SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934

For The Fiscal Year Ended May 31, 20202021 or

[ ] Transition Report Under Section 13 or 15(d) of The Securities Exchange Act Of 1934

For The Transition Period From ______ To ______

Commission File Number: 001-37863

BIOMERICA, INC.

(Exact Name of registrant as specified in its charter) 

REGISTRANT'S TELEPHONE NUMBER:

(949) 645-2111

Securities registered under Section 12(b) of the Exchange Act:

None

Securities registered under Section 12(g) of the Exchange Act:

(Title of each class)

COMMON STOCK, PAR VALUE $0.08

(Name of each exchange on which registered)

NASDAQ Capital Market

(Trading symbol)

BMRA

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act   

Yes [   ]  No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act.  

Yes [X][  ]  No [  ]

Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.[X]

Indicate by check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]  No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [X]  No [  ]

Indicate by check mark whether the registrant is a large accelerated, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  [ ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes [  ]  No [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter (based upon 7,747,6399,631,507 shares held by non-affiliates and the closing price of $3.02$6.95 per share for Common Stock in the over-the-counter market as of November 30, 2019)2020): $23,397,870.$66,938,974.

Indicate theThe outstanding number of shares outstanding of each of the registrant's common stock, par value $0.08, outstanding as of August 31, 2020:

 11,752,589.27, 2021 was 12,510,210.

DOCUMENTS INCORPORATED BY REFERENCE: Part III contains information incorporated by reference to the Company's proxy statement for its 20202021 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, 2020.2021. The Exhibit Index incorporates by reference various documents previously filed with the Securities and Exchange Commission.  

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Except for historical financial information contained herein, the matters discussed in this Form 10-K may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and subject to the safe harbor created by the Securities Litigation Reform Act of 1995. Such statements include declarations regarding our intent, belief, or current expectations and those of our management. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology.  Investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks, uncertainties and other factors, some of which are beyond our control; actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, those risks and uncertainties identified under “Risk Factors,” and the other risks detailed from time-to-time in our reports and registration statements filed with the Securities and Exchange Commission, or SEC. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PART I

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. The Company'sOur 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 guideddiagnostic-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.

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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. TheseDuring 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.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 fourth quarter of fiscal 2020year, we began marketing and selling outside of the U.S. a disposable rapid finger-prick blood test, which detects COVID-19 IgG/IgM antibodies within 10 minutes. This test is designed to be performed by trained professionals anywhere (e.g. airports, schools, work, pharmacies and doctors’ offices). Following fiscal 2020 year-end we submitted to the FDA an application under an 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. The Company also anticipates selling this test kitthese products outside of the U.S. under a CE Mark (European Conformity). Initial salesBecause individual orders for these tests have been large in size, this product are expected during the Company’s second quarter of fiscal 2021 upon EUA clearance. The Company manufactures thishas created volatility and material fluctuations in our monthly and quarterly revenues. We continue to receive and fill orders for our COVID-19 ELISA test on its automated equipment at the Company’s California facility that is also used to produce serology antibody tests for other diseases. products.

Aside from the current focus on COVID-19 products in research, development and clinical trials,we offer, the other products we continue to sell are primarily focused on gastrointestinal diseases, food intolerances diabetes and certain esoteric tests. These diagnostic test products utilize immunoassay technology. OurMost 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 requiredrequire 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.

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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.   The Company expendsWe 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.

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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

We are currentlyDuring 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 developing 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. The CompanyWe also utilizesutilize 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  the Companywe 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 2019 aggregated $1,910,209, and $1,679,098, respectively. As Biomerica begins to validatemoves 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.

The Company hasWe developed a unique diagnostic guideddiagnostic-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 IBS.Irritable Bowel Syndrome (IBS). This product is called InFoods® IBS and is currently in clinical studies at the 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, and at the University of Michigan.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 Korea.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.

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We are also Our first patent to be allowed for a disease/illness other than IBS was allowed in clinical studies to evaluateJapan in August, 2021. This patent covers the performanceuse of our newInFoods® technology to diagnose and proprietary Helicobacter pylori (“H. pylori”) test.  The clinical studies are being conducted at the University of Southern California (“USC”), a European University and several other U.S. locations. The Company is 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.

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. We are planning to submit the H. pylori product using a 510(k) application if validation testing proves effective.FDA for this type of product.

Since March 2020,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.

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During fiscal 2021, we have dedicated a majoritymuch 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. TheseOur 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 determinedetect 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. Followinginfection, even if the end of fiscal 2020, we have also dedicated resources to developing a COVID-19infection was asymptomatic, and 2) antigen testtests that is intended to use a patient’s nasal or salivafluid sample to determinedetect if a patient is currently infected with the patient has a currentvirus. These tests were sold, and ongoing COVID-19 infection.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. As part ofAfter the EUA was submitted to the FDA, on two separate occasions the FDA assigned reviewers to this testEUA who each requested additional information and interacted with us on this submission, as is customary. However, we developedhave 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 testing a whole blood collection system to allow simple whole blood sample collection from a finger stick.  We anticipate that upon FDA EUA clearance, this collection system will be marketedcurrently infected with the COVID-19 virus such as polymerase chain reaction tests and antigen tests, as the demand for antibody tests diminished in the U.S. and internationally.  We also are developing and working on other COVID-19 test technologies.second half of calendar year 2020.   

SinceBeginning in our fourth quarter of fiscal 2021, the beginning of March 2020, the majorityfocus of our research and developmentR&D resources andreturned to non-COVID-19 products such as our regulatory clearance resources have been focused on developing, validating and registering for sale both point of care (finger-prick rapid tests), and ELISA high throughput laboratory COVID-19 antibody tests in thatH. Pylori product, our primary InFoods product, InFoods® IBS , is now in clinical trialsproduct and as such requires limited research and developmentother products that we sell or regulatory resources. We expect that the majority of these Company resources will continuewould like to be usedsell in the foreseeable future for the development of COVID-19 tests.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 23over 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 we believeis and will continue to help Biomerica add new distributors for existing products, and add new product-lines for future distribution by the Company.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). 

SubsequentDue to February 29, 2020, the Company’s fiscal third quarter end, the Coronavirus global pandemic, which started in China at the end of 2019, has spread throughout the world, including the U.S.The impact it willour operations have on the Company’s operations is unknown at this time. been negatively impacted.The Company has 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 the Company’sour manufacturing or distribution facilities or of the facilities of the Company’sour suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makeswe make and/or sells itssell 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 the Company’sour operations and financial performance and may continue to have significant material negative impacts on the Company.us.  

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On March 17, 2020, the Company announced it had commenced shipping initial samples of its COVID-19 IgG/IgM Rapid Test (qualitative membrane-based immunoassay for the detection of IgG and IgM antibodies to SARS-CoV-2 in whole blood or serum) to countries outside the U.S. for evaluation.  The test is a finger-prick blood test that is designed to show results in approximately 10 minutes and can be performed by trained professionals at any location, including airports, schools, work, pharmacies and doctors’ offices. On March 16, 2020, the Company commenced shipping and fulfilling commercial orders for this Rapid Test to customers outside of the U.S primarily through distributors.  The Company has also filed for EUA clearance with the FDA to sell its ELISA COVID-19 test kit in the U.S.  Once approved, we will market this ELISA COVID-19 product directly to hospitals and clinical labs, as well as sell it through distributors. The Company continues to sell its COVID-19 IgG/IgM Rapid Tests outside of the U.S.

For the fiscal years ended May 31, 20202021 and 2019,2020, the Company had threetwo distributors and twothree distributors, respectively, which accounted for a total of 57.2%60% and 46.3%57% of our net consolidated sales, respectively. Of this, for the fiscal years ended May 31, 20202021 and 2019,2020, the largest of the distributors mentioned above accounted for 25.7%33% and 36.3%26%, respectively, of net consolidated sales. 

At May 31, 20202021 and 2019,2020, the Company had threetwo distributors and twothree distributors, respectively, which accounted for a total of 80.0%73% and 68.1%80%, respectively, of gross accounts receivable. Of the 80.0%73% as of May 31, 2020, 43.9%2021, 41% was owed by a distributor in Ecuador.China. Total gross receivables for fiscalat May 31,  2021 and 2020 were $2,292,466 and 2019 were $1,836,852, and $1,527,762, respectively.

BACKLOG

At May 31, 20202021 and 2019,2020, Biomerica had a backlog of unshipped orders of approximately $727,000$85,000 and $207,000$727,000 respectively. At May 31, 20202021, this consisted primarily of orders to our distributor in Asia as well as some contract manufacturing work.the Middle East.

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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 the Companywe 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, 2020,2021, one vendor accounted for 59.3%58% of our purchases of raw materials. For the year ended May 31, 2019,2020, one vendor accounted for 23.8%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 mandatesmandated 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.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.

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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. We are working on expanding thisHowever, during the past 18 months, we have expanded our sales and marketing capability, through marketing and strategic cooperation with larger companies and distributors as well asand 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.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. The Company'sOur products are primarily either Class I or Class II medical devices.

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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. Approval of the license requires that we be in compliance with QSR, labeling and MDR regulations. Our current license expires on December 31, 2020. These licenses are renewed periodically, and to date we have never failed to obtain a renewal.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. The directive went into effect beginning December 7, 2003. TheOur Company has completed the process for complyingcomplies with the CE Mark directives; and In Vitro DiagnosticsDiagnostic Medical Devices Directive (“IVDD”) 98/79/EC.EC and Medical Devices Directive 93/42/EEC (“MDD”). We also comply with ISO 13485 for medical devices2016 Medical Devices Quality Management Systems.Systems - Requirements for Regulatory Purposes.  

At present, outside the EU the regulatory international review process varies from country to country. We in general, rely uponwork 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.

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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 certainthese products to be manufactured in accordance with the FDA’s “Good“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 marketpost -market surveillance. The last FDA announced inspection was in November 2019 and no observations were noted. Biomerica is currently registered and licensed with the State of California's Department of Health Services. The Company believesWe believe that all Biomerica products sold in the U.S. comply with the FDA and state regulations.

Management believes that Biomerica's Quality Management SystemBiomerica is in material compliance with the EN ISO 13485:2016. EN ISO 13485:2016 is an internationally recognized standard in which companies establish their methods of operation and commitment to quality.  

We are an FDA regulated and ISO 13485:2016 certified In Vitro Diagnostic (“IVD”) 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 (“IVDD”)  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 Medical Device Directive (“MDD”)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. Notified Bodies can begin certifying devices to the new MDR requirements once they have been designated under MDR by their Competent Authority. Our Notified Body recently became designated againstunder MDR in July 2020.

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The new EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 entered into force on May 25, 2017. The IVDR transition period ends May 26, 2022 and will replace IVDD 98/79/EC. Manufacturers have less than two yearsone 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. The application process for Notified BodiesWhile we are working to be designated againstupdate our technical documentation to comply with these new and more stringent IVDR takes 12-18 months. Ourrequirements, 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, is currentlyprior 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 processEU, may themselves not be able to meet all of beingthe 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 theour 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:

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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, and importembargos, 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 providesproviders 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 theour ability of the Company 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 10075 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-19non-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.

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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.

The Company hasWe 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 $15,000$11,000 and $19,000,$15,000, respectively, is included in cost of sales for this agreement for the fiscal years ended May 31, 20202021 and 2019.2020. Sales of products manufactured under this agreement are non-material to total sales for the fiscal years ended May 31, 2021 and 2020, and 2019, respectively. The CompanyWe may license other products or technology in the future as it deems necessary or opportunistic for conducting business.

In April 2020, we signed two license agreements with the Icahn School of Medicine at Mount Sinai, a New York not-for-profit education corporation, pertaining to certain technology that we have used to develop our ELISA COVID-19 serology test. This agreement requires a royalty payment on all sales of products that utilize the licensed technology.

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 the Company.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.

9We 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 the Company’sour “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

The Company hasWe have filed over 100 international and PCTPatent Corporation Treaty patents, and has 2212 provisional and non-provisional patents currently filed with the USPTO. Some of these patent applications pertain to COVID-19 and other products. However,products, however, the majority of our patents that are pending, allowed or issued pertain to the InFoods® IBS technology platform.

Our most important family of patent applications pertains to ourInFoods® IBS technology platform, which is a revolutionary and disruptive new method of thepossibly diagnosing and treating symptoms of many different diseases. Our first planned product launch using this technology is the InFoods® IBS product which diagnosesis designed to diagnose and treatstreat 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® IBStechnology. 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 osteoarthritis, psoriasis and others.depression. These applications include the use of this technology in both humans and animals.  The first patents filed by us pertained to IBS. The International Search Authority (“ISA”) has deemed that for one of Biomerica’s key patent applications pertaining to IBS, all of the International Patent Application claims for its composition and methods to identify trigger foods for IBS are novel and non-obvious.  Several of the patents pertaining to the InFoods® IBStechnology have been issued and many more are in active review and prosecution. 

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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 (#15/526,240)(#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 MayMarch 2020, the Japanese Patent Office issued our first InFoods® IBS patent in that country (JP,6681907,B)(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 August 2020, we receivedMarch 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 fromfor an InFoods® IBS patent in that country (6876338) which covers the USPTOcompositions, devices and methods of IBS sensitivity testing.

In May 2021, the Company received a notice of allowance for our second patent for thean InFoods® IBS product (#16/385,322) that expands our claims to includepatent in Mexico which covers the method for identifyingcompositions, devices and setting the antibody cut-off values for each individual food to determine if a person has an intolerance to that food.methods of IBS sensitivity testing.

We believe the claims in these issued InFoodsInFoods® 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. 

10We 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, 20202021 and 2019,2020, the Company employed 4549 and 3945 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:

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In addition, Biomerica de Mexico employs 2017 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 third partiesexperts will fully protect the Company from third-party claims or from theft of our intellectual property.

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 a widespread outbreakongoing outbreaks of an illness or other health issue, such as the recent COVID-19 Coronavirus outbreak, first reported in Wuhan, Hubei Province, China in December 2019 and subsequently spreading throughoutincluding outbreaks of variants of the world resulting in millions of confirmed cases worldwide and many deaths.COVID-19 virus such as the “Delta” variant. The outbreak of the COVID-19 virus has 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.

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If our COVID-19 tests are unable to gain acceptance in the market, proves to be ineffective or less effective than expected, and/or we do not receive regulatory approvals for our COVID-19 tests to be sold, our resultsWe have a history of operation could be materially harmed.operating losses.

Although we believe that our COVID-19 tests represent promising tests to detect prior COVID-19 virus exposure, the tests may never gain significant acceptance in the marketplace and therefore may never generate substantial revenue or profits for us. We will need to establish a market for our COVID-19 antibody tests. Gaining acceptance in medical communities requires increasing awareness of our COVID-19 tests and their benefits.  Also, there are a large number of companies around the world now making and selling COVID-19 tests that compete with our COVID-19 tests. Many of these competitor products are made in China and other parts of Asia where manufacturing costs are low. As such, we are seeing supply and price competition which could make it difficult for the Company to compete.  Other risks pertaining to these products include: 

•          our ability to demonstrate the efficacy, speed and cost competitiveness of our COVID-19 tests;

•          whether healthcare providers and governmental agencies believe our COVID-19 tests are sufficiently safe, effective, and accurate;

•          our ability to transfer, further develop, integrate and use third-party licensed technology;

•          our ability to manufacture and scale commercial products;

•          our ability to source required raw materials in a cost effective and timely manner;

•          development of effective vaccines to the Covid-19 virus that reduce the need to do antibody testing;

•          mutations in the COVID-19 virus that render our tests ineffective;

•          receipt of regulatory approvals necessary prior to commercialization of our products;

•          the FDA or other regulatory agencies retracting their prior approval for our products to be sold in their market or changing regulations for approval; and

•          whether the medical community accepts our COVID-19 tests as a supplement to, alternative to, or complimentary to, current PCR or other tests for COVID-19 infection.

In addition, each country in which we wish to sell these tests has its own regulatory approval requirements.  We will need to comply with the regulatory requirements of each country before we are permitted to sell in that country.have historically incurred net losses. There can be no assurance that governmental agencies, including the FDA,we will provide clearance of our COVID-19 tests togenerate net profits in future periods. Further, there can be sold in their markets.  Failure to achieve widespread market acceptance of our COVID-19 tests, or failure to achieve regulatory clearance of our COVID-19 tests, could materially harm our business, financial condition, and results of operations.  Our COVID-19 tests are new testsno assurance that only generated revenue during the last two months of our fiscal year. It is uncertain how long we will be ablecash flow positive in future periods. In the event that we fail to generate revenues from these tests, and what levelachieve profitability in future periods, the value of sales,our common stock may decline. In addition, if any, we will attain in the future.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 our growth or operating results to fall below the expectationslosses as a result of investors and securities analysts.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.

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;

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•        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.

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.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 areis 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.

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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.

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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, 20202021 and 2019,2020, the Company had threetwo distributors and twothree distributors, respectively, which accounted for a total of 57.2%60% and 46.3%57% of our net consolidated sales, respectively. Of this, for the fiscal years ended May 31, 2021 and 2020, and 2019, onethe largest of the distributors mentioned above accounted for 25.7%33% and 36.3%26%, respectively, of net consolidated sales. 

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At May 31, 20202021 and 2019,2020, the Company had two distributors and three distributors, and two distributorsrespectively, which accounted for a total of 80.08%73% and 68.1%80%, respectively, of gross accounts receivable. The loss of these sales to these accounts could adversely impact the results of the Company. Of the 80.0%73% as of May 31, 2020, 43.9%2021, 41% was owed by a distributor in Ecuador.China. Total gross receivables for fiscalat May 31, 2021 and 2020 were $2,292,466 and 2019 were $1,836,852, and $1,527,762, 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 othercore 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. In addition, the defense of such claims could result in significant costs and divert the attention of our management and other key employees.

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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.

As a general matter, our involvement In addition, the defense of such claims could result in litigation or in any claims to determine proprietary rights, as may arise from time to time, could materiallysignificant costs and adversely affect our business, financial condition and results of operations for reasons such as:

•        pending litigation may of itself cause our distributors or end-users to reduce or terminate purchasesdivert the attention of our products;

•        it may consume a substantial portion of our managerialmanagement and financial resources;

•        its outcome would be uncertain and a court may find any third-party patent claims valid and infringed by our products (issuing a preliminary or permanent injunction) that would require us to procure costly licensing arrangements from third parties or withdraw or recall such products from the market, redesign such products offered for sale or under development or restrict employees from performing work in their areas of expertise;

•        governmental agencies may commence investigations or criminal proceedings against our employees, former employees and us relating to claims of misappropriation or misuse of another party’s proprietary rights;

•        an adverse outcome could subject us to significant liability in the form of past royalty payments, penalties, special and punitive damages, the opposing party’s attorneys' fees, and future royalty payments significantly affecting our future earnings; and

•        failure to obtain a necessary license (upon commercially reasonable terms, if at all) upon an adverse outcome could prevent us from selling our current products or other products we may develop.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.

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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.

WeAs 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.

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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 may notare 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 of which 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 thenew 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 for 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. 

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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, and larger, more established marketing, sales, distribution and service organizations than we have.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.

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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  ("AHA") in the U.S. We cannot fully predict the many ways that healthcare reform mightin 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.

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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.

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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.

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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.

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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”), Universitiesuniversities 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(“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.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.

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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:

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•          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.

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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 new “Shelf”“shelf” registration statement on Form S-3. The new registration statement registers our common shares tothat 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 once it is declared effective.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, FINRAFinancial Industry Regulation Authority and foreign regulatory actions against the Company;

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•      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.

A sale of a substantial number of shares of the common stock by the Company may cause the price of our common stock to decline.

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, theour Company's stock has been traded on the Nasdaq Capital Market.  Trading of the Company'sour stock is limited and liquidation of the Company’s stock may be difficult as there is a limited market for the Company’sour stock.

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Our ability to use our net operating loss carry forwards in the future may be subject to limitation.

Although  the Company haswe have Federal income tax net operating loss carryforwards of approximately $9,213,000$12,957,000 and California state income tax net operating loss carryforwards of approximately $5,025,000,$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.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.   PROPERTIES

The Company leases its office facilities. At May 31, 2020,2021, 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 $22,948$23,637 per month and will increase on September 1, 20202021 to $23,637$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 $3,239$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.

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).

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On July 2, 2020, wethe Company received a notice of investigation and subpoena to produce information and documents from the Division of Enforcement of the SEC. The subpoena seeksrequested information and documents related to events and circumstances leading up to ourthe March 17, 2020 announcement that wethe Company had commenced shipping samples of ourthe 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 seeksrequested 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, as well asdate. 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 corporate policiespersons and documentation. We are cooperatingentities, and intend to continue cooperatingother personal and Company documents. The Company and Mr. Irani have cooperated fully with the SEC’s investigation.investigation and provided information as requested. At this time, we arethe Company is unable to predict the duration, scope or outcome of thisthese investigations. We can provide no assurances as to the outcome of the SEC investigation.

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ITEM 4.      MINE SAFETY DISCLOSURES

Not applicable.

PART II

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, 2020,2021, the number of holders of record of Biomerica's common stock was approximately 810,800, 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.

On June 30, 2017,We did not sell any unregistered equity securities during the Company filed an S-3 Registration Statement with the SEC primarily for the purposes of raising capital to support is research, development and intellectual property projects. The registration statement became effective on July 20, 2017. A prospectus supplement to the Form S-3 Registration Statement was filed December 4, 2017 which stated that up to $7,000,000 of funds would be raised from time to time under the Form S-3 Registration Statement through an At Market Issuance Sales Agreement (“ATM”) with B. Riley, FBR, acting as the agent for these transactions. As ofyear ended May 31, 2020, a total of approximately $6,997,935 in gross proceeds had been raised under this prospectus supplement.

On March 20, 2020, the Company filed a second prospectus supplement to the base prospectus dated July 20, 2017 for purposes of raising up to $12,500,000 from time to time pursuant to the terms of the ATM. As of May 31, 2020, a total of $6,817,329 in gross proceeds had been raised under this prospectus supplement.  No additional shares will be sold under this prospectus supplement.

On July 21, 2020, the Company filed with the SEC a new “Shelf” registration statement on Form S-3 to replace the registration statement that expired the day before. The new registration statement registers common shares to be issued in a maximum aggregate amount of $90,000,000.  Our shares of common stock may be sold from time to time under this registration statement once it is declared effective.2021.

We did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2020.2021.

The table below provides information relating to our equity compensation plans as of May 31 2020:

There were no sales of unregistered equity securities during the year ended May 31, 2020 except as described in Note 5-Shareholders’ Equity- of the Consolidated Financial Statements.2021: 

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ITEM 6.      SELECTED FINANCIAL DATA

Not required.

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ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE STATEMENTS IN THIS ANNUAL REPORT ON FORM 10-K MAY BE FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934 AND SECTION 27A OF THE SECURITIES ACT OF 1933. FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES WHICH MAY CAUSE BIOMERICA'S RESULTS IN FUTURE PERIODS TO DIFFER MATERIALLY FROM FORECASTED RESULTS.

Like other businesses, WE are susceptible to macroeconomic downturnsYou should read the following discussion and analysis in the United States or abroad, as were experienced recently, that may affect the general economic climate and OUR performance or OUR customers.  Aside from general macroeconomic downturns, the additional material factors, RISKS AND UNCERTAINTIES that could affect futureconjunction with our consolidated financial results include, but are not limited to: THE CONTINUED DEMAND FOR THE COMPANY'S PRODUCTS; AVAILABILITY OF RAW MATERIALS; RESULTS OF RESEARCH AND DEVELOPMENT ACTIVITIES; THE ABILITY TO RETAIN KEY EMPLOYEES AND CUSTOMERS; THE ABILITY TO COLLECT RECEIVABLES FROM CUSTOMERS; THE CONTINUED ABILITY OF THE COMPANY TO ATTAIN AND MAINTAIN THE LICENSES AND APPROVALS REQUIRED,.Regional or global pandemicsstatements and the economicaccompanying notes thereto included in Part II, Item 8 of this Report. This discussion and social disruptionsanalysis 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 cause; terrorist attacks and the impactforward-looking statements as a result of such events; existing and potential increase in trade tariffs, especially with China, diminished or no access to raw materials that directly enter into our manufacturing process; shipping labor disruption or other major degradation of the ability to ship out products to end users; inability to successfully control our margins which are affected by many factors, including competition and product mix; protracted shutdownthose discussed in “Risk Factors” included in Part I, Item 1A of the U.S. border due to an escalation of terrorist or counter terrorist activity; any changes in our business relationships with international distributors or the economic climate they operate in; any event that has a material adverse impact on our foreign manufacturing operations may adversely affect our operations as a whole; failure to manage the future expansion of our business could have a material adverse effect on our revenues and profitability; possible costs in complying with government regulations and the delays in receiving required regulatory approvals or the enactment of new adverse regulations or regulatory requirements; numerous competitors, some of which have substantially greater financial and other resources than we do; potential claims and litigation brought by patients or medical professionals alleging harm caused by the use of or exposure to our products; recalls of products; inability to obtain FDA clearance on products or excessive costs incurred in order to obtain such approvals; regulatory actions taken by government agencies such as the FDA, SEC, USDA and other regulators; quarterly variations in operating results caused by a number of factors, including business and industry conditions; and other factors beyond our control. All these factors make it difficult to predict operating results for any particular period.this Report. 

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EXCEPT AS MAY BE REQUIRED BY APPLICABLE LAW, WE MAY NOT UPDATE OR REVISE OUR FORWARD-LOOKING STATEMENTS AND THE LACK OF SUCH UPDATE DOES NOT IMPLY THAT ACTUAL EVENTS ARE AS ORIGINALLY EXPRESSED BY SUCH FORWARD-LOOKING STATEMENTS. YOU SHOULD READ THE DISCLOSURES IN THIS REPORT AND OTHER REPORTS, WHICH WE FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE RISK FACTORS CONTAINED THEREIN.

OverviewOVERVIEW

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 FDA,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 COVID-192019 SARS-CoV-2 novel coronavirus pandemic, in March 2020 we began redirecting and focusedfocusing a majority of our resources to develop, test, validate, seek regulatory approval for, and sell diagnostic products that indicate if a person has been exposed toinfected by COVID-19. TheseDuring fiscal 2021, we sold 2 primary types of COVID-19 tests; 1) antibody diagnostic tests that use a patient’s blood sample to determinedetect 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.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 fiscal fourth quarter, we began marketing and selling outside ofyear, the U.S. a disposable rapid finger-prick blood test, which detects COVID-19 IgG/IgM antibodies within 10 minutes. This test is designed to be performed by trained professionals anywhere, e.g. airports, schools, work, pharmacies and doctors’ offices. Following fiscal 2020 year-end we submitted to the FDA an application under an EUA to sell in the U.S. a lab-scale, high throughput ELISA COVID-19 antibody test kit that would beCompany sold to labs and hospitals to perform COVID-19 antibody testing. The Company also anticipates selling this test kitthese products outside of the U.S. under a CE Mark. InitialMark (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.

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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 are expected duringin the Company’s second quarter of fiscal 2021 upon EUA clearance. 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 manufactures this COVID-19 ELISAhas 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 on its automated equipment at the Company’s California facility that is also used to produce serology antibody tests for other diseases. These antibody tests are designed to detect ifseeing a person has been infected by COVID-19significant increased interest from retailers and mounted an immune response even if the infection was asymptomatic.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 compared to $5,200,682 for fiscal 2019.2020. This represents an increase of $1,492,029,$506,316, or 28.7%8%. This increase in annual sales is primarily attributable to sales of COVID-19 tests, during the last quarter of the fiscal year, 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 $2,725,000$1,054,057 for the fiscal fourth quarter 2020,2021, compared to $1,165,860$2,725,000 for fiscal fourth quarter of 2019.2020. The lower sales in the fiscal fourth quarter 2021 were due to lower COVID-19 sales.

Consolidated cost of sales in fiscal 20202021 as compared to fiscal 20192020 increased from $3,908,668$4,910,935 to $4,910,935,$6,702,046, or by $1,002,267.$1,791,111. The percentage of cost of sales relativein 2020 was 73%. In 2021, this increased to sales decreased from 75.2% to 73.4%93%, due to various factors, primarily due to higher margins on the establishment of an inventory reserve for slow moving COVID-19 antibody products. Our cost of goods sold for the fiscal fourth quarter 20202021 were $1,991,378,$1,062,943, or 73.0%101%, compared to $985,053,$1,991,378, or 84.4%73%, for the fourth quarter of 2019.2020.  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 20202021 as compared to fiscal 20192020 from $2,025,706$2,274,415 to $2,274,415,$4,608,950, or by $248,709,$2,334,535, or 12.3%103%. The increase was due to increasesan approximate increase of $766,000 in legal and consulting fees,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 strengthening its management team$145,000 in sales and marketing, and an increase in administrative expenses due to a non-cash option expense of $156,750 in fiscal 2020 compared to $143,299 in the prior fiscal year.consulting fees. Our consolidated selling, general and administrative expenses were $559,872$911,146 for the fiscal fourth quarter 2020,2021, compared to $536,816$559,872 for the fourth quarter of 2019.2020. 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.

24Research and Development

Consolidated research and development expense was $2,410,506 in fiscal 2021 as compared to $1,910,209 in fiscal 2020, as compared to $1,679,098 in fiscal 2019, an increase of $231,111,$500,297, or 13.8%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, compared to $408,810 for the fourth quarter of 2019. These costs increased in fiscal 2020 due to additional research on COVID-19 products.2020.

Interest Expense

Interest expense remained constantincreased in fiscal 2020 at $92021 to $367 as compared to $47$9 in fiscal 2019.2020. Interest and dividend income for those same years increaseddecreased to $66,862 from $44,014 to $71,193, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of May 31, 2020,2021, the Company had cash and cash equivalents in the amount of $8,641,027$4,199,311 as compared to $686,785$8,641,027 of cash and cash equivalents as of May 31, 2019.2020.  As of May 31, 20202021 and 2019,2020, the Company had working capital of $7,930,687 and $13,289,670, respectively. We believe that the aggregate of our existing cash and $3,230,535, respectively.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.

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Operating Activities

During fiscal 2020,2021, cash used in operating activities was $4,297,498$5,251,748 as compared to $2,244,039$4,297,498 in fiscal 2019.2020. 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, which was a result of prepayments for inventory purchase orders.$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.  During fiscal 2019, the Company had a net loss of $2,393,060 and an increase in accounts receivable of $670,126.  These were offset by an increase in accounts payable and accrued expenses of $343,994, a non-cash stock option expense of $151,224 and depreciation and amortization of $162,905.

Investing Activities

During fiscal 2020,2021, cash used in investing activities was $118,927$295,583 as compared to $171,111$118,927 in fiscal 2019.2020. 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 had $85,319 in increased intangible assets related to patents. During fiscal 2019, the Company purchased $101,137 of property and equipment and $69,974 in increased intangible assets related to patents.

Financing Activities

Cash provided by financing activities in fiscal 20202021 was $12,373,977$1,113,730 as compared to $1,907,427$12,373,977 in fiscal 2019.2020.  In fiscal 20202021 and 2019,2020, the Company had proceeds from the exercise of stock options of $223,534$102,255 and $121,790,$223,534, respectively. During fiscal 20202021 and 2019,2020, the Company received $10,232,857$1,011,475 and $1,776,575,$10,232,857, respectively, in net proceeds from the sale of common stock through the two S-3 Registration Statement,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 and fiscal 2019 was issued under the S-3 “shelf” Registration Statement base prospectus filed with the SECSecurities 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 $4.24per 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. (the “Company”) 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 million,$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.

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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 this offeringthese 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.

25SUBSEQUENT EVENTS

Subsequent Events

On June 16, 2020,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 announced it had submittedwere 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 U.S. FDA an EUA application for an ELISA lab-based serology blood test for the detection of antibodies that identify if a person has been infected with COVID-19.  This is the third COVID-19 antibody test introduced by the Company. The other two, which are finger-prick rapid tests, are only being sold outside of the US. The Company also intends to obtain a CE Mark to allow the sale and marketing of this ELISA laboratory test outside of the US.

On July 20, 2020, the Company filed with the SEC an S-3 registration statement that among other things registered all of the common shares issued, or to be issued, to Palm upon conversion of the Convertible Preferred Stock into common shares. The Company anticipates this registration statement shall become effective promptly following the filing of this annual report on Form 10-K with the SEC.were approximately $824,000.

On July 20, 2020, the Company’s outstanding Securities and Exchange Commission (“SEC”) Form S-3 “Shelf” registration statement dated July 20, 2017 expired. This prior registration statement registered an indeterminant number of shares equating to a maximum aggregate offering amount of $45,000,000 of shares.

On July 20, 2020,June 21, 2021, the Company filed with the SEC a new Form S-3 “Shelf” registration statement to replace the registration statement that expired on that day. The new registration statement registers common shares to be issuedsigned an exclusive distribution and marketing agreement in a maximum aggregate amount of $90,000,000. On July 27, 2020Canada for its Helicobacter Pylori (H. Pylori) test.

In June 2021, the Company received notice froma patent in Japan (#6902526) for the SEC that they did not intend to review this new registration statement,System and as such the Company expects this Form S-3 registration statement to be declared effective promptly following the filing of this Form 10-K. The Company filedMethod for a larger maximum issuance amount in anticipationDigital Health System Providing a Food Recommendation Based on Food Sensitivity Testing. This technology is designed to allow for easier implementation of the approaching completion of the Company’s clinical trials for its dietary restrictions that result from InFoods® IBSdiagnostic 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 and the subsequent product launch that may require raising significant capital associated with this substantial opportunity to grow revenues and profits. Further, the Company’s current data shows that the InFoods technology platform has great promise in diagnosing and treating several other disease states outside of IBS. The pursuit of this expanded portfolio of disease states and other opportunities may also require significant capital in the future.     labels.

OnIn August 7, 2020,2021 the Company received a notice of allowance fromfor a patent in Japan whose claims cover the USPTOuse of a key patent pertaining to the Company’s InFoods IBS Product. This is the second patent issued in the U.S. for the InFoods® IBS technology and contains broad issued claims that the Company believes create strong protection for the InFoods® IBS product that is in clinical trials with several major medical institutions including Mayo Clinic, University of Texas Houston, Michigan Medicine University of Michigan, Houston Methodist and Beth Israel Deaconess Medical Center, a Harvard teaching hospital. The Company has also been issued patents for the InFoods® IBS product in Japan and Korea, and has numerous InFoods® IBS patents in review and prosecution in other countries. In addition, the Company has also filed several patents, both in the U.S. and internationally, for the InFoods® IBS technology platform that include broad claims protecting the uses of the Infoods Technology to diagnose and treat other disease states outsidedepression, and covers the compositions, devices and methods of IBS. Several of these patents are currently in active prosecution and review.depression sensitivity testing.

On August 3, 2020, the Company hired Steven Sloan, whom the Board intends to appoint as Chief Financial Officer (“CFO”) on September 3, 2020, following the filing of this Form 10K.  In approximately December 2019, Janet Moore, the Company’s current CFO, announced to the Board her desire to retire from the Company at some point in the future once a suitable replacement could be found and hired. As such, the Company conducted an exhaustive search for a new CFO, and having determined Mr. Sloan to be an excellent candidate, hired Mr. Sloan on August 3, 2020.  At the Board meeting held on August 27, 2020, the Board officially appointed and approved Mr. Sloan to serve as the Company’s CFO effective September 3, 2020.  Mr. Sloan’s background and experience includes 13 years at General Electric with roles in internal audit, corporate finance and manufacturing finance.  Most recently, Mr. Sloan spent 10 years with medical device maker Medtronic.  At Medtronic, Mr. Sloan worked in four divisions over the 10 years, and most recently served as a divisional finance director.  The Board is excited to have Mr. Sloan join the company as an executive officer. Janet Moore will remain an employee of the Company during a transition period.

On August 27, 2020, at a Board meeting held on that day, the Board nominated, unanimously approved and elected Cathy Coste to join the Board of Directors as a member of the Board effective September 3, 2020. Ms. Coste was elected to serve as a Board member until the Company’s annual meeting in December 2020, at which time she will stand for re-election along with several other members of the Board. Ms. Coste is replacing Janet Moore, the Company’s current CFO and Board member who, as previously stated, has announced her retirement from the Company and the Board and will not be standing for re-election at the upcoming annual meeting in December 2020. Cathy Coste is in the process of retiring from Deloitte and Touche where she is currently a senior partner and is an industry executive leader in Deloitte’s life sciences group. During her career at Deloitte, Ms. Coste has been directly involved with over 30 life science corporations, the majority of which were large-cap and medium-cap public corporations. Ms. Coste also has extensive public company Board experience, often attending multiple Board and Board Committee meetings per month. Ms. Coste also has extensive experience in Sarbanes-Oxley compliance, corporate risk analysis and management, cyber risk assessment, fraud prevention, IT systems analysis and upgrades, internal controls and corporate governance.

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On August 27, 2020, at a Board meeting held on that day, Board Member, Allen Barbieri, agreed to change from independent outside director status to become an executive director. Further, Mr. Barbieri’s title was changed to Executive Vice- Chairman. As the Company’s many new products, projects and opportunities have expanded, the CEO and the other members of the Board felt it was necessary to have additional executive support with managing the strategic transactions, operations and affairs of the Company, and to manage communications between the Board and management. Mr. Barbieri agreed to take on this additional responsibility.

On August 27, 2020, at a Board of Directors meeting held on that day, with the election of Ms. Coste as a member of the Board, and the designation of Mr. Barbieri as an executive Board member, the Board deemed it necessary to make certain changes to the Committees of the Board. As such, effective September 3, 2020, the following Board members will be serving in the following Board committees;  1) Audit Committee: Cathy Coste, Mark Sirgo and Jane Emerson, with Cathy Coste as the Chair of the Committee,  2) Compensation Committee: Mark Sirgo, Francis Cano and Jane Emerson, with Mark Sirgo as the Chair of the Committee,  3) Nominating and Corporate Governance Committee: Francis Cano, Cathy Coste and Jane Emerson, with Francis Cano as Chair of the Committee.

OFF BALANCE SHEET ITEMS

There were no off-balance sheet arrangements as of May 31, 2020.2021.

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.

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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.

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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 $3,175,000$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 $3,175,000,$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.

In February 2016,REVENUE RECOGNITION

The Company has various contracts with customers.  All of the Financial Accounting Standards Board issued an accounting standards update which requires lessees to recognize most leases on the balance sheet with a corresponding right-of-use asset.  Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arisingcontracts specify that revenues from the lease.  Right-of-use assets and lease liabilitiesproduct sales are recognized at the lease commencement date based ontime the estimated present valueproduct is shipped, customarily FOB shipping point, which is when the transfer of fixed lease payments overcontrol of goods has occurred and at which point title passes. The Company does not allow for returns except in the lease term.  Leasesevent 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 classifiedgiven through the end of the contract periods. Services for some contract work are invoiced and recognized for work that has been performed as financing or operating which will drive the expense recognition pattern.  For lessees, the statementproject 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 operations presentation and expense recognition pattern for financing and operating leases is similarwhom are categorized below according to the current modeltype of products sold to them. We also manufacture certain components on a contract basis for capitaldomestic and operating leases, respectively.  The Company has elected to exclude short-term leases.  The update also requires additional disclosures that will better enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.  The Company adopted this guidance as of June 1, 2019, the required effective date, using the effective date transition method.  As permitted under the effective date transition method, financial information and disclosure for periods prior to the date of initial application will not be updated. An adjustment to opening accumulated deficit was not required in conjunction with adoption. The adoption of this statement resulted in a right-of-use asset being recorded in the amount of $1,942,999 and a lease liability being recorded in the amount of $1,980,970. Both will be amortized over the life of the underlying leases. For additional information, see Note 8-Commitments and Contingencies. The Company has elected not to reassess whether expired or existing contracts contain leases, or reassess the classification of existing leases as of the adoption date. The Company leases office space and copy machines, all of which are operating leases.  Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to extend or terminate a lease are considered in the lease term to the extent that the option is reasonably certain of exercise.  The leases do not include the options to purchase the leased property.  The depreciable life of assets and leasehold improvements are limited by the expected lease term.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.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.

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 ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

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, 2020,2021, 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.

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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.

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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, 2020,2021, 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.

ITEM 9B.   OTHER INFORMATION.

None.

PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE. 

This information is incorporated by reference to the Company's proxy statement for its 20202021 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, 2020.2021.

ITEM 11.    EXECUTIVE COMPENSATION

This information is incorporated by reference to the Company's proxy statement for its 20202021 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, 2020.2021.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Other information regarding related transactions is incorporated by reference to the Company's proxy statement for its 20202021 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, 2020.2021.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

Please refer to the Company’s proxy statement for its 20202021 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, 2020.2021.

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PART IV

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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.

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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature and Capacity