In November 2016, the Company’s Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space. The Company has one 10-year option to renew at the end of the initial lease period. The current rent is approximately $3,400 per month. 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 United States for fiscal 2022 was approximately $310,000, and for fiscal 2021 was $295,000. Rent expense for the Mexico facility for fiscal 2022 and 2021 was approximately $42,000 and $25,000, 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, 2022:

Operating cash flows from operating leases	$	338,206
Right-of-use assets obtained in exchange for new operating lease liabilities	$	-
Weighted average remaining lease term (in years)		4.28
Weighted average discount rate		6.50%

Future minimum lease payments under operating leases on May 31, 2022, are as follows:

Less than 1 year		$	351,000
1 to 2 years			362,000
2 to 3 years			373,000
3 to 4 years			384,000
4 to 5 years			104,000
Total undiscounted lease payments			1,574,000
Less imputed interest			194,000
Total operating lease liabilities		$	1,380,000

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, 2022.

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 $19,000 and $11,000 is included in cost of sales for the agreement for each of the years ended May 31, 2022 and 2021, respectively. Sales of products manufactured under these agreements comprise approximately 1.5% and 1.5% of total sales for the years ended May 31, 2022 and 2021, 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. The required FDA approval was not obtained by December 31, 2019, however, neither party has terminated the agreement. Once the IBS Product is cleared by the United States FDA, 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.

The terms of the Telcon Agreement provide up to $1.25 million in future exclusivity fees to be possibly paid to Biomerica 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. The required FDA approval date hasn’t been delivered however, neither party has terminated the agreement.

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. 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 (“EUA”) with the FDA for the sale of a product developed by the Company that is based on this technology. The FDA has still not approved the Company’s Emergency Use Authorization for this product to be sold. As such, no royalty fees have been paid yet on these agreements. The Company is selling a COVID-19 rapid test outside of the United States, which is unrelated to the EUA product discussed above.

On May 7, 2020, the Company entered into an exclusive license agreement (the “UC License Agreement”) 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 UC-San Diego 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 UC 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 Agreement provides 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 approximately $82,000. The work started in October 2017 with charges for work performed being invoiced and paid monthly. This study ended in February 2020. Approximately $17,000 in fees has been accrued for unbilled charges as of May 31, 2022.

The Company entered into a Clinical Trial Agreement with a 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 $107,000. This study ended in March 2022. Approximately $28,000 in fees has been accrued for unbilled charges as of May 31, 2022.