EDGAR 10-K Filing

Company CIK: 73290
Filing Year: 2021
Filename: 73290_10-K_2021_0001513162-21-000112.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
BUSINESS OVERVIEW
THE COMPANY
Biomerica, Inc. ("Biomerica", the "Company", "we", “us” or "our") was incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc., and later changed its name to Biomerica, Inc. The Company has two wholly owned subsidiaries, Biomerica de Mexico, which is used for assembly/manufacturing, and BioEurope GmbH, which acts as a distributor of Biomerica products in certain markets.
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. Our 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 (“IBS”), 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 Administration (“FDA”), we believe the revenues potential to the Company is significant.
We are currently finalizing an endpoint determination clinical study on it’s InFoods® IBS product. This trial is being conducted at Mayo Clinics in Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School Teaching Hospital, University of Texas Health Science Center at Houston, Houston Methodist, University of Michigan and other institutions. We expect final patient enrollment in September 2021, and the trial completed by the end of our second fiscal quarter of 2022, with trial results reported shortly thereafter. During fiscal 2022, we also expect to be entertaining partnership/licensing discussions with pharmaceutical and technology companies that could help us commercialize the product, including obtaining FDA clearance. In order to file for final FDA clearance, we will need to conduct a pivotal trial that will be substantially similar to the endpoint trial that is currently nearing completion. The pivotal trial will focus on treating the specific endpoint(s) in IBS patients that show positive improvement under the current endpoint trial. We expect this final pivotal trial to be run at the same institutions that performed the endpoint trial, plus additional large gastrointestinal (GI) medical groups. If the endpoint trial shows positive results in IBS patients, we will also have the option to immediately seek regulatory clearance for the product to be sold outside of the US.
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, within stools, or blood, often in extremely small concentrations.
Due to the global 2019 SARS-CoV-2 novel coronavirus (“COVID-19”) 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 two 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) COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if a patient is currently infected with the virus. During the year, we sold these products outside of the U.S. under a CE Mark (European Conformity). Because individual orders for these tests have been large in size, this has created volatility and material fluctuations in our monthly and quarterly revenues. We continue to receive and fill orders for our COVID-19 test products.
Aside from the COVID-19 products we offer, the other products we sell are primarily focused on gastrointestinal diseases, food intolerances 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. by the FDA.
While sales continue to occur in our COVID-19 products, by fiscal year end, the majority of our research and development efforts have returned to a focus on development and commercialization of non-Covid related products such as our Helicobacter pylori (“H. Pylori”) product, and our InFoods® IBS diagnostic guided therapy product and our EZ Detect colon disease home screening test. As such, we expect to file for 510K clearance with the FDA for its H. Pylori laboratory diagnostic test during our second fiscal quarter of 2022. If approved by the FDA, we intend to commence sales of this product in the U.S. We also intend to sell this product internationally including in the European Union (“EU”) under a CE Mark which we will seek once we file 510K application with the FDA. International sales could commence earlier than U.S. sales.
We recently added several new employees in its sales and marketing department in order to increase sales of existing non-Covid products during fiscal 2022. Through these efforts, our EZ Detect colon disease home screening test is seeing a significant increased interest from retailers and distributors.
Technological advances in medical diagnostics have made it possible to perform diagnostic tests within the home and the physician's office (the point-of-care), rather than in the clinical laboratory. One of our objectives has also been to develop and market rapid diagnostic tests that are accurate, employ easily obtained specimens, and are simple to perform without instrumentation. Our over-the-counter (home use) and professional use (doctor’s office, clinics, etc.) rapid diagnostic products help to manage existing medical conditions and may save lives through early detection and prompt diagnosis. Typically, tests of this kind require the services of medical technologists and sophisticated instrumentation. Further, results are often not available until at least the following day. We believe that rapid point-of-care tests can be as accurate as laboratory tests when used properly, require limited to no instrumentation, give reliable results in minutes and can be performed with confidence in the home or the physician's office.
Biomerica maintains its headquarters in Irvine, California, where it houses administration, product development, sales and marketing, customer services and its primary manufacturing operations. Biomerica also maintains manufacturing and assembly operations in Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more effectively worldwide. We expend considerable funds in research and development of certain new products that diagnose and, in certain cases, are designed to be used as a therapy for several major medical diseases. These products are both internally developed and licensed from others. We employ experienced and highly trained technical personnel (including Ph.D.’s and scientists) to develop new products and evaluate and implement technology technical transfer activities. Our technical staff, many of whom have been previously employed at large diagnostic manufacturing companies, has extensive industry experience. We also rely on our Scientific Advisory Board of leading medical doctors and clinicians to assist in guiding our clinical studies and product development.
Additional information about Biomerica is available on our website at www.biomerica.com. The content on any website referred to in this Form 10-K is not a part of or incorporated by reference in this Form 10-K unless expressly noted. Our Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K, Proxy Statements and all other filings we make with the Securities and Exchange Commission (“SEC”) are available on our website, free of charge, as soon as reasonably practical after we file them with or furnish them to the SEC and are also available online at the SEC’s website at www.sec.gov.
PRODUCTION
Most of our diagnostic test kits are manufactured and/or assembled at our facilities in Irvine, California and in Mexicali, Mexico. We established our manufacturing facility in Mexicali, Mexico in fiscal 2003 and moved a significant portion of our diagnostic packaging and assembly to that facility.
Production of diagnostic tests can involve formulating component antibodies and antigens in specified concentrations, attaching a tracer to the antigen, filling components into vials, packaging and labeling. We continually engage in quality control procedures to assure the consistency and quality of our products and to comply with applicable FDA and international regulations.
Our manufacturing operations and facilities are regulated by the FDA Good Manufacturing Practices for medical devices. We have an internal quality department that monitors and evaluates product quality and output. We also have an internal Quality Systems department whose goal is to ensure that our operating procedures are in compliance with current FDA, CE Mark and International Organization for Standardization (“ISO”) regulations. We either produce our own antibodies and antigens or purchase these materials from qualified vendors. We have alternate, approved sources for most critical raw materials and are working to procure alternate sources for the few that we do not have.
RESEARCH AND DEVELOPMENT
During most of the fiscal year, we focused much of our Research and Development (“R&D”) resources on developing several COVID-19 diagnostic tests, as discussed in this section below, and pursuing the regulatory approval of two tests for the gastrointestinal market. Our increase in research and development spending is due to our focus on these tests and outside clinical studies intended to demonstrate the feasibility of FDA clearance for such tests. We also utilize technical personnel, with Ph.D. and other degrees and extensive experience in development and production of health diagnostic tests, to conduct other development activities and improve existing products, as well as explore potential new technologies that we may wish to develop and commercialize. Research and development expenses include the costs of materials, supplies, personnel, consultants, legal fees, facilities, outside clinical trial sites and equipment as well as outside contract services. Consolidated research and development expenses incurred by Biomerica for the years ended May 31, 2021 and 2020 aggregated $2,410,506, and $1,910,209, respectively. As Biomerica moves forward with development, validation and commercialize of additional key products that address diseases with large market opportunities, research and development expenses are expected to increase during upcoming quarters.
We developed a unique diagnostic-guided therapy that is designed to allow physicians to identify patient-specific foods (e.g. pork, milk, onions, sugar, chickpeas, etc.), that when removed from the diet, may alleviate or improve an individual's symptoms of Irritable Bowel Syndrome (IBS). This product is called InFoods® IBS and is currently in clinical studies at the Mayo Clinics in Florida and Arizona, Houston Methodist, the University of Michigan and other institutions. The United States Patent and Trademark Office (“USPTO”) has issued the Company two patents with broad claims that protect the InFoods® IBS product. Patents have also been allowed or issued in the countries of Japan, Korea, Mexico and Singapore. Additional patents for this product have been filed in the U.S. and in other countries. We are also developing, and have filed patents for other diseases that utilize the InFoods® DGT technology platform which include: Functional Dyspepsia, Crohn’s Disease, Ulcerative Colitis, Gastroesophageal reflux disease (“GERD”), Migraine Headaches, and Osteoarthritis. Our first patent to be allowed for a disease/illness other than IBS was allowed in Japan in August, 2021. This patent covers the use of our InFoods® technology to diagnose and treat persons suffering from depression. We are planning to pursue a de novo 510(k) clearance with the FDA rather than a Premarket Approval Application (“PMA”) for the InFoods® IBS product. De novo clearance is typically faster and less expensive than the PMA route, which is the most stringent type of device marketing application required by the FDA for this type of product.
We are also in studies to evaluate the performance of our new and proprietary H. Pylori test. The clinical studies were conducted at the University of Southern California (“USC”), a European University and several other U.S. locations. We are working to complete the analytical studies needed to prepare for submission to the FDA and plans to utilize a 510(k) clearance pathway for this test. Biomerica’s test is designed to provide highly accurate sensitivity and specificity for H. pylori testing and for monitoring of treatment.
During fiscal 2021, we dedicated much 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. Our COVID-19 R&D efforts focused primarily on the following two types of 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. These tests were sold, and continue to be sold by us, in various markets outside of the US. We currently do not intend to offer either of these tests in the US.
During the fiscal year we also submitted to the FDA an application under and Emergency Use Authorization (“EUA”) to sell in the U.S. a lab-scale, high throughput ELISA COVID-19 antibody test kit that would be sold to labs and hospitals to perform COVID-19 antibody testing. After the EUA was submitted to the FDA, on two separate occasions the FDA assigned reviewers to this EUA who each requested additional information and interacted with us on this submission, as is customary. However, we have not yet been issued clearance for this product to be sold. It appears that the FDA began redirecting and focusing its resources on reviewing applications for products that pertain to patients who are currently infected with the COVID-19 virus such as polymerase chain reaction tests and antigen tests, as the demand for antibody tests diminished in the second half of calendar year 2020.
Beginning in our fourth quarter of fiscal 2021, the focus of our R&D resources returned to non-COVID-19 products such as our H. Pylori product, our InFoods® IBS product and other products that we sell or would like to sell in the future.
MARKETS AND METHODS OF DISTRIBUTION
Biomerica has approximately 400 current customers for its diagnostic business, of which approximately 75 are foreign distributors, 40 are domestic distributors and the balance are primarily domestic hospital and clinical laboratories, medical research institutions, medical schools, pharmaceutical companies, chain drugstores, wholesalers, physicians' offices and e-commerce customers.
We employ a director of sales and marketing for Europe and South America who is headquartered in Germany. She has over 20 years of experience selling and marketing diagnostic and life science products across multiple diagnostics technologies and disciplines. She possesses broad international business experience, with communication skills in German, English, Spanish, French and Portuguese, and scientific and technical understanding of gastrointestinal diagnostic products. She also has strong relationships with key strategic entities in Europe, Eastern Europe, Latin America, Canada and the U.S. who is and will continue to help Biomerica add new distributors for existing products, and add new product-lines for future distribution by us.
We rely on affiliated and unaffiliated distributors, advertising in medical and trade journals, exhibitions at trade shows, direct mailings and an internal sales staff to market our diagnostic products. We target two main markets: (a) clinical laboratories and (b) point-of-care testing (physicians' offices and over-the-counter drug stores).
Due to the Coronavirus global pandemic, our operations have been negatively impacted. We have 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 our manufacturing or distribution facilities or of the facilities of our suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where we make and/or sell our 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 our operations and financial performance and may continue to have significant material negative impacts on us.
For the fiscal years ended May 31, 2021 and 2020, the Company had two distributors and three distributors, respectively, which accounted for a total of 60% and 57% of our net consolidated sales, respectively. Of this, for the fiscal years ended May 31, 2021 and 2020, the largest of the distributors mentioned above accounted for 33% and 26%, respectively, of net consolidated sales.
At May 31, 2021 and 2020, the Company had two distributors and three distributors, respectively, 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.
BACKLOG
At May 31, 2021 and 2020, Biomerica had a backlog of unshipped orders of approximately $85,000 and $727,000 respectively. At May 31, 2021, this consisted primarily of orders to our distributor in the Middle East.
RAW MATERIALS
The principal raw materials utilized by Biomerica consist of various chemicals, serums, reagents and packaging supplies. Almost all of our raw materials are available from several sources, and we are not dependent upon any single source of supply or a few suppliers. However, due to the limited number of suppliers of some materials, especially those such as antibodies, there is always the possibility that we may encounter difficulty in the future obtaining key raw materials for its manufacturing processes or that such materials may be exceedingly costly. For the year ended May 31, 2021, one vendor accounted for 58% of our purchases of raw materials. For the year ended May 31, 2020, one vendor accounted for 59% of our purchases of raw materials.
Our inventory consists of various types of materials including antibodies, antigens, bottles, boxes, various chemicals and reagents utilized in the manufacture of our test kits as well as products in various stages of completion.
Our sourcing and receiving of raw materials have been negatively impacted due to the global COVID-19 pandemic. Many of our suppliers have been impacted by plant shut-downs, state or national mandated or recommended shut-downs, restrictions and constraints on distribution channels including ship freight, air freight and trucking, among other things. These suppliers are also experiencing their own disruptions in sourcing raw materials. It is unclear to what extent raw material availability will be impacted in the foreseeable future, and how that will impact our production and sales.
COMPETITION
Immunodiagnostic products, including COVID-19 products are currently produced globally by hundreds of companies. Biomerica is not a significant player in the overall market for most of the product categories in which we compete. However, we do have certain proprietary products, such as our EZ Detect colon disease home test, that do not have significant competition from competitors with identical tests.
Our competitors vary greatly in size. Many are divisions or subsidiaries of well-established medical and pharmaceutical companies which are much larger than Biomerica and expend substantially greater amounts than we do for research and development, manufacturing, advertising and marketing.
The primary competitive factors affecting the sale of diagnostic products are uniqueness, technology, quality of product, performance, price, service and marketing. We believe we compete primarily on the basis of the uniqueness of our products, the quality of our products, the speed of our test results, our patent position, our pricing and our prompt shipment of orders. We offer a broad range of products, but have had limited marketing capability. However, during the past 18 months, we have expanded our sales and marketing capability, through marketing and strategic cooperation with larger companies and distributors and by hiring several new employees with marketing and sales expertise.
GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS
Our primary business consists of selling products that are generally legally defined to be in vitro diagnostic medical devices and medical devices. As a result, we are considered to be an in vitro diagnostic medical devices and medical device manufacturer, and as such are subject to the regulations of numerous governmental entities. These agencies include the FDA, Environmental Protection Agency, Federal Trade Commission, Occupational Safety and Health Administration, U.S. Department of Agriculture ("USDA"), and Consumer Product Safety Commission as wells as European Government agencies. These activities are also regulated by various agencies of the states and localities in which our products are sold. These regulations govern the introduction of new in vitro diagnostic medical devices and medical devices, the observance of certain standards with respect to the manufacture and labeling of medical devices, the maintenance of certain records, the reporting of potential product problems, and other matters.
The Food, Drug & Cosmetic Act of 1938 (the "FDCA") regulates medical devices in the United States by classifying them into one of three classes based on the extent of regulation believed necessary to ensure safety and effectiveness. Class I devices are those devices for which safety and effectiveness can reasonably be assured through general controls, such as device listing, adequate labeling, and adherence to the Quality System Regulation ("QSR") as well as Medical Device Reporting (“MDR”), labeling and other regulatory requirements. Some Class I medical devices are exempt from the requirement of Pre-Market Notification or clearance. Class II devices are those devices for which safety and effectiveness can reasonably be ensured through the use of special controls, such as performance standards, post-market surveillance and patient registries, as well as adherence to the general controls provisions applicable to Class I devices. Class III devices are devices that generally must receive clearance prior to marketing by the FDA pursuant to a pre-market approval to ensure their safety and effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting or implantable devices. However, this classification can also apply to novel technology or new intended uses or applications for existing devices. Our products are primarily either Class I or Class II medical devices.
Pursuant to FDA requirements, we have registered our manufacturing facility with the FDA as a medical device manufacturer, and listed the medical devices we manufacture. We are also subject to inspection on a routine basis for compliance with FDA regulations. This includes the QSR, which requires that we manufacture our products and maintain our documents in a prescribed manner with respect to issues such as design controls, manufacturing, testing and validation activities. Further, we are required to comply with other FDA requirements with respect to labeling and MDR regulation which requires that we provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of our products, as well as product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur. We believe that we are currently in material compliance with all relevant QSR and MDR requirements.
In addition, our facility is required to have a California Medical Device Manufacturing License. The license is not transferable and must be renewed biannually. Our current license is valid until November 19, 2022.
Through compliance with FDA and California regulations, we can market some of our medical devices throughout the United States. International sales of medical devices are also subject to the regulatory requirements of each country. In Europe, the directives of the European Union (“EU’) require that a device have a CE Mark in order to be sold in EU countries. Our Company complies with In Vitro Diagnostic Medical Devices Directive (“IVDD”) 98/79/EC and Medical Devices Directive 93/42/EEC (“MDD”). We also comply with ISO 13485 2016 Medical Devices Quality Management Systems - Requirements for Regulatory Purposes.
At present, outside the EU the regulatory international review process varies from country to country. We work with our distributors and sales representatives in the foreign countries in which we market our products to ensure that we comply with the regulatory laws of those countries. We believe that our international sales to date have been in compliance with the laws of all foreign countries in which we have made sales. Exports of most medical devices are also subject to certain FDA regulatory controls.
The designing, development, manufacturing, marketing, post-market surveillance, distribution, advertising and labeling of Biomerica’s immunoassay in vitro diagnostic (“IVD”) medical device products are subject to regulation in the United States by the Center for Devices and Radiological Health of the FDA and state agencies. FDA regulations require that some new products have pre-marketing clearance or approval by the FDA and require these products to be manufactured in accordance with the FDA’s “Current Good Manufacturing Practice” regulations, to be extensively tested and to be properly labeled to disclose test results and performance claims and limitations. After a product that is subject to FDA regulation is placed on the market, numerous regulatory requirements apply, including, for example, the requirement that we comply with recordkeeping and reporting requirements, such as the FDA’s medical device reporting regulations and reporting of corrections and removals. The FDA enforces these requirements by inspection and post -market surveillance. The last FDA announced inspection was in November 2019 and no observations were noted. We believe that all Biomerica products sold in the U.S. comply with the FDA and state regulations.
Biomerica is an FDA regulated and ISO 13485:2016 certified In Vitro Diagnostic Medical Devices company. Our goal is to provide high quality medical diagnostic products that generally meet or exceed customer requirements and comply with all applicable regulatory requirements: FDA 21 CFR Part 820 Quality Management System, EN ISO 13485:2016, Medical Devices Quality Management Systems - Requirements for Regulatory Purposes, In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Directive 93/42/EEC, Guidelines related to Medical Devices Directives and Guidance on CE Marking, etc. Biomerica involve its employees in a continuous improvement process to increase productivity, improve quality and maintain the suitability, adequacy, and effectiveness of our quality management system.
The new EU Medical Device Regulation (“MDR”) 2017/745 entered into force on May 25, 2017. The MDR transition period ends May 26, 2021 and will replace MDD 93/42/EEC. Manufacturers have less than one year to update their technical documentation and processes to meet the new, more stringent regulatory requirements of the European Union. Our Notified Body became designated under MDR in July 2020.
The new EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 transition period ends May 26, 2022 and will replace IVDD 98/79/EC. Manufacturers have less than one year to update their technical documentation and processes to meet the new, more stringent regulatory requirements of the European Union. Notified Bodies can begin certifying devices to the new IVDR requirements once they have been designated under IVDR by their Competent Authority. While we are working to update our technical documentation to comply with these new and more stringent IVDR requirements, it is unclear which of our product will meet these new requirements prior to the May 26, 2022 deadline. If we are unable to complete the new technical documentation requirement, or have our updated documentation files approved by our Notified Body, prior to May 26, 2022, we will potentially be unable to sell these products in markets that require compliance with these EU IVDR regulations. In addition, our current Notified Body, which represents the regulatory bodies in the EU, may themselves not be able to meet all of the new IVDR requirements and become designated under IVDR. If this happens, we may need to transfer to a new Notified Body that does meet the new IVDR requirements and has been designated, or we may need to delay selling products in these regions until our Notified Body becomes designated under IVDR regulations.
SEASONALITY OF BUSINESS
The businesses of our Company and its subsidiaries have not been subject to significant seasonal fluctuations.
INTERNATIONAL BUSINESS
The following table sets forth the dollar volume of revenue attributable to sales to domestic customers and foreign customers during the last two fiscal years for Biomerica:
Year Ended
May 31, 2021
May 31, 2020
Revenues from sales to unaffiliated customers:
Europe
$
4,301,000
60%
$
2,434,000
36%
Asia
1,908,000
26%
1,867,000
28%
United States
548,000
8%
445,000
7%
South America
250,000
3%
1,615,000
24%
Middle East
192,000
3%
314,000
5%
Other
-
0%
18,000
0%
Total
$
7,199,000
100%
$
6,693,000
100%
We recognize that our foreign sales could be subject to some special or unusual risks, which are not present in the ordinary course of business in the United States. Changes in economic factors, government regulations, terrorism, tariffs, embargos, trade wars, import/export restrictions, disruptions in shipping and distribution channels and drop in demand for our products due to regional or national shut-downs from the COVID-19 pandemic, patients’ fear or refusal to visit hospitals and healthcare providers due to the pandemic where our products are sold and used, the erosion of economic conditions in those countries, and many other factors all could impact sales within certain foreign countries. In addition, these factors could also impact our ability to collect foreign accounts receivable. Foreign countries have licensing requirements applicable to the sale of diagnostic products, which vary substantially from domestic requirements; depending upon the product and the foreign country, these may be more or less restrictive than requirements within the United States and may change without notice. Foreign diagnostic sales at Biomerica are made primarily through a network of approximately 75 independent distributors in approximately 65 countries.
The COVID-19 related factors mentioned above and in “Risk Factors” have also negatively impacted domestic sales of our non-COVID-19 products and may continue to negatively impact our domestic and international sales into the foreseeable future.
INTELLECTUAL PROPERTY
We regard the protection of our methodologies, designs, product formulations, manufacturing processes, diagnostic procedures, copyrights, service marks, trademarks and trade secrets as important to our future success. We rely on a combination of copyright, trademark, patent, service mark and trade secret laws and contractual restrictions to establish and protect our proprietary rights in products and services. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with most of our fulfillment partners and strategic partners to limit access to and disclosure of proprietary information. We cannot be certain that these contractual arrangements or the other steps taken by us to protect our intellectual property will prevent misappropriation of our technology. We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks, patents or copyrighted material, to third parties. While we attempt to ensure that the quality of our product brands is maintained by such licensees, we cannot be certain that such licensees will not take actions that might hurt the value of our proprietary rights or reputation.
LICENSE OF THIRD-PARTY INTELLECTUAL PROPERTY
On occasion, we in-licensed both exclusive and non-exclusive rights to intellectual property and patents owned by third parties. These license agreements typically require royalties and other payments.
We have a royalty agreement in which it has obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions). Royalty expense of approximately $11,000 and $15,000, respectively, is included in cost of sales for this agreement for the fiscal years ended May 31, 2021 and 2020. Sales of products manufactured under this agreement are non-material to total sales for the fiscal years ended May 31, 2021 and 2020, respectively. We may license other products or technology in the future as it deems necessary or opportunistic for conducting business.
In May, 2020, we signed an exclusive license agreement with The Regents of the University of California, to license patents pertaining to a CRISPR-based technology that we hope to use to produce a rapid test for the COVID-19 virus, that could be used to test individuals to determine if they are currently infected with the COVID-19 virus. This agreement requires the payment of certain milestone payments and a royalty on all sales that utilize the licensed technology. Collaboration efforts with the University on a CRISPR product that may be commercialized using this technology continues, however, there are no imminent plans to launch a product from this collaboration.
Some of the products that we manufacture, sell or use may be covered by claims in issued patents held by other persons or entities, and as such, upon notice from such persons or entity we may be required to pay a license fee or may be required to cease all manufacture, sale or use of such products, which could negatively impact us. While we have not been notified of any such claims by third parties, we cannot guarantee that such claims will not be made in the future.
We are nearing completion of the endpoint determination clinical trial for our patented InFoods® IBS diagnostic guided therapy product. Our business model for this product includes the possible licensing of this product to a large international life sciences or technology company that would commercialize the product or assist us with the commercialization.
BRANDS AND TRADEMARKS
We occasionally register our tradenames with the Office of Patents and Trademarks. Of note, we registered the tradename “InFoods” on December 24, 2016. Our unregistered tradenames are "EZ Detect", "EZ-H.P." and "EZ-PSA". A trademark for "Aware" was issued and assigned in November 2001 and renewed in 2011. On January 11, 2020, the USPTO renewed our “FORTEL” trademark for another ten years.
The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the U.S. Effective copyright, trademark and trade secret protection may not be available in such jurisdictions.
PATENTS AND INFOODS TECHNOLOGY
We have filed over 100 international and Patent Corporation Treaty patents, and has 12 provisional and non-provisional patents currently filed with the USPTO. Some of these patent applications pertain to COVID-19 and other products, however, the majority of our patents that are pending, allowed or issued pertain to the InFoods® technology platform.
Our most important family of patent applications pertains to our InFoods® technology platform, which is a new method of possibly diagnosing and treating symptoms of many different diseases. Our first planned product launch using this technology is the InFoods® IBS product which is designed to diagnose and treat Irritable Bowel Syndrome. Using a patient blood sample, a physician or lab can run our test to identify specific foods (e.g. pork, milk, shrimp, broccoli, eggs) that, if eliminated from the patient’s diet, can alleviate or reduce the individual's IBS symptoms, including, but not limited to, constipation, diarrhea, bloating, cramping, severe pain and indigestion. We have filed many patent applications with the USPTO and with other such similar agencies in other countries outside of the United States pertaining to this InFoods® technology. These patent applications include claims that address the diagnosis and treatment of several disease states including IBS, functional dyspepsia, Crohn’s disease, ulcerative colitis, gastroesophageal reflux disease, osteoarthritis, psoriasis, migraine headaches and depression. These applications include the use of this technology in both humans and animals. The first patents filed by us pertained to IBS. Several of the patents pertaining to the InFoods® IBS technology have been issued and many more are in active review and prosecution.
In August 2018, the Korean Intellectual Property Office (“KIPO”) issued a Certificate of Patent (#10-1887545) covering our InFoods® IBS product (entitled “COMPOSITIONS, DEVICES, AND METHODS OF IBS SENSIVITY TESTING”). This patent was the first for the InFoods® patent portfolio, providing patent protection for InFoods® IBS in Korea until November 13, 2035.
In June 2019, we received our first issued patent from the USPTO (#10,309,970) pertaining to our InFoods® IBS product, with claims that covers the test kit that is used to determine patient food intolerances.
In March 2020, the Japanese Patent Office issued our first InFoods® IBS patent in that country (6681907) which covers the compositions, devices and methods of IBS sensitivity testing.
In September 2020, the USPTO issued our second InFoods® IBS patent in the U.S. (10,788,498) which covers IBS sensitivity testing.
In November 2020, the Singapore Patent Office issued our first InFoods® IBS patent in that country (11201705102Q) which covers the compositions, devices and methods of IBS sensitivity testing.
In March 2021, the Korean Patent Office issued a second InFoods® IBS patent in that country (10-2224649) which covers the compositions, devices and methods of IBS sensitivity testing.
In April 2021, the Japanese Patent Office issued a notice of allowance for an InFoods® IBS patent in that country (6876338) which covers the compositions, devices and methods of IBS sensitivity testing.
In May 2021, the Company received a notice of allowance for an InFoods® IBS patent in Mexico which covers the compositions, devices and methods of IBS sensitivity testing.
We believe the claims in these issued InFoods® IBS patents, and claims in pending patents that protect the use of the InFoods® IBS technology to diagnose and treat other diseases, provide us with broad protections from other companies making or selling competing products in this highly disruptive new field of medicine.
In addition to the use of our own patents, Biomerica has acquired from third parties the rights to manufacture and sell certain products that are protected by patents or intellectual property owned by these third parties. In some cases, royalties are paid on the sales of these products. Biomerica anticipates that it will license or purchase the rights to other products or technologies in the future.
We are nearing completion of the endpoint determination clinical trial for our patented InFoods® IBS diagnostic guided therapy product. Our business model for this product includes the possible out-licensing of this product and the related patents to a large international life sciences or technology company that would commercialize the product or assist us with the commercialization.
EMPLOYEES
As of May 31, 2021 and 2020, the Company employed 49 and 45 employees, respectively, in the U.S. and Europe. Various employees listed in the production department also perform research and development duties as a routine function of their job. The Company occasionally employs temporary employees when needed. The following is a breakdown of employees by departments:
May 31, 2021
May 31, 2020
Administrative
Research and Development
Marketing & Sales
Production and Operations
Total
In addition, Biomerica de Mexico employs 17 people at its Mexico facility.
We also engage the services of many outside Ph.D.’s and M.D.’s and other types of industry expert consultants as well as medical institutions for technical support, regulatory advisors, marketing and public relations advisors, financial advisors, contract product development and manufacturing organization, and other advisors on a regular basis. We try to protect the Company with the use of confidentiality, intellectual property ownership and indemnifications agreements. However, we cannot guarantee that the use of such experts will fully protect the Company from third-party claims or from theft of our intellectual property.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
The risks described below are not the only ones we face. Additional risks and uncertainties we are not presently aware of or that we currently believe are immaterial may also impair our business operations. Our business could be harmed by any of these risks and uncertainties. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks, you should also refer to the other information contained or incorporated by reference into this annual report on Form 10-K, including our consolidated financial statements and related notes.
RISKS RELATED TO OUR BUSINESS
Our business could be adversely affected by the effects of widespread public health epidemics.
We are susceptible to ongoing outbreaks of an illness or other health issue, such as the recent COVID-19 Coronavirus outbreak, including outbreaks of variants of the COVID-19 virus such as the “Delta” variant. The outbreak of the COVID-19 virus caused the various governments, including the U.S., to implement quarantines, various restrictions on travel causing airlines to suspend international and certain domestic flights, shelter in place orders and other restrictions. Governments have also implemented work restrictions that prohibit many employees from going to work, and for businesses that are allowed to remain open, many employees are electing to remain at home to avoid spread of the disease. As a result of this COVID-19 virus outbreak and potential future pandemic outbreaks, the Company faces significant risks including, but not limited to: a) supply chain disruptions making it difficult for the Company to contract and receive materials needed for production of its products, and needed to ship finished products to our end customers, b) loss of contracts and customers from the financial strains or other disruptions they are experiencing as a result of the pandemic, c) financial risks pertaining to receivables due from customers that may fall into insolvency or otherwise be unable to pay their bills, d) government responses including orders that make it difficult to remain open for business, restrict imports of raw materials or exports of finished goods, refusal to allow the Company’s product to be licensed for sale in their countries, and other seen and unforeseen actions taken by government agencies, e) absenteeism or loss of employees at the Company, or at our partner’s companies, due to health reasons or government restrictions, that are needed to develop, validate, manufacture and perform other necessary functions for our operations, f) equipment failures, loss of utilities and other disruptions that could impact our operations or render them inoperable, g) litigation or government actions against the Company pertaining to existing products new products sold by the Company that are directed at limiting or treating the spread of the pandemic outbreak, h) a local or global recession or depression that could harm the international banking system, limit demand for all products including those made by the Company, i) a drop in demand for our products, that are all medical related, due to patients’ reluctance or refusal to visit hospitals, labs, and doctors’ offices where our products are used due to their fear of contracting a disease, and many other seen and unforeseen events and circumstances, all of which could negatively impact the Company.
We have a history of operating losses.
We have historically incurred net losses. There can be no assurance that we will generate net profits in future periods. Further, there can be no assurance that we will be cash flow positive in future periods. In the event that we fail to achieve profitability in future periods, the value of our common stock may decline. In addition, if we are unable to achieve or maintain positive cash flows, we would be required to seek additional funding, which may not be available on favorable terms, if at all.
Our operating results may fluctuate adversely as a result of many factors that are outside our control, which may negatively impact our stock price.
Our operating results are dependent upon many factors that are substantially outside of our control that could materially and adversely affect our business, results of operations and financial condition. Factors that are beyond our control and that could affect our operating results in the future include:
• regulatory clearance;
• changes in the level of competition, such as would occur if one of our competitors introduced a new, better performing or lower priced product to compete with one or more of our products;
• changes in the reimbursement systems or reimbursement amounts that end-users may rely upon in choosing to use our products;
• changes in economic conditions in our domestic and international markets, such as economic downturns, decreased healthcare spending, reduced consumer demand, inflation and currency fluctuations; changes in government laws and regulations affecting our business; reluctance for consumers to visit healthcare providers;
• lower than anticipated market penetration of our new or more recently introduced products;
• significant quantities of our product or that of our competitors in our distributors’ inventories or distribution channels;
• changes in distributor buying patterns;
• government mandated shelter-in-place or other lock-down orders;
• continued spread of the COVID-19 virus or mutations of the virus; and
• changes in the healthcare market including consolidation in our customer base.
Fluctuations in our operating results, for any reason, could cause operating losses as a result of significant fixed expenses.
We base the scope of our operations and related expenses on our estimates of future revenues. A significant portion of our operating expenses are fixed, and we may not be able to rapidly adjust our expenses if our revenues fall short of our expectations. Our revenue estimates for future periods are based, among other factors, on estimated end-user demand for our products. If end-user consumption is less than estimated, revenues from our distribution partners and other distribution channels would be expected to fall short of expectations, and because such a significant portion of our costs are fixed, could result in operating losses.
To remain competitive, we must continue to develop, obtain and protect our proprietary technology rights; otherwise, we may lose market share or need to reduce prices as a result of competitors selling technologically superior products that compete with our products, or selling products at lower prices.
Our ability to compete successfully in the diagnostic market depends on continued development and introduction of new products, technology and the improvement of existing technology. If we cannot continue to improve upon or develop, obtain and protect our technology, our operating results could be adversely affected.
Our competitive position is heavily dependent on obtaining and protecting our own proprietary technology or obtaining licenses from others. Our ability to obtain patents and licenses, and their benefits, is uncertain.
The Company is required to obtain government or regulatory certification in many countries and the European community to sell its products in those countries or regions. There is no assurance that the Company will be able to retain its certification in the future. This includes the possibility and risk that the Company’s products do not meet the new EU IVDR testing and documentation requirements in the future as described in the above “Research and Development” section of this document.
Significant government regulation exists in countries in which we conduct business. A large part of the Company’s sales is to distributors in Europe, China and other countries, which require us to maintain certain certifications to sell our products. Failure to comply with current governmental regulations and quality assurance guidelines could cause the loss of these certifications, which could materially adversely affect the results of the Company. Loss of certifications could lead to temporary manufacturing shutdowns, product recalls, product shortages or delays in product manufacturing and a decline in sales.
The Company maintains a manufacturing plant in Mexico which presents risks to the Company including risks associated with doing business outside the United States.
The Company has a significant investment in its manufacturing facility in Mexico through its subsidiary, Biomerica de Mexico. In addition, the Company warehouses a significant amount of its inventory at the Mexico facility. There are a number of risks associated with doing business in Mexico, including, exposure to local economic and political conditions, social unrest, including risks of terrorism or other hostilities, export and import restrictions, the potential for shortages of trained labor, and the possible effects of currency exchange rate fluctuations. These risks could lead to additional costs that we cannot foresee at this time and may materially adversely impact our business, results of operations and financial condition.
We use hazardous materials in our research and production that may result in unexpected and substantial claims against us relating to handling, storage or disposal.
We use hazardous materials in our research and production. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any harm or damages that result and any such liability could exceed the resources of the Company. The Company may incur substantial costs to comply with environmental regulations.
If any governmental authorities were to impose new environmental regulations requiring compliance in addition to that required by existing regulations, or alter their interpretation of the requirements of such existing regulations, such environmental and safety regulations could impair our research, development or production efforts by imposing additional, and possibly substantial, costs, restrictions or compliance procedures on our business. In addition, because of the nature of the penalties provided for in some of these environmental and safety regulations, we could be required to pay sizable fines, penalties or damages in the event of noncompliance with regulations and environmental laws. Any environmental or safety violation or remediation requirement could also partially or completely shut down our research and manufacturing facilities and operations, which would have a material adverse effect on our business. The risk of accidental contamination or injury from these hazardous materials cannot be completely eliminated and exposure of individuals to these materials could result in substantial fines, penalties or damages that may not be covered by insurance.
In order to remain competitive, we must expend considerable resources to research new technologies and products and develop new markets, and there is no assurance our efforts to develop new technologies, products or markets will be successful or such technologies, products or markets will be commercially viable.
We devote a significant amount of financial and other resources to researching and developing new technologies, new products and new markets. The development, manufacture and sale of diagnostic products require a significant investment of resources. The development of new products and markets also requires a substantial investment of resources, such as new employees, offices and manufacturing facilities, consultants and clinical trials. No assurances can be given that our efforts to develop new technologies or products will be successful, that such technologies and products will be commercially viable, or our expansion into new markets will be profitable.
There is also no guarantee that our new products, including our InFoods® IBS products, will get approval and be well accepted into the marketplace.
Our operations will be adversely affected if our operating results do not correspondingly increase with our increased expenditures or if our technology, product and market development efforts are unsuccessful or delayed. Furthermore, our failure to successfully introduce new technologies or products and develop new markets could have a material adverse effect on our business and prospects.
We rely on a limited number of key distributors that account for a substantial majority of our total revenue. The loss of any key distributor or an unsuccessful effort by us to directly distribute our products could lead to reduced sales.
For the fiscal years ended May 31, 2021 and 2020, the Company had two distributors and three distributors, respectively, which accounted for a total of 60% and 57% of our net consolidated sales, respectively. Of this, for the fiscal years ended May 31, 2021 and 2020, the largest of the distributors mentioned above accounted for 33% and 26%, respectively, of net consolidated sales.
At May 31, 2021 and 2020, the Company had two distributors and three distributors, respectively, 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. Adverse changes in our relationships with these distributors and other partners, or adverse developments in their financial condition, performance or purchasing patterns, could adversely affect our business and consolidated financial statements.
We extend credit to customers outside the U.S. which can be difficult to collect.
We extend credit to many of our customers including those outside of the U.S. It is often difficult to obtain adequate credit information on these customers. Further, our ability to collect receivables from these customers through the court systems in those countries can be more difficult than here in the U.S. Our inability to collect on receivables from customers, in particular those outside of the U.S. could negatively impact the Company.
If we are not able to manage our growth strategy our operating results may be adversely affected.
Our business strategy contemplates further growth, which would likely result in expanding into larger facilities, expanding the scope of operating and financial systems and the geographical area of our operations, including further expansion outside the U.S., as new products and technologies are developed and commercialized or new geographical markets are entered. Because we have a small executive staff, acquisitions and other future growth may divert management’s attention from core aspects of our business, and place a strain on existing management and our operational, financial and management information systems. Furthermore, we may expand into markets in which we have less experience or incur higher costs. Any and all of these potential growth and expansion strategies and events could impose material risks and cause the Company to incur adverse operating and financial results.
Intellectual property risks and third-party claims of infringement, misappropriation of proprietary rights or other claims against us could adversely affect our ability to market our products, require us to redesign our products or attempt to seek licenses from third parties, result in significant costs, and materially adversely affect our operating results.
Companies in or related to our industry often aggressively protect and pursue their intellectual property rights. There are often intellectual property risks associated with developing and producing new products and entering new markets, and we may not be able to obtain, at reasonable cost or upon commercially reasonable terms, if at all, licenses to intellectual property of others that is alleged to be part of such new or existing products.
We have hired and will continue to hire individuals or contractors who have experience in medical diagnostics and these individuals or contractors may have confidential trade secret or proprietary information of third parties. We cannot assure you that these individuals or contractors will not use this third-party information in connection with performing services for us or otherwise reveal this third-party information to us. Thus, we could be sued for misappropriation of proprietary information and trade secrets. Such claims are expensive to defend and could divert our attention and result in substantial damage awards and injunctions that could have a material adverse effect on our business, financial condition or results of operations. In addition, to the extent that individuals or contractors apply technical or scientific information independently developed by them to our projects, disputes may arise as to the proprietary rights to such data and may result in litigation.
The defense and prosecution of patent and trade secret claims are both costly and time consuming. We or our customers may be sued by other parties that claim that our products have infringed their patents or misappropriated their proprietary rights or that may seek to invalidate one or more of our patents. An adverse determination in any of these types of disputes could prevent us from manufacturing or selling some of our products, limit or restrict the type of work that employees involved with such products may perform for us, increase our costs and expose us to significant liability. In addition, the defense of such claims could result in significant costs and divert the attention of our management and other key employees.
In addition to the foregoing, we may also be required to indemnify some customers, distributors and strategic partners under our agreements with such parties if a third party alleges or if a court finds that our products or activities have infringed upon, misappropriated or misused another person’s proprietary rights. Further, our products may contain technology provided to us by other parties such as contractors, suppliers or customers. We may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. Our contractors, suppliers and licensors may not be required or financially able to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages.
Some of the products that we manufacture, sell or use may be covered by claims in issued patents held by other persons or entities, and as such, upon notice from such persons or entity, we may be required to pay a license fee or may be required to cease all manufacture, sale or use of such products, which could negatively impact our financial results or operations. We cannot guarantee that such claims will not be made in the future.
We need to continue to raise additional funds to finance our future capital or operating needs, which could have adverse consequences on our operations and the interests of our stockholders.
As a company focused on research and development of new products that do not yet generate revenues, we need to continue to raise funds through public or private debt or sale of equity to achieve our business strategy. When we raise funds or acquire other technologies or businesses through issuance of equity, this dilutes the interests of our stockholders. Moreover, the availability of additional capital, whether debt or equity from private capital sources (including banks) or the public capital markets, fluctuates as our financial condition and industry or market conditions in general change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources on favorable terms, if at all. We can give no assurance as to the terms or availability of additional capital.
Our inability to raise additional funds to finance our future capital or operating needs could force us to delay, reduce or eliminate our development programs or commercialization efforts.
Costs related to development projects and approvals are hard to estimate due to factors that are unknown to us at this time. These future costs could be much higher than anticipated and current operations are unlikely be able to cover these costs.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of studies and trials may not be predictive of future trial results.
Clinical trials are expensive, time consuming and difficult to design and implement. Regulatory agencies may analyze or interpret the results differently than we do. Even if the results of our clinical trials are favorable, the clinical trials for a number of our product candidates may take a significant amount of time to complete. Regulatory authorities, including state and local authorities, may suspend, delay or terminate our clinical trials at any time, require us to conduct additional clinical trials, require a particular clinical trial to continue for a longer duration than originally planned, or require a change to our development plans such that we conduct clinical trials for a product candidate in a different order. There is no assurance that the results of the clinical trials will be positive. A negative clinical trial could affect our ability to obtain regulatory clearances and/or potential licensing partners. There is also no assurance that our clinical trials will not be delayed or will be completed. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition.
Our results of operations and financial conditions may be adversely affected by the financial soundness of our customers, distributors and suppliers.
If our customers’ or suppliers’ operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, our customers may not be able to pay, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose different payment terms or reduce or terminate production of products they supply to us, or may cease all operations. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, or inability for such suppliers to continue operations may adversely affect our operating results and financial condition. Additionally, both state and federal government sponsored and private payers, as a result of budget deficits or reductions, may seek to reduce their healthcare expenditures by cutting or eliminating reimbursements for, or cutting purchase of our products. Any reduction in payments by such government sponsored or private payers may adversely affect our earnings and cash flow.
We may not achieve market acceptance of our new products among healthcare providers and physicians, and this would have a negative effect on future sales.
We believe our ability to introduce new products that gain acceptance among consumers, healthcare providers and physicians is an important part of our ability to grow our revenue in future periods. However, any new products we introduce may not gain market acceptance to the extent we anticipate or project. The acceptance in the medical community for any of our new products is unpredictable at this time. In addition, the Company will need to spend considerable funds in order to introduce new products into the marketplace. Sales, if any, of these products in the future are uncertain. In addition, our competitors may offer different products and product formats at suggested prices that are lower than our products or whose products are more accurate than our products. We can provide no assurances that consumers and the medical community will purchase our products or that they will not prefer to purchase a competitive product.
The industry and market segments in which we operate are highly competitive, and intense competition with other providers of diagnostic products may reduce our sales and margins.
Our diagnostic tests compete with similar products made by our competitors. There are a large number of multinational and regional competitors making investments in competing technologies and products. We also face competition from our distributors as some have created, and others may decide to create, their own products to compete with ours. A number of our competitors have a potential competitive advantage because they have substantially greater financial, technical, research and other resources, larger, more established marketing, sales, distribution and service organizations; more established relationships with healthcare professionals; and greater experience in conducting research and development, manufacturing, clinical trials, and obtaining regulatory approval for products. Moreover, some competitors offer broader product lines and have greater name recognition than we have. If our competitors’ products are more effective than ours or take market share from our products through more effective marketing or competitive pricing, our operating results could be materially and adversely affected.
In addition, there has been a trend toward industry consolidation in our markets over the last few years. We may not be able to compete successfully in an increasingly consolidated industry. We expect this trend toward industry consolidation may continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations.
Our business and products are highly regulated by various governmental agencies. Our results of operations would be negatively affected by failures or delays in the receipt of regulatory approvals or clearances, the loss of previously received approvals or other changes to the existing laws and regulations that adversely impact our ability to manufacture and market our products.
The testing, manufacture and sale of our products are subject to regulation by numerous governmental authorities in the U.S., principally the FDA and corresponding state and foreign regulatory agencies. Our future performance depends on, among other matters, if, when and at what cost we will receive regulatory approval for new products, and if we can continue to comply with the many regulatory requirements that enable us to manufacture and sell medical related products and tests. Regulatory review can be a lengthy, expensive and uncertain process, making the timing and costs of clearances and approvals difficult to predict. Meeting all regulatory requirements, laws and mandates, and maintaining compliance with such in order to manufacture and sell medical products can be difficult and expensive. Our results of operations would be negatively affected by failures or delays in the receipt of regulatory approvals or clearances, the loss of previously received approvals or clearances, the placement of limits on the marketing and use of our products, and restrictions on our ability to manufacture our products.
Changes in government policy could adversely affect our business and potential profitability.
Changes in government policy could have a significant impact on our business by increasing the cost of doing business, affecting our ability to sell our products and negatively impacting our profitability. Such changes could include tariffs, embargos, trade wars or modifications to existing legislation, such as U.S. tax policy, or entirely new legislation, such as the Affordable Healthcare Act in the U.S. We cannot predict the many ways that healthcare reform in the U.S. and internationally, and changing trade legislation and policies could adversely affect our business. It is unclear whether and to what extent, if at all, other anticipated developments, including changes due to new presidential administration priorities, or changes resulting from healthcare reform, such as a change in the number of people with health insurance, may impact us.
We are subject to numerous government regulations in addition to FDA regulation, and compliance with laws, including changed or new laws, could increase our costs and adversely affect our operations. There is also the risk that our facilities could fail to get the proper licensing at our next inspection or renewal.
In addition to FDA and other regulations referred to above, numerous laws relating to such matters as safe working conditions, manufacturing practices, data privacy, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances impact our business operations. If these laws or their interpretation change or new laws regulating any of our businesses are adopted, the costs of compliance with these laws could substantially increase our overall costs. Failure to comply with any laws, including laws regulating the manufacture and marketing of our products, could result in substantial costs and loss of sales or customers. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of future legislation or regulatory developments relating to our industry and our products. To the extent the costs and procedures associated with meeting new or changing requirements are substantial, our business, results of operations and financial condition could be adversely affected.
Our total revenue could be affected by third-party reimbursement policies and potential cost constraints.
The end-users of our products are primarily physicians, labs and other healthcare providers. In the U.S., healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely on third-party payers, principally private health insurance plans, federal Medicare and state Medicaid, to reimburse all or part of the cost of the procedure. Use of our products would be adversely impacted if physicians and other healthcare providers do not receive adequate reimbursement for the cost of our products by their patients’ third-party payers both in the U.S. and in foreign markets. Our total revenue could also be adversely affected by changes or trends in reimbursement policies of governmental or private healthcare payers. We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in recent years, currently available levels of reimbursement may not continue to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the U.S. or foreign markets, current reimbursement amounts may be decreased in the future and future legislation, regulation or reimbursement policies of third-party payers may reduce the demand for our products or adversely impact our ability to sell our products on a profitable basis.
Unexpected increases in, or inability to meet, demand for our products could require us to spend considerable resources to meet the demand or harm our reputation and customer relationships if we are unable to meet demand.
Our inability to meet customer demand for our products, whether as a result of manufacturing problems or supply shortfalls, could harm our customer relationships and impair our reputation within the industry. In addition, our product manufacturing of certain product lines is concentrated in our two manufacturing sites. Weather, natural disasters (including pandemics), fires, terrorism, political change, governmental restrictions or stay-at-home orders in response to natural disasters (including pandemics), failure to follow specific internal protocols and procedures, equipment malfunction, environmental factors or damage to one or more of our facilities could adversely affect our ability to manufacture our products. This, in turn, could have a material adverse effect on our business.
If we experience unexpected increases in the demand for our products, we may be required to expend additional capital resources or engage third-party manufacturers to meet these demands. These capital resources could involve the cost of new machinery or even the cost of new manufacturing facilities. In addition, engaging third-party manufacturers would increase manufacturing costs and reduce margins. This would increase our capital costs or third-party expenses, which could adversely affect our earnings and cash resources. If we are unable to develop or obtain necessary manufacturing capabilities in a timely manner or to engage third-party manufacturers to meet demand, our total revenue could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems, including those encountered as a result of changes that we may make in our manufacturing processes to meet increased demand or changes in applicable laws and regulations, could result in shipment delays as well as increased manufacturing costs, which could also have a material adverse effect on our business, operating results and financial condition.
Unexpected increases in demand for our products could also require us to obtain additional raw materials in order to manufacture products to meet the demand. Some raw materials require significant ordering lead time and we may not be able to timely access sufficient raw materials in the event of an unexpected increase in demand, particularly those obtained from a sole supplier or a limited group of suppliers.
If one or more of our products is claimed to be defective, or does not meet the performance criteria we claim in our marketing materials we could be subject to product recalls, claims of liability and harm to our reputation that could adversely affect our business.
A claim of a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injuries and otherwise. Further, a claim that one of our products is defective or does not actually meet the performance criteria we claim in our marketing materials, could require a product recall or otherwise have a substantial impact on our revenues and financial performance. Any substantial underinsured loss resulting from such a claim or defect would have a material adverse effect on our operating results and financial conditions and the damage to our reputation or product lines in the industry could have a material adverse effect on our business.
We are exposed to business risks which, if not covered by insurance, could have an adverse effect on our results of operations. We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities.
We face a number of business risks, including exposure to product liability claims, employment law claims, claims that the Company or its officers, directors or employees have engaged in illegal or wrongful acts, claims of violation of environmental laws and many other possible claims. Although we maintain insurance for a number of these risks, we may face claims for types of damages, or for amounts of damages, that are not covered by our insurance. For example, although we currently carry product liability insurance for liability losses, there is a risk that product liability or other claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of our policy. Also, our existing insurance may not be renewed at the same cost and level of coverage as currently in effect, or may not be renewed at all. Further, we do not currently have insurance against many environmental risks we confront in our business. If we are held liable for a claim against which we are not insured or for damages exceeding the limits of our insurance coverage, whether arising out of product liability matters, cybersecurity matters, or from some other matter, that claim could have a material adverse effect on our results of operations.
We may rely on third parties to conduct or be part of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates.
We rely on third-party contract research organizations (“CROs”), universities or/clinical sites (“Vendors”), to coordinate, monitor and conduct of our clinical trials and to manage data for our clinical programs. We, our Vendors, and our clinical sites are required to comply with current Good Clinical Practices (“GCPs”), regulations and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor the activities conducted by our Vendors and at our clinical sites to confirm compliance with these requirements. In the future, if we, our Vendors or our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. If our Vendors do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
Failures in our information technology and storage systems could significantly disrupt our business or force us to expend excessive costs.
We utilize complex information technology systems to support our business and store information. We cannot be sure that our systems will meet our future business needs or that necessary upgrades will operate as designed, which could result in excessive costs or disruptions in portions of our business. In particular, any disruptions, delays or deficiencies caused by our enterprise resource planning system could adversely affect our ability to process orders, ship products, provide services and customer support, send invoices and track payments, fulfill contractual obligations or otherwise operate our business. In addition, despite the implementation of security measures, information technology systems are vulnerable to damage from a variety of sources, including computer viruses, unauthorized access, telecommunications or network failures, malicious human acts, terrorism and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Cyber security is a great and growing risk to operating companies. Cyber-attacks may result in loss of vital Company documentation and data, or confidential third-party documents held by the Company, that are necessary for the Company to operate. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our systems, sustained or repeated system failures that interrupt our ability to generate and maintain data, could result in a material disruption in our operations and material adverse financial costs to the Company. Furthermore, to the extent that any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could face a variety of negative consequences, including regulatory actions or litigation, fines or penalties, adverse publicity, increased cybersecurity protection costs, and lost revenue.
There is a risk that our measures to protect our systems from cyber-attack are not sufficient to avoid attacks by new sources and methods.
Our business could be negatively affected by the loss of or the inability to hire key personnel.
Our future success depends in part on our ability to retain our key technical, sales, marketing and executive personnel and our ability to identify and hire additional qualified personnel. Competition for these personnel is intense, both in the industry in which we operate and where our operations are located. Further, we expect to grow our operations, and our needs for additional management and other key personnel are expected to increase. If we are not able to retain existing key personnel, or timely identify and hire replacement or additional qualified personnel to meet expected growth, our business could be adversely impacted. In addition, the loss of any of our key personnel, particularly key research and development personnel, could harm our business and prospects and could impede the achievement of our research and development, operation or strategic objectives.
The Company’s lease obligations and growth expectations could create financial and operating risks.
Given the recent growth in the Company’s operations, it is uncertain the current leased facilities will be able to accommodate the Company’s operations in the future. As such, the Company may need to move to new facilities that would require the Company to seek to sublease its current facilities for the remainder of the lease(s) at a potential discount to the existing monthly lease obligation cost. Alternatively, the Company could be required to move a portion of its operations to a new facility which could be disruptive both short term and long term to the Company’s operations and create additional fixed costs.
We face risks relating to our international sales, including inherent economic, political and regulatory risks, which could impact our financial performance, cause interruptions in our current business operations and impede our growth strategy.
Our products are primarily sold internationally, with the majority of our international sales to our distributors in Asia, Europe and South America. We currently sell and market our products through distributor organizations and sales agents which creates foreign risks include, among others:
• compliance with multiple different registration requirements and new and changing registration requirements, our inability to benefit from registration for our products inasmuch as registrations may be controlled by a distributor, and the difficulty in transitioning our product registrations;
• compliance with complex foreign and U.S. laws and regulations that apply to our international operations, including U.S. laws such as import/export limitations, the Foreign Corrupt Practices Act, and local laws;
• tariffs or other barriers as we continue to expand into new countries and geographic regions, especially related to China as tariffs are changing constantly;
• exposure to currency exchange fluctuations against the U.S. dollar;
• longer payment cycles, generally lower average selling prices and greater difficulty in accounts receivable collection;
• lack of ability to enforce receivables collections contracts in foreign legal courts;
• reduced, or lack of, protection for, and enforcement of, intellectual property rights;
• political and economic instability in some of the regions where we currently sell our products or that we may expand into in the future;
• complex and potentially adverse tax consequences; and
• diversion to the U.S. of our products sold into international markets at lower prices.
Currently, most of our international sales are negotiated for and paid in U.S. dollars. Nonetheless, these sales are subject to currency risks, since changes in the values of foreign currencies relative to the value of the U.S. dollar can render our products comparatively more expensive. These exchange rate fluctuations could negatively impact international sales of our products, as could changes in the general economic conditions in those markets. In order to maintain a competitive price for our products internationally, we may have to continue to provide discounts or otherwise effectively reduce our prices, resulting in a lower margin on products sold internationally. Continued change in the values of the Euro, the Mexican peso and other foreign currencies could have a negative impact on our business, financial condition and results of operations.
In addition, we have certain supply agreements with foreign vendors whereby we share the foreign currency exchange fluctuation risk. We may, in the future, enter into similar arrangements.
Sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading price of our securities.
Future sales by the Company of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds in the future through a public offering of our securities.
On July 21, 2020, we filed with the SEC a “shelf” registration statement on Form S-3. The registration statement registers common shares that may be issued by the Company in a maximum aggregate amount of up to $90,000,000. Shares of our common stock may be sold from time to time under this registration statement for up to three years from the filing date. On January 22, 2021, we filed a prospectus supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering under the shelf registration statement, of which $12,984,273, remains available for sale under the prospectus supplement.
The issuance of additional shares of our common stock, or issuances of additional securities, could dilute the ownership interest of our common stockholders and could depress the market price of shares of our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock.
We also have a number of stockholders who own large blocks of our common stock. If one or more of these stockholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of shares of our common stock could be negatively affected.
The price of our stock may fluctuate unpredictably in response to factors unrelated to our operating performance.
The stock market periodically experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price of our common stock to drop. In particular, the market price of our common stock has been very volatile and unpredictable and may vary substantially in the future in response to:
• announcements by us or our competitors concerning technological innovations;
• introductions of new products;
• FDA, SEC, Financial Industry Regulation Authority and foreign regulatory actions against the Company;
• developments or disputes relating to patents or proprietary rights;
• failure to meet the expectations of stock market analysts and investors;
• changes in stock market analyst recommendations regarding our common stock;
• changes in healthcare policy in the U.S. or other countries;
• lawsuits or liability claims from shareholders or other parties;
• legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, and the results of any proceedings or lawsuits, including patent or shareholder litigation;
• sales of our common stock or other securities by us or our stockholders in the future;
• trading volume of our common stock
• actual or anticipated variations in quarterly operating results;
• publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;
• effects of natural or man-made catastrophic events, including widespread public health epidemics like the pandemic related to COVID-19; and
• general stock market conditions and other factors unrelated to our operating performance.
Trading of our common stock is not significant, therefore sales of a larger volume of the stock could adversely affect the stock price. As of August 26, 2016, our Company's stock has been traded on the Nasdaq Capital Market. Trading of our stock is limited and liquidation of the Company’s stock may be difficult as there is a limited market for our stock.
Our ability to use our net operating loss carry forwards in the future may be subject to limitation.
Although we have Federal income tax net operating loss carryforwards of approximately $12,957,000 and California state income tax net operating loss carryforwards of approximately $6,768,000, use of these loss carryforwards will depend on future income in relationship to expirations dates of these carryforwards.
We do not anticipate declaring any cash dividends on our common stock.
We have never declared or paid cash dividends on our common stock and do not plan to pay any cash dividends in the near future. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future. Further, we may in the future become subject to contractual restrictions on, or prohibitions against, the payment of dividends. Consequently, in the foreseeable future, gains will likely only be experienced from investments in our common stock if the price of our common stock increases. There is no guarantee that our common stock will appreciate in value or even maintain the price at which shares were purchased, and returns may not be realized on investments in our common stock.
We face risks related to our intellectual property including our patents (IP).
We rely on IP for the current products we sell and for the new products in research, development and in clinical trials. While the Company tries to protect its IP with confidentiality agreements and internal policies, we still face risks that our IP will be stolen or otherwise misappropriated, by parties inside or outside of the U.S. Further, we have filed over 100 patents around the world on much of the research and development done by the Company, and the proposed products to come from this research. The vast majority of these filed patents are still under review and have not yet been allowed or issued. We may not be able to attain patent claims that adequately protect the company from competitors developing similar products or copying our products. Finally, there is a great number of issued patents owned by others that pertain to the product categories in which we operate. While we do not know of any patents with claims that we are violating by manufacturing or selling our current products, there is a risk that certain third party patents will emerge that prohibit us from selling our products or that require us to pay royalty payments. Such third party claims could have a material negative impact on the Company. Any of these IP related risks could cause material damage to future revenues and to the long term enterprise values of the Company.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
The Company leases its office facilities. At May 31, 2021, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, 92614 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 initial base rent for the lease extension was $21,000 per month, increasing to $23,637 through August 31, 2021. The rent is currently $23,637 per month and will increase on September 1, 2021 to $25,213 per month. The security deposit of $22,080 remains the same. 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 with initial base rent of $2,926 per month. The Company has one 10-year option to renew at the end of the initial lease period. The rent is currently $3,262 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.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
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. We are not currently a party to any legal proceedings, not covered by insurance, that individually or in the aggregate, are deemed to be material to our financial condition or results of operations (see Note 9 to the consolidated financial statements).
On July 2, 2020, the Company 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 the March 17, 2020 announcement that the Company had commenced shipping samples of the Company’s 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, any 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. We can provide no assurances as to the outcome of the SEC investigation.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
On August 2, 2016, the Company’s common stock became listed and began trading on the Nasdaq Capital Market stock exchange where it trades under the symbol BMRA. Previous to that date, the Company’s stock traded on the OTC Bulletin Board.
As of May 31, 2021, the number of holders of record of Biomerica's common stock was approximately 800, excluding stock held in street name. The number of record holders does not bear any relationship to the number of beneficial owners of the common stock as most of the Company’s common stock is held in street name at securities brokerage firms.
The Company has not paid any cash dividends on its common stock in the past and does not plan to pay any cash dividends on its common stock in the foreseeable future. The Company's Board of Directors (“Board”) intends, for the foreseeable future, to retain any earnings to finance the continued operation and expansion of the Company's business.
We did not sell any unregistered equity securities during the year ended May 31, 2021.
We did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2021.
The table below provides information relating to our equity compensation plans as of May 31 2021:
Securities Remaining
Available for Future Issuance
Under Compensation Plans
(Excluding those Reflected in
Second Column)
Securities Plan
Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options
Compensation Plans
Weighted-Average
Exercise Price of
Outstanding Options
Equity compensation
Plans approved by
Securities holders
2,081,366
$3.59
419,301

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. SELECTED FINANCIAL DATA
Not required.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with our consolidated financial statements and the accompanying notes thereto included in Part II, Item 8 of this Report. This discussion and analysis contains forward-looking statements that are based on our management’s current beliefs and assumptions, which statements are subject to substantial risks and uncertainties. Our actual results may differ materially from those expressed or implied by these forward-looking statements as a result of many factors, including those discussed in “Risk Factors” included in Part I, Item 1A of this Report.
OVERVIEW
Biomerica, Inc. and its subsidiaries (which includes wholly-owned subsidiaries, Biomerica de Mexico and BioEurope GmbH), is a biomedical technology company that 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, nasal 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.
Our primary focus is the research and development of revolutionary, patented, diagnostic-guided therapy 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 Administration, we believe the revenues potential to the Company is significant.
The Company is currently finalizing an endpoint determination clinical trial on it’s InFoods® IBS product. This trial is and has been conducted at Mayo Clinics in Florida and Arizona, Beth Israel Deaconess Medical Center Inc., a Harvard Medical School Teaching Hospital, University of Texas Health Science Center at Houston, Houston Methodist, the University of Michigan and other institutions. We expect all patients to be either enrolled or completed by the end of our second fiscal quarter of 2022, with trial results reported shortly thereafter. During fiscal 2022, we also expect to be entertaining partnership/licensing discussions with pharmaceutical and technology companies that could help us commercialize the product, including obtaining FDA clearance.
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) COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if a patient is currently infected with the virus. During the year, the Company sold these products outside of the U.S. under a CE Mark (European Conformity). Because individual orders for these tests have been large in size, this has created volatility and material fluctuations in our monthly and quarterly revenues. Although sales in these products have slowed, the company continues to receive and fill orders for our COVID-19 test products.
Aside from the COVID-19 products we offer, the other products we sell are primarily focused on gastrointestinal diseases, food intolerances 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. by the FDA.
While sales continue to occur in our COVID-19 products, by fiscal year end, the majority of our research and development efforts have returned to a focus on development and commercialization of non-COVID related products such as our H. Pylori product, and our InFoods® IBS product. As such, the Company expects to file for 510K clearance with the FDA for its H. Pylori laboratory diagnostic test during our second fiscal quarter of 2022. If approved by the FDA, we will commence sales of this product in the U.S. We also intend to sell this product internationally including in the European Union (“EU”) under a CE Mark. International sales could commence earlier than U.S. sales.
The Company has also recently added several new employees in its sales and marketing department in order to increase sales of existing non-COVID products during fiscal 2022. Through these efforts, our EZ Detect colon disease home screening test is seeing a significant increased interest from retailers and distributors.
RESULTS OF OPERATIONS
Net Sales and Cost of Sales
Our consolidated net sales were $7,199,027 for fiscal 2021 compared to $6,692,711 for fiscal 2020. This represents an increase of $506,316, or 8%. This increase in annual sales is primarily attributable to sales of COVID-19 tests, which offset decreases in other product lines that were negatively impacted by the COVID-19 pandemic and related national and international mandates affecting consumers. Our consolidated net sales were $1,054,057 for the fiscal fourth quarter 2021, compared to $2,725,000 for fiscal fourth quarter of 2020. The lower sales in the fiscal fourth quarter 2021 were due to lower COVID-19 sales.
Consolidated cost of sales in fiscal 2021 as compared to fiscal 2020 increased from $4,910,935 to $6,702,046, or by $1,791,111. The percentage of cost of sales in 2020 was 73%. In 2021, this increased to 93%, due to various factors, primarily the establishment of an inventory reserve for slow moving COVID-19 antibody products. Our cost of goods sold for the fiscal fourth quarter 2021 were $1,062,943, or 101%, compared to $1,991,378, or 73%, for the fourth quarter of 2020. In fourth quarter 2021, the higher COGS was due to an approximate $100,000 increase in COVID-19 reserves and slower production in our factory.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative costs increased in fiscal 2021 as compared to fiscal 2020 from $2,274,415 to $4,608,950, or by $2,334,535, or 103%. The increase was due to an approximate increase of $766,000 in allowance for doubtful accounts, $884,000 in personnel costs as the Company is expanding its team, $520,000 in legal fees related to the SEC investigation, and $145,000 in consulting fees. Our consolidated selling, general and administrative expenses were $911,146 for the fiscal fourth quarter 2021, compared to $559,872 for the fourth quarter of 2020. The fourth quarter increase was primarily due to an approximate increase of $200,000 in allowance for doubtful accounts, and $100,000 in additional personnel costs as the Company is expanding its team.
Research and Development
Consolidated research and development expense was $2,410,506 in fiscal 2021 as compared to $1,910,209 in fiscal 2020, an increase of $500,297, or 26%, primarily as a result of increases in costs related to the research, development and validation of COVID-19 tests, and increased costs related to our clinical trials and patents for our InFoods® IBS product. See “Research and Development” for a more extensive description of the research being conducted. Our consolidated research and development expenses were $586,194 for the fourth quarter of 2021, compared to $661,610 for the fourth quarter of 2020.
Interest Expense
Interest expense increased in fiscal 2021 to $367 as compared to $9 in fiscal 2020. Interest and dividend income for those same years decreased to $66,862 from $71,193, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 2021, the Company had cash and cash equivalents in the amount of $4,199,311 as compared to $8,641,027 of cash and cash equivalents as of May 31, 2020. As of May 31, 2021 and 2020, the Company had working capital of $7,930,687 and $13,289,670, respectively. We believe that the aggregate of our existing cash and cash equivalents is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next year. To satisfy our capital requirements, including ongoing future operations, we may seek to raise additional financing through debt and equity financings.
Operating Activities
During fiscal 2021, cash used in operating activities was $5,251,748 as compared to $4,297,498 in fiscal 2020. The primary factors that contributed to this were a loss of $6,469,036, an increase in accounts receivable of $455,614, and an increase in inventories of $1,906,013, and paydown of accounts payable and accrued expenses of $403,331. These were primarily offset by a decrease in prepaid expenses of $1,138,793, which was a result of a refund of the prepayment from the prior year, a non-cash stock option expense of $377,391, an increase in inventory reserves of $1,550,594, and an increase in the allowance on accounts receivable of $766,434. During fiscal 2020, the Company had a net loss of $2,339,054, an increase in accounts receivable of $309,090, an increase in inventories of $717,460, and an increase in prepaid expenses of $1,306,681. These were offset by an increase in accrued compensation of $51,798, a non-cash stock option expense of $200,470 and depreciation and amortization of $129,172.
Investing Activities
During fiscal 2021, cash used in investing activities was $295,583 as compared to $118,927 in fiscal 2020. During fiscal 2021, the Company purchased $135,856 of property and equipment and had $159,727 in increased intangible assets related to patents. During fiscal 2020, the Company purchased $33,608 of property and equipment and $85,319 in increased intangible assets related to patents.
Financing Activities
Cash provided by financing activities in fiscal 2021 was $1,113,730 as compared to $12,373,977 in fiscal 2020. In fiscal 2021 and 2020, the Company had proceeds from the exercise of stock options of $102,255 and $223,534, respectively. During fiscal 2021 and 2020, the Company received $1,011,475 and $10,232,857, respectively, in net proceeds from the sale of common stock through the two S-3 Registration Statements filed by the company, net of subscriptions receivable. In fiscal 2020, the Company also had proceeds from the sale of convertible preferred stock, net, in the amount of $1,917,586. The common stock sold and issued in fiscal 2020 was issued under the S-3 “shelf” Registration Statement base prospectus filed with the Securities and Exchange Commission on June 30, 2017 and declared effective by the SEC on July 20, 2017, and under the prospectus supplement and At Market Issuance Sales Agreement, filed with the SEC on December 4, 2017, and the prospectus supplement filed with the SEC on March 20, 2020. The common stock sold and issued in fiscal 2021 was issued under the S-3 “shelf” Registration Statement base prospectus filed with the SEC on July 21, 2020 (the “2020 Shelf Registration Statement”) and declared effective by the SEC on September 30, 2020, and under the prospectus supplement and At Market Issuance Sales Agreement, filed with the SEC on January 22, 2021. (See Shareholders’ Equity and Subsequent Events in the notes to the consolidated financial statements for further details about SEC registrations).
The 2020 Shelf Registration Statement registers common shares that may be issued by the Company in a maximum aggregate amount of up to $90,000,000. On January 22, 2021, we filed a prospectus supplement (“2021 Prospectus Supplement”) for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering under the 2020 Shelf Registration Statement, of which $12,984,273 remains available for sale under the 2021 Prospectus Supplement. On August 27, 2021, the date on which this Annual Report on Form 10-K for the fiscal year ended May 31, 2021 is filed with the SEC, our 2020 Registration Statement became subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because our public float is less than $75 million. For so long as the Company's public float is less than $75 million, the aggregate market value of securities sold by the Company under the 2020 Shelf Registration Statement pursuant to Instruction I.B.6 to Form S-3 during any 12 consecutive months may not exceed one-third of the Company’s public float. We have not offered any securities pursuant to General Instruction I.B.6 of Form S-3 in the 12 calendar months preceding the date of filing this Annual Report on Form 10-K. For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was $47,283,738, based on 11,151,825 shares of our outstanding common stock held by non-affiliates and a price of $4.24 per share, which was the price at which our common stock was last sold on The Nasdaq Capital Market on August 23, 2021 (a date within 60 days of the date hereof), calculated in accordance with General Instruction I.B.6 of Form S-3. After giving effect to the $15,761,246 offering limit imposed by General Instruction I.B.6 of Form S-3, we may offer and sell from time to time up to the full amount of the $12,984,273 remaining under the 2021 Prospectus Supplement.
On February 24, 2020, Biomerica, Inc. entered into and closed on a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Palm Global Small Cap Master Fund LP (“Palm”) pursuant to which the Company agreed to sell and issue to Palm, and Palm agreed to purchase from the Company, 571,429 shares of the Company’s Series A 5% Convertible Preferred Stock, $0.08 par value per share for a purchase price of approximately $2,000,000, or $3.50 per Series A Preferred Share. 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. On March 24, 2020, Palm converted 250,000 shares of Convertible Preferred Stock into 250,000 shares of unregistered common stock. The Company received approximately $1,917,586 in net proceeds from this sale. On September 30, 2020, these 250,000 unregistered shares became fully registered shares.
In January 2021, Palm Global Small Cap Master Fund LP converted 321,429 preferred shares into 321,429 fully registered common shares. Following this conversion, Palm Global Small Cap Master Fund LP no longer owns any preferred stock, and Biomerica currently has no preferred shares outstanding.
The Company intends to use the net proceeds from these offerings 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.
SUBSEQUENT EVENTS
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 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 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.
OFF BALANCE SHEET ITEMS
There were no off-balance sheet arrangements as of May 31, 2021.
CRITICAL ACCOUNTING POLICIES
The discussion and analysis of our financial condition and results of operations are based on the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Note 2 of the Consolidated Financial Statements describe the significant accounting policies essential to the consolidated financial statements. The preparation of these consolidated financial statements requires estimates and assumptions that affect the reported amounts and disclosures.
In general, the critical accounting policies that may require judgments or estimates relate specifically to Revenues, Allowance for Doubtful Accounts, Inventory Reserves, Stock-Based Compensation, Income Taxes, Right-of-Use Asset and Lease Liability.
We believe the following to be critical accounting policies as they require more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when transfer of control of goods has occurred and at which point title passes. An allowance is established, if necessary, for estimated returns as revenue is recognized. Services for some contract work are invoiced and recognized for work that has been performed as the project progresses.
An allowance for doubtful accounts is established for estimated losses resulting from the inability of our customers to make required payments. The assessment of specific receivable balances and required reserves is performed by management and discussed with the audit committee. We have identified specific customers where collection is not probable and have established specific reserves, but to the extent collection is made, the allowance will be released. Additionally, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
Reserves are provided for excess and obsolete inventory, which are estimated based on a comparison of the quantity and cost of inventory on hand to management's forecast of customer demand. Customer demand is dependent on many factors and requires us to use significant judgment in our forecasting process. We must also make assumptions regarding the rate at which new products will be accepted in the marketplace and at which customers will transition from older products to newer products. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of, even if in subsequent periods we forecast demand for the product.
We measure stock-based compensation costs at fair value, including estimated forfeitures, and recognize the expense over the period that the recipient is required to provide service in exchange for the award, which generally is the vesting period. We use the Black-Scholes option pricing model to measure the fair value of our stock options. In determining the amount of expense to be recorded, we also estimate forfeiture rates for all awards based on historical experience to reflect the probability that employees will complete the required service period. Employee retention patterns could vary in the future and result in a change to our estimated forfeiture rate which would directly impact stock-based compensation expense.
We follow authoritative guidance to evaluate whether a valuation allowance should be established against our deferred tax assets based on the consideration of all available evidence using a “more likely than not” standard. In making such judgments, significant weight is given to evidence that can be objectively verified. We assess our deferred tax assets annually under more likely than not scenarios in which they may be realized through future income. We have determined that although we believe our net deferred tax assets of $5,590,000 will be utilized at a future date, based on our recent losses and plans to continue our research and development, we have established a valuation allowance of $5,590,000, which fully covers the asset.
Leases
During the year ended May 31, 2020, the Company adopted ASC 842, Leases. As a result, the existing deferred rent liability was netted against the Right-of-Use Asset which was capitalized at that time.
REVENUE RECOGNITION
The Company has various contracts with customers. All of the contracts specify that revenues from product sales are recognized at the time the product is shipped, customarily FOB shipping point, which is when the transfer of control of goods has occurred and at which point title passes. The Company does not allow for returns except in the event of defective merchandise and therefore does not establish an allowance for returns. 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, 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. The Company sells clinical lab products to domestic and international distributors, including hospitals and clinical laboratories, medical research institutions, medical schools and pharmaceutical companies. OTC products are sold directly to drug stores and e-commerce customers as well as to distributors. Physicians’ office products are sold to physicians and distributors, all of whom are categorized below according to the type of products sold to them. We also manufacture certain components on a contract basis for domestic and international manufacturers.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 2 to our consolidated financial statements for a listing of adopted and soon to be adopted accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Exhibit 99.3, "Biomerica, Inc. and Subsidiaries Consolidated Financial Statements" is incorporated herein by this reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) that are required in accordance with Rule 13a-14 of the Exchange Act. This “Disclosure Controls and Procedures” section includes information concerning the controls and controls evaluation referred to in the certifications.
EVALUATION OF DISCLOSURE CONTROLS
Our management evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act as of the end of the period covered by this report. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The disclosure controls and procedures have been designed to provide reasonable assurance of achieving their objectives and the CEO and CFO have concluded that our disclosure controls and procedures are effective at the “reasonable assurance” level. Based on that evaluation the CEO and CFO concluded that information required to be disclosed in the reports that we file and submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms; and (2) accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
For the reasons discussed in "Management's Report on Internal Control over Financial Reporting" below, Company management, including the CEO and CFO concluded that, as of May 31, 2021, the Company's internal control over financial reporting was effective. Management has concluded that the consolidated financial statements included in this annual report present fairly, in all material respects, the Company's financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during the last fiscal year that have materially affected, or that are reasonably likely to affect, our internal control over financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Company management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is designed to provide reasonable assurance to the Company's management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
A Company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the consolidated financial statements.
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating and evaluating the controls and procedures. Because of these inherent limitations, internal control over financial reporting cannot provide absolute assurance regarding the reliability of financial reporting and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Company management, with the participation of the CEO and the CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of the end of the period covered by this report. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on this assessment, management, with the participation of the CEO and CFO, believes that, as of May 31, 2021, the Company's internal control over financial reporting was effective based on those criteria.
Company management will continue to monitor and evaluate the effectiveness of its disclosure controls and procedures and its internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing improvements, as necessary and as funds allow.
Note: This 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this 10-K.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
This information is incorporated by reference to the Company's proxy statement for its 2021 Annual Meeting of Stockholders, which will be filed not later than 120 days after the end of the Company's fiscal year ended May 31, 2021.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's proxy statement for its 2021 Annual Meeting of Stockholders, which will be filed not later than 120 days after the end of the Company's fiscal year ended May 31, 2021.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference to the Company's proxy statement for its 2021 Annual Meeting of Stockholders, which will be filed not later than 120 days after the end of the Company's fiscal year ended May 31, 2021.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Other information regarding related transactions is incorporated by reference to the Company's proxy statement for its 2021 Annual Meeting of Stockholders, which will be filed not later than 120 days after the end of the Company's fiscal year ended May 31, 2021.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Please refer to the Company’s proxy statement for its 2021 Annual Meeting of Stockholders, which will be filed not later than 120 days after the end of the Company’s fiscal year ended May 31, 2021.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS LIST AND FINANCIAL SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements
Reference is made to the Index to the consolidated financial statements as set forth on page FS-1 of this Annual Report on Form 10-K.
2. Consolidated Financial Statement Schedules
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.
3. Exhibits
See below.
Exhibit No.
Description
3.1
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).
3.2
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. 2-83308).
4.1
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. 333-87231 filed on September 16, 1999).
10.1
Standard Industrial/Commercial Single-Tenant Lease for 17571 Von Karman Avenue, Irvine, CA 92614, incorporated by reference to Exhibit 10.1 of the Company's August 31, 2009 Form 10Q filed October 15, 2009.
10.2
2010 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 February 2, 2012).
10.3
2014 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 22, 2015).
10.4
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).
10.5
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).
10.6
Form of Executive Stock Option Agreement (attached herein)
21.1
Listing of Subsidiaries (attached herein)
23.1
Consent of Independent Registered Public Accounting Firm (PKF San Diego, LLP).
31.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.3
Biomerica, Inc. and Subsidiaries Consolidated Financial Statements
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document.
The certifications attached as Exhibits 32.1 and 32.2 accompany this Annual Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the registrant for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any of the registrant’s filings under the Securities Act or the Exchange Act, irrespective of any general incorporation language contained in any such filing.