NOTE 6: SHAREHOLDERS' EQUITY

On February 24, 2020, the Company filed with the Secretary of State of Delaware a certificate of designation to authorize for issuance 571,429 shares of Series A 5% Convertible Preferred Stock. On February 26, 2020, the Company filed with the Secretary of State of Delaware a certificate of correction, correcting certain language defects in the previously filed certificate of designation. Please see below a description of the Series A 5% Convertible Preferred Stock shares that were issued in February 2020, and subsequently converted into registered common shares.

STOCK OPTION AND RESTRICTED STOCK PLANS

In August 2010, the Company adopted a stock option and restricted stock plan (the "2010 Plan") which provided that non-qualified options and incentive stock options and restricted stock covering an aggregate of 850,000 shares of the Company's unissued common stock could be granted to affiliates, employees or consultants of the Company. This plan was approved by shareholders in December 2010. The 2010 Plan expired in December 2020. Options granted under the 2010 Plan were granted at prices not less than 80% of the then fair market value of the common stock and will expire not more than 10 years after the date of grant.

In December 2014, the Company adopted a stock option and restricted stock plan (the "2014 Plan") which provides that non-qualified options and incentive stock options and restricted stock covering an aggregate of 850,000 shares of the Company's unissued common stock may be granted to affiliates, employees or consultants of the Company. This plan was approved by shareholders in December 2014. The 2014 Plan expires in December 2024. Options granted under the 2014 Plan will be granted at prices not less than 80% of the then fair market value of the common stock and will expire not more than 10 years after the date of grant.

In December 2017, the Company adopted a stock option and restricted stock plan (the “2017 Plan”) which provides that non-qualified options and incentive stock options and restricted stock covering an aggregate of 900,000 shares of the Company’s unissued common stock may be granted to affiliates, employees or consultants of the Company. This plan was approved by shareholders in December 2017. The 2017 Plan expires in December 2027. Options granted under the 2017 Plan will be granted at prices not less than 80% of the then fair market value of the common stock and will expire not more than 10 years after the date of grant.

In February 2020, the Board approved the 2020 Stock Incentive Plan (the “2020 Plan”) and on December 11, 2020 the shareholders of the Company approved The Plan. The 2020 Plan authorizes the issuance of an aggregate number of common stock options and/or restricted common shares to be issued in an amount not to exceed 900,000. The 2020 Plan authorizes the issuance of common stock options and restricted common shares to employees, directors and consultants of the Company. During fiscal 2020, certain common stock options were granted under this plan.

The Company accelerated the vesting of its former CFO’s options upon her voluntary resignation from the board of director on December 10, 2020. This resulted in the immediate vesting of 64,584 options and incremental expense of approximately $184,000 during the year ended May 31, 2021.

Stock option expense during fiscal 2021 was $1,354,609. This included, by department, $956,898 for administrative, $204,509 for production, $125,439 for research and development and $67,763 for sales and marketing.

Stock option expense during fiscal 2020 was $538,587. This included, by department, $416,953 for administrative, $66,444 for production, $40,254 for research and development and $14,936 for sales and marketing.

Activity as to aggregate stock options outstanding is as follows:

	NUMBER OF STOCK OPTIONS	EXCERCISE PRICE RANGE PER SHARE	WEIGHTED AVERAGE EXERCISE PRICE
Options outstanding at May 31, 2019	1,476,209	$0.82-$3.90	$	2.07
Options granted	517,500	$2.68-$8.18	$	4.47
Options excercised	(137,958)	$0.82-$3.90	$	1.64
Options canceled or expired	(66,500)	$0.85-$8.18	$	3.43
Options outstanding at May 31, 2020	1,789,251	$0.82-$8.18	$	2.75
Options granted	430,616	$5.14-$8.70	$	6.73
Options excercised	(86,750)	$0.82-$3.62	$	1.20
Options canceled or expired	(51,751)	$2.35-$8.18	$	4.77
Options outstanding at May 31, 2021	2,081,366	$0.82-$8.70	$	3.59

The weighted average fair value of options granted during 2021 and 2020 was $6.73 and $4.47, respectively. The aggregate intrinsic value of options exercised during 2021 and 2020 was approximately $501,000 and $589,000, respectively. The aggregate intrinsic value of options outstanding at May 31, 2021 and 2020 was approximately $2,132,000 and $6,923,000, respectively. The aggregate intrinsic value of options vested and exercisable at May 31, 2021 and 2020 was approximately $1,872,000 and $4,442,000, respectively.

The number of non-vested stock options included in the table above is as follows:

	Number of shares	Stock options weighted average grant date fair value
Non-vested shares at May 31, 2020	822,584	$	3.78
Granted	430,616		6.73
Vested	(409,459)		3.36
Forfeited	(50,500)		4.80
Non-vested shares at May 31, 2021	793,241	$	5.54

At May 31, 2021, total compensation cost related to non-vested stock option awards not yet recognized totaled approximately $2,156,000. The weighted-average period over which this amount is expected to be recognized is 2.59 years. The weighted average remaining contractual term of options that were exercisable at May 31, 2021 was 6.07 years.

The following summarizes information about all of the Company's stock options outstanding at May 31, 2021. These options are comprised of those granted under the 2010, 2014, 2017 and 2020 plans.

RANGE OF EXERCISE PRICES	NUMBER OUTSTANDING MAY 31, 2021	WEIGHTED AVERAGE REMAINING CONTRACTUAL LIFE IN YEARS	WEIGHTED AVERAGE EXERCISE PRICE	NUMBER EXCERCISABLE AT MAY 31, 2021	WEIGHTED AVERAGE EXERCISE PRICE
$0.82-$1.04	216,000	3.75	$0.82	216,000	$0.82
$1.20-$2.81	1,024,500	6.45	$2.17	795,250	$2.02
$3.62-$8.70	840,866	8.00	$6.03	276,875	$4.54

COMMON STOCK ACTIVITY

During the year ended May 31, 2020, options to purchase 137,958 shares of common stock were exercised at prices ranging from $0.82 to $3.90. Total net proceeds to the Company were $223,534.

On December 1, 2017, the Company entered into an At Market Issuance Sales Agreement (or “ATM Agreement”) with an agent, and filed a prospectus supplement with the SEC pursuant under which the Company could offer and sell from time to time up to an aggregate of $7,000,000 of shares of the Company’s common stock, par value $0.08 per share (the “Placement Shares”), through the agent. From December 1, 2017 to March 19, 2020, the Company sold common stock resulting in $6,997,935 of gross proceeds under this ATM Agreement, of which $3,771,048 were sold during the year ended May 31, 2020. This At Market Issuance Agreement expired on July 20, 2020 upon the expiration of the Company’s Form S-3 registration statement base prospectus dated July 20, 2017.

The Placement Shares sold and issued under this ATM Agreement have been registered under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the Registration Statement on Form S-3 (File No. 333-219130) (the “Registration Statement”), which was originally filed with the SEC on June 30, 2017 and declared effective by the SEC on July 20, 2017, the base prospectus contained within the Registration Statement, and the prospectus supplement related to the sale of shares under the ATM Agreement was filed with the SEC on December 1, 2017.

On March 20, 2020, the Company filed a new prospectus supplement to the S-3 registration statement 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 Agreement. This ATM Agreement expired on July 20, 2020 upon the expiration of the Company’s Form S-3 registration statement base prospectus dated July 20, 2017. Gross proceeds for the year ended May 31, 2020 were $6,817,330. There were no proceeds for the year ended May 31, 2021, for this July 20, 2017 Form S-3 registration statement.

Combined Placement Shares sold under the ATM Agreements during the year ended May 31, 2020 under the two prospectus supplements dated December 1, 2017 and March 20, 2020 totaled 1,674,943 shares. Total net proceeds from the sale of Placement Shares under the two prospectus supplements during the year ended May 31, 2020 were $10,232,857 after deducting commissions for each sale and legal, accounting, and other fees related to the filing of the Form S-3. These shares were sold at prices ranging from $2.33 to $9.08 per share.

On September 11, 2020, the Company filed a Pre-Effective Amendment No. 1 to the Form S-3 to register 571,429 shares of Biomerica common stock in connection with the Stock Purchase Agreement dated February 21, 2020, wherein the Company entered into a registration rights agreement with the selling stockholder, pursuant to which we agreed to file a registration statement registering the resale of the shares of our common stock issuable upon conversion of our Series A Preferred Stock issued to the selling stockholder under the Stock Purchase Agreement.

On September 30, 2020, the Company received a Notice of Effectiveness from the Securities and Exchange Commission for the Form S-3 “shelf” Registration Statement filed on July 21, 2020 and amended on September 11, 2020.

During the year ended May 31, 2020, 250,000 shares of common stock were converted from Preferred Stock as described below in “Preferred Stock Activity”.

During the year ended May 31, 2021, options to purchase 86,750 shares of common stock were exercised at prices ranging from $0.82 to $3.62. Total net proceeds to the Company were $102,255.

On January 22, 2021, the Company filed a Prospectus Supplement for purposes of raising up to $15,000,000 to the base prospectus filed with the SEC on July 21, 2020 and declared effective by the SEC on September 30, and an ATM Agreement.

On May 21, 2021, in conjunction with the Company’s 2020 Stock Incentive Plan, that was approved by shareholders at the Company’s annual meeting in December 2020, the Company filed an S-8 Registration Statement to register up to 900,000 shares of the Company’s common stock that could be issued under this Plan.

Under an ATM Agreements, sales of the Placement Shares are deemed to be “at the market offering” as defined in Rule 415 promulgated under the Securities Act. The agent acts as sales agent under the ATM and uses commercially reasonable efforts to sell on the Company’s behalf all of the Placement Shares requested to be sold from time to time by the Company, consistent with its normal trading and sales practices, on mutually agreed terms between the agent and the Company. The Company has no obligation to sell any of the Placement Shares under the ATM Agreement, and may at any time suspend offers under, or terminate the ATM Agreement.

During the year ended May 31, 2021, 321,429 shares of common stock were converted from Preferred Stock as described below in “Preferred Stock Activity”.

During the year ended May 31, 2021, the Company sold 158,889 shares of its common stock at prices ranging from $7.06 to $7.79 under its Form S-3 Registration Statement (File No. 333-239980) and ATM Agreement which resulted in gross proceeds of $1,177,394 and net proceeds to the Company of $1,011,475 after deducting commissions for each sale and legal, accounting and other fees related to the filing of the Form S-3.

PREFERRED STOCK ACTIVITY

On February 24, 2020, 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, or $3.50 per Series A Convertible Preferred Stock. 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, subject to certain adjustments.

The Series A 5% Convertible Preferred Stock accrued annual preferred dividends at a rate of $0.175 per Series A 5% Convertible Preferred Share. However, accruing dividends were payable only when, as, and if declared by the Board and the Company had no obligation to pay such accruing dividends.

On March 24, 2020, Palm converted 250,000 shares of Convertible Preferred Stock into 250,000 shares of unregistered common stock. On July 21, 2020, the Company filed with the SEC a registration statement on Form S-3, that among other things, registered 571,429 common shares issued, or to be issued, to Palm upon conversion of the Convertible Preferred Stock into common shares. On September 30, 2020, the Company received a Notice of Effectiveness from the Securities and Exchange Commission for registration of these shares. On January 21, 2021 Palm Converted their remaining 321,429 Convertible Preferred Shares into registered common shares. At May 30, 2021, the Company had no shares of Preferred Stock outstanding. Under the terms of the Preferred Stock Purchase Agreement, none of the cumulative Dividends were paid to Palm during the period they owned the Preferred Stock. Once converted to common shares, Palm lost all rights to receive any past cumulative dividends.