UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
☒
Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934
For
The Fiscal Year Ended May 31, 2024or
☐
Transition Report Pursuant to 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)
(949)
645-2111
(Registrant’s
telephone number, including area code)
Securities
registered under Section 12(b) of the Exchange Act:
Title of each class Trading Symbols Name of each exchange on which registered
Common Stock, par value $0.08 BMRA Nasdaq Capital Market
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
Yes
☐ No ☒
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
☐ No ☒
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
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Yes
☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☐
Non-Accelerated Filer ☒ Smaller Reporting Company ☒
Emerging Growth Company ☐
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. ☐
If securities are registered pursuant to Section 12(b)
of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of
an error to previously issued financial statements. ☐
Indicate by check mark whether any of
those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
☐ No ☒
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 last 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 15,639,082 shares held by non-affiliates and the closing price of $0.93 per
share for Common Stock as of November 30, 2023): $14,544,346.
The
outstanding number of shares of common stock, par value $0.08, as of August 28, 2024 was 16,821,646.
DOCUMENTS
INCORPORATED BY REFERENCE: Portions of the registrant’s definitive Proxy Statement on Schedule 14A relating to the registrant’s
2024 annual meeting of stockholders, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K, are incorporated by reference in Part III, Items 10 through 14 of this Annual Report
on Form 10-K. Except for the portions of the Proxy Statement specifically incorporated by reference in this Form 10-K, the Proxy Statement
and related proxy solicitation materials shall not be deemed to be filed as part hereof.
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,” in this Form 10-K 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.
Our diagnostic test kits are utilized in the analysis of blood, urine, nasal, or fecal samples for the diagnosis of various diseases,
food intolerances, and other medical conditions. These kits also measure levels of specific hormones, antibodies, antigens, and other substances,
which may exist in the human body at extremely low concentrations. Our products are designed to enhance health
and well-being while reducing overall healthcare costs.
Our
extensive range of medical diagnostic products is sold worldwide, primarily in two markets: clinical laboratories and point-of-care settings,
including physicians’ offices and over-the-counter sales at major retailers such as Walmart, CVS Pharmacy, and Amazon. Most of
our products are Conformite Europeenne (“CE”) marked and/or registered with regulatory agencies in various countries for diagnostic use, with several also cleared
for sale in the United States by the FDA.
IMPACT OF COVID-19 ON REVENUES
In response to the global COVID-19 pandemic, we began developing, marketing, and selling COVID-19 diagnostic tests
in March 2020. These tests contributed significantly to our revenues during fiscal years 2021 and 2022. However, demand sharply declined
in fiscal 2023, leading to no sales of COVID-19-related products in fiscal 2024. As a result, our COVID-19 product sales have caused significant
fluctuations in our revenues over the past four years.
In
contrast, our non-COVID-19 products, have accounted for approximately 100% and 96% of our revenues during the fiscal years ended May
31, 2024, and 2023, respectively, and have remained our core focus.
TECHNOLOGICAL ADVANCEMENTS AND PRODUCT
DEVELOPMENT
Technological
advances in medical diagnostics have enabled the performance of diagnostic tests not only in clinical laboratories but also at home
and in point-of-care settings, such as physicians’ offices. A key objective for us has been the development and marketing of
rapid diagnostic tests that are accurate, utilize easily obtained patient specimens, and can be performed without the need for
complex instrumentation. Our over-the-counter (home use) and professional use (physicians’ office, clinics, etc.) rapid
diagnostic test products help manage existing medical conditions and may save lives through early detection and diagnosis of
specific diseases. Traditionally, such tests required the expertise of medical technologists and sophisticated equipment, with
results often not available for days. We believe that properly developed and utilized rapid point-of-care tests can match the accuracy of laboratory tests, delivering reliable results in
minutes with minimal or no instrumentation.
RESEARCH AND DEVELOPMENT
We
invest considerable resources in the research and development of new products designed to diagnose and, in some cases, treat several
major medical diseases. These products are both internally developed and obtained through licensing agreements. Our experienced and
highly trained technical personnel, including Ph.D. holders and other scientists, are dedicated to developing new products and
managing technology transfer activities. Many of our technical staff have extensive industry experience from previous employment at
large diagnostic manufacturing companies. We also rely on our Scientific Advisory Board, comprised of leading medical doctors and
clinicians, to guide our clinical studies and product development efforts.
KEY PRODUCT LAUNCHES
A
key outcome of our recent research and development efforts is our patented diagnostic-guided therapy (“DGT”) product, developed on the
inFoods® technology platform. This innovative product is designed to treat gastrointestinal conditions such as irritable bowel syndrome
(“IBS”) and other inflammatory diseases, targeting chronic inflammatory conditions prevalent in large markets. The inFoods® IBS product,
which we have already launched, uses a simple blood test to identify patient-specific foods that, when eliminated, may alleviate IBS
symptoms such as pain, bloating, diarrhea, cramping, and constipation. Unlike broad dietary restrictions, the inFoods® IBS product
pinpoints a patient’s heightened immunoreactivity to specific foods known to frequently trigger IBS symptoms, providing targeted
relief.
We
have launched our inFoods® product across numerous gastroenterology (“GI”) physician groups in various states and regions, including
collaboration with one of the largest GI groups in the U.S. Feedback from GI specialty physicians has been positive, and we are actively
expanding our network by onboarding additional physician practices. Our dedicated sales team is focused on deepening relationships within
the GI segment and targeting opportunities to introduce inFoods® to other medical specialties, including integrated health practices
and concierge physicians. We are also evaluating distribution, partnership, and licensing opportunities with U.S. and multinational
companies to accelerate the commercialization and growth of inFoods® products both domestically and internationally.
Beyond
our inFoods® product line, our additional efforts have led to a significant milestone by receiving FDA clearance in December
2023 for hp+detectTM, a new diagnostic test for detecting Helicobacter pylori (H. pylori) bacteria in the gastrointestinal
tract. H. pylori is a widespread infection, affecting an estimated 35% of the U.S. population and 45% of the population in Europe’s
five largest countries. This bacterium is recognized as the strongest known risk factor for gastric cancer, which is the third most common
cause of cancer-related deaths globally.
The
hp+detectTM test provides physicians and medical centers with a reliable tool for diagnosing H. pylori infections and monitoring
the effectiveness and safety of treatments. The diagnostic test is marketed directly to laboratories, where patient samples are analyzed.
We are actively promoting hp+detectTM to large end-customer labs to support its launch and distribution, aiming to enhance patient
care through timely and accurate detection of H. pylori infections.
STRATEGIC
INITIATIVES AND COST MANAGEMENT
Due
to slower-than-expected launches of our key products, inFoods® IBS and hp+detectTM, we have initiated significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead
costs. These measures include a workforce reduction of nearly 15% and a significant reduction in expenses. Additionally, we are actively exploring strategic opportunities
to enhance shareholder value.
OPERATIONS AND GLOBAL PRESENCE
Biomerica
is headquartered in Irvine, California, where it centralizes administration, finance, regulatory compliance, product development, sales,
marketing, customer service, and primary manufacturing operations. To enhance global competitiveness, the Company maintains manufacturing
and assembly operations in Mexicali, Mexico, aiming to reduce production costs. Additionally, Biomerica operates BioEurope GmbH in Europe,
facilitating the international sales of specific products.
Additional
information about Biomerica is available on our website at www.biomerica.com. The content on any website referred to in this Form 10-K
is not a part of or incorporated by reference in this Form 10-K unless expressly noted. Our Annual Report on Form 10-K, Quarterly Reports
on Forms 10-Q, Current Reports on Forms 8-K, Proxy Statements and all other filings we make with the Securities and Exchange Commission
(“SEC”) are available on our website, free of charge, as soon as reasonably practical after we file them with or furnish
them to the SEC and are also available online at the SEC’s website at www.sec.gov.
PRODUCTION
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
employ a team of highly qualified technical personnel, including Ph.D. holders and experts with extensive experience in the
development and production of diagnostic tests, to support our research and development (“R&D”) initiatives. Our team is actively
engaged in enhancing existing products and driving ongoing innovation. R&D expenses encompass materials, supplies, personnel,
consultants, facilities, outside clinical trial sites, equipment, and contract services. For the fiscal years ended May 31, 2024,
and 2023, consolidated R&D expenses totaled approximately $1,491,000 and $1,584,000, respectively. We anticipate that R&D
expenses will decrease significantly in the upcoming quarters as we are in the commercialization phase of inFoods®
and hp+detectTM and in an effort to preserve cash.
A
cornerstone of our R&D efforts is the development of our proprietary
diagnostic-guided therapy, known as the inFoods® technology. This platform enables physicians to identify patient-specific foods (e.g.,
pork, milk, onions, sugar, chickpeas) that, when eliminated from the patient’s diet, may alleviate or improve symptoms of IBS and other conditions. We have filed patents globally related to the use of inFoods® diagnostic technology for
detecting abnormal immune responses in patients with various diseases. Many of these patents have been recently issued, while others are
in the review and prosecution phase. The United States Patent and Trademark Office (“USPTO”) has granted us two patents with broad claims
protecting the inFoods® IBS product. Additionally, patents have been issued in Australia, Japan, Korea, Mexico, and Singapore. Further
patent applications related to the inFoods® IBS product are pending or under review in the United States and other countries.
We are also developing and have filed patents for additional products targeting
other diseases using the inFoods® technology platform. These diseases include Functional Dyspepsia, Crohn’s Disease, Ulcerative
Colitis, Gastroesophageal Reflux Disease (“GERD”), Migraine Headaches, Depression, and Osteoarthritis. In addition to our issued U.S. patents,
we now hold 36 foreign patents that have either been issued or for which we have received
a notice of allowance, covering over 50 countries. These patents protect the use of inFoods® technology for IBS and several other
conditions. Notably, our first patent allowed for a disease other than IBS was granted in Japan in August 2021, covering the use of inFoods®
technology for diagnosing and treating depression.
Our
additional R&D efforts have led to the 510(k) clearance of our proprietary H. pylori test, hp+detectTM, which is
designed to provide highly accurate sensitivity and specificity for detecting H. pylori and monitoring treatment.
MARKETS
AND METHODS OF DISTRIBUTION
Biomerica
has approximately 80 current customers for its diagnostic business, of which approximately 38 are foreign distributors, 12 are domestic
distributors and the balance are primarily domestic hospital and clinical laboratories, medical research institutions, medical schools,
pharmaceutical companies, chain drugstores, wholesalers, physicians’ offices, and e-commerce customers.
We
employ a director of sales and marketing for Europe and South America who is headquartered in Germany. She has over 20 years of experience
selling and marketing diagnostic and life science products across multiple diagnostics technologies and disciplines. She possesses broad
international business experience, with communication skills in German, English, Spanish, French, and Portuguese, and scientific and
technical understanding of gastrointestinal diagnostic products. She also has strong relationships with key strategic entities in Europe,
Eastern Europe, Latin America, Canada, and the United States and we expect that she will continue to help Biomerica add new distributors
for existing products and add new product-lines for future distribution by us.
We
rely on affiliated and unaffiliated distributors, advertising in medical and trade journals, exhibitions at trade shows, direct mailings,
and an internal sales staff to market our diagnostic products. We target two main markets: (a) clinical laboratories and (b) point-of-care
testing (physicians’ offices and over-the-counter drug stores).
Our
net sales were approximately $5,415,000 for fiscal 2024, compared to $5,339,000 for fiscal 2023. For the fiscal years ended May 31, 2024,
and 2023, the Company had one distributor each year that accounted for 33% and 35% of our net sales, respectively.
Total
gross receivables as of May 31, 2024, and 2023 were approximately $966,000 and $751,000, respectively. As of May 31, 2024, and 2023,
the Company had four and one distributor, respectively, that accounted for a total of 64% and 36% of gross accounts receivable. Of the
64% as of May 31, 2024, 37% was owed by a distributor in Asia.
BACKLOG
As
of May 31, 2024, and 2023, Biomerica’s backlog of unshipped orders was approximately $755,000 and $655,000, respectively. As of
May 31, 2024, the majority of this backlog consisted of orders intended for a distributor in Asia.
RAW
MATERIALS
Biomerica
utilizes a range of principal raw materials including chemicals, serums, reagents, and packaging supplies. The majority of these materials
are sourced from multiple suppliers, ensuring we are not reliant on any single source. However, for certain critical materials such as
antibodies, where suppliers are limited, there exists a risk of potential supply challenges or increased costs in the future.
Our
inventory includes antibodies, antigens, bottles, boxes, chemicals, and reagents essential for manufacturing our test kits, along with
products in various stages of completion.
During
the fiscal year ended May 31, 2024, purchases from one vendor accounted for 16% of our raw material procurement, primarily related to
Plates. In contrast, for the fiscal year ended May 31, 2023, the Company did not experience significant vendor concentration in raw material
purchases.
COMPETITION
We
offer several proprietary products with notable competitive advantages, including our EZ Detect colon disease home test, the Aware Breast
Self-Exam product, our inFoods® IBS product, and hp+detectTM for H. pylori detection. These products stand
out due to their unique features and benefits compared to competing tests in the market.
Our
competitors vary greatly in size. Many are divisions or subsidiaries of well-established medical and pharmaceutical companies which are
much larger than Biomerica and expend substantially greater amounts than we do for research and development, manufacturing, advertising,
and marketing.
The
competitive landscape for diagnostic products is shaped by several factors, including product uniqueness, technology, quality, performance,
pricing, and service. Our competitive edge is grounded in the distinctiveness of our offerings, the high quality of our products, and
their rapid test results. Our strong patent portfolio further bolsters our market position despite our limited marketing capabilities.
GOVERNMENT
REGULATION OF OUR DIAGNOSTIC BUSINESS
Our
primary business consists of selling products that are generally legally defined as medical devices and in vitro diagnostic medical devices.
As a result, we are considered to be a medical devices and in vitro diagnostic medical devices manufacturer, and as such, we are subject
to the regulations issued and enforced by of numerous governmental entities. These agencies include the FDA, Environmental Protection
Agency, Federal Trade Commission, Occupational Safety and Health Administration, U.S. Department of Agriculture (“USDA”),
and Consumer Product Safety Commission, as well as European Government agencies. Our activities are also regulated by various agencies
of the states and localities in which our products are sold. These regulations govern the introduction of new in vitro diagnostic medical
devices and medical devices, the observance of certain standards with respect to the manufacture and labeling of medical devices, the
maintenance of certain records, the reporting of potential product problems, and other matters.
The
Food, Drug & Cosmetic Act of 1938 (the “FDCA”) regulates medical devices in the United States by classifying them into
one of three classes based on the extent of regulation believed necessary to ensure safety and effectiveness. Class I devices are those
devices for which safety and effectiveness can reasonably be assured through general controls, such as device listing, adequate labeling,
and adherence to the Quality System Regulation (“QSR”) as well as Medical Device Reporting (“MDR”), labeling
and other regulatory requirements. Some Class I medical devices are exempt from the requirement of Pre-Market Notification or clearance.
Class II devices are those devices for which safety and effectiveness can reasonably be ensured through the use of special controls,
such as performance standards, post-market surveillance and patient registries, as well as adherence to the general controls’ provisions
applicable to Class I devices. Class III devices are devices that generally must receive clearance prior to marketing by the FDA pursuant
to a pre-market approval to ensure their safety and effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting,
or implantable devices. However, this classification can also apply to novel technology or new intended uses or applications for existing
devices. Our products are primarily either Class I or Class II medical devices.
Pursuant
to FDA requirements, we have registered our manufacturing facility with the FDA as a medical device manufacturer and listed the medical
devices we manufacture. We are also subject to inspection on a routine basis for compliance with FDA regulations. This includes the QSR,
which requires that we manufacture our products and maintain our documents in a prescribed manner with respect to issues such as design
controls, manufacturing, testing, and validation activities. Further, we are required to comply with other FDA requirements with respect
to labeling and MDR regulations 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 any product malfunctions that are likely to cause or contribute to death or serious
injury if the malfunction were to recur. We believe that we are currently in material compliance with all relevant QSR and MDR requirements.
In
addition, our facility is required to have a California Medical Device Manufacturing License. The license is not transferable and must
be renewed biannually. Our current license is valid until November 19, 2024. 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 where the product is sold. 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. We comply with In Vitro Diagnostic Medical Devices Directive
(“IVDD”) 98/79/EC and Medical Devices Regulation 2017/745 (“MDR”). We also comply with ISO 13485:2016 Medical
Devices Quality Management Systems – Requirements for Regulatory Purposes.
At
present, outside of the EU, the international regulatory review process varies from country to country. We work with our distributors
and sales representatives in the foreign countries in which we market our products to ensure that we comply with the regulatory laws
of those countries. We believe that our international sales to date have been in compliance with the laws of all foreign countries in
which we have made sales. Exports of most medical devices are also subject to certain FDA regulatory controls.
The
designing, development, manufacturing, marketing, post-market surveillance, distribution, advertising, and labeling of Biomerica’s
immunoassay in vitro diagnostic (“IVD”) medical device products are subject to regulation in the United States by the Center
for Devices and Radiological Health of the FDA and state agencies. FDA regulations require that some new products have pre-marketing
clearance or approval by the FDA and require these products to be manufactured in accordance with the FDA’s current Good Manufacturing
Practice (“cGMP”) regulations, to be extensively tested and to be properly labeled to disclose test results and performance claims and
limitations. After a product that is subject to FDA regulation is placed on the market, numerous regulatory requirements apply, including,
for example, the requirement that we comply with recordkeeping and reporting requirements, such as the FDA’s medical device reporting
regulations and reporting of corrections and removals. The FDA enforces these requirements by inspection and post-market surveillance.
The last FDA announced inspection was in May 2024 and no observations were noted. We believe that all Biomerica products sold in the
United States comply with the FDA and state regulations.
We
are an FDA regulated and ISO 13485:2016 certified In Vitro Diagnostic Medical Devices company. Our goal is to provide high quality medical
diagnostic products that generally meet or exceed customer requirements and comply with all applicable regulatory requirements: FDA 21
CFR Part 820 Quality Management System, ISO 13485:2016, Medical Devices Quality Management Systems – Requirements for Regulatory
Purposes, In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Regulation 2017/745, Guidelines related to
Medical Devices Directive/Regulation Guidance on CE Marking, among others. Biomerica involves 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
EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 was effective on May 26, 2022. Manufacturers need to update
their technical documentation and processes to meet the 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. Our
Notified Body is officially designated under the IVDR and listed in the European Commission NANDO database since August 19, 2021. We
are working closely with our Notified Body to update our technical documentation to comply with these more stringent IVDR requirements.
Per
IVDR 2017/746 Amendment Regulation (EU) 2022/112, and published proposal 2024/0021 (COD), devices with a CE certificate that was issued
in accordance with IVDD may be placed on the market or put into service until December 31, 2027, providing a formal application to the
notified body has been made by May 26, 2025.
Exceptional
Renewal of CE Certificate for IVDD Quality System was granted to Biomerica. Biomerica received an extended CE Certificate on May 24,
2022, which remains effective until May 26, 2025.
Per
IVDR 2017/746 Amendment Regulation (EU) 2022/112, and published proposal 2024/0021 (COD), devices without a CE certificate that was issued
in accordance with IVDD, for which a declaration of conformity was drawn up prior to May 26, 2022, per IVDD and for which the conformity
assessment procedure pursuant to IVDR requires the involvement of a Notified Body, may be placed on the market, or put into service until
the following dates. Biomerica also has until the following dates to update the technical documentation and processes to meet these regulatory
requirements of IVDR 2017/746 providing a formal application to the notified body has been made:
SEASONALITY
OF BUSINESS
Our
business has 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 our
last two fiscal years:
For the Year Ended May 31,
Our
international operations face distinct risks that differ from those encountered in the United States. These risks include economic fluctuations,
regulatory changes, geopolitical instability (such as terrorism and trade disputes), tariffs, embargoes, import/export restrictions,
and potential disruptions in shipping and distribution channels. Such factors can significantly impact our foreign sales and may complicate
our ability to collect accounts receivable in international markets during economic downturns.
Each
country has its own licensing requirements for diagnostic products, which can differ considerably from U.S. regulations and may change
unexpectedly. Currently, our international sales rely on approximately 38 independent distributors across around 30 countries. These
diverse factors contribute to the complexities and uncertainties associated with our international business operations.
INTELLECTUAL
PROPERTY
We
consider the protection of our methodologies, designs, product formulations, manufacturing processes, diagnostic procedures, copyrights,
service marks, trademarks, and trade secrets essential for our future success. To safeguard our proprietary rights in products and services,
we utilize copyright, trademark, patent, service mark, and trade secret laws, alongside contractual restrictions. Our efforts include
confidentiality and invention assignment agreements with employees and contractors, as well as nondisclosure agreements with most fulfillment
and strategic partners to restrict access to and disclosure of proprietary information. However, these measures may not entirely prevent
unauthorized use or disclosure of our technology.
In
the past, we have licensed and may continue to license certain proprietary rights, such as trademarks, patents, trade secrets, or copyrighted
material, to third parties. While we strive to maintain the quality of our product brands through these license agreements, we cannot
guarantee that licensees will always act in a manner that preserves the value of our proprietary rights or reputation.
LICENSE
OF THIRD-PARTY INTELLECTUAL PROPERTY
On
occasion, we in-licensed both exclusive and non-exclusive rights to intellectual property and patents owned by third parties. These license
agreements typically require royalties and other payments.
We
have a royalty agreement in which we obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions).
Royalty expenses of approximately $10,000 and $13,000, respectively, are included in cost of sales for this agreement for the fiscal
years ended May 31, 2024 and 2023. Sales of products manufactured under this agreement are not material to total sales for the fiscal
years ended May 31, 2024 and 2023, respectively. We may license other products or technology in the future as it is deemed necessary
or opportunistic for conducting business.
Some
of the products that we manufacture, sell, or use may be covered by claims in issued patents held by other persons or entities, and as
such, upon notice from such persons or entity we may be required to pay a license fee or may be required to cease all manufacture, sale
or use of such products, which could negatively impact us. While we have not been notified of any such claims by third parties, we cannot
guarantee that such claims will not be made in the future.
BRANDS
AND TRADEMARKS
We
occasionally register our tradenames with the USPTO. 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 2001, renewed in 2011 and 2021. On January 11, 2020, the USPTO renewed
our “FORTEL” trademark for another ten years.
The
laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Effective
copyright, trademark, and trade secret protection may not be available in such jurisdictions.
PATENTS
AND INFOODS TECHNOLOGY
We
have filed over 100 international and Patent Corporation Treaty patents (“PCT”) and have multiple provisional and non-provisional
patents currently filed with the USPTO. Substantially all of our patents that are pending or registered pertain to the inFoods®
technology platform.
Our
most important family of patent applications pertains to our inFoods® technology platform, which is a method of diagnosing
and treating symptoms of many different inflammatory diseases. Our first product launch using this technology is the inFoods®
IBS product which is designed to diagnose and treat IBS. Using a patient blood sample, a physician or lab can run our test to identify
specific foods (e.g., pork, milk, onions, sugar, chickpeas) that, if eliminated from an IBS patient’s diet, can alleviate or reduce
the individual’s IBS symptoms, including, but not limited to, constipation, diarrhea, bloating, cramping, severe pain, and indigestion.
We have filed many patent applications with the USPTO and with other such similar agencies in other countries outside of the United States
pertaining to this inFoods® technology. These patent applications include claims that address the diagnosis and treatment
of several disease states including IBS, functional dyspepsia, Crohn’s disease, ulcerative colitis, gastroesophageal reflux disease,
osteoarthritis, psoriasis, migraine headaches, and depression. These applications include the use of this technology in both humans and
animals. The first inFoods® patents filed by us pertained to IBS. Several of these patents pertaining to the inFoods®
IBS technology have been issued and many more are in active review and prosecution.
In
August 2018, we received our first patent pertaining to the inFoods® technology platform from the Korean Intellectual
Property Office, covering IBS. Since then, we have been granted a total of 19 patents; The USPTO has issued the Company two patents with broad claims that protect our inFoods® technology in testing
and treating patients with IBS. Patents have also been issued in the countries of Australia (two patents), Canada, Japan (two patents),
Korea (two patents), Mexico, Panama, Peru, and Singapore, covering our inFoods® IBS technology. Additional patent applications
pertaining to the inFoods® IBS product are in prosecution and review at the USPTO and with the patent issuance authorities
in other countries.
We
are also developing and have filed patents with claims that cover products that target other diseases utilizing the inFoods®
technology platform. We have dozens of patents in prosecution or review pertaining to these other diseases, including: Functional
Dyspepsia, Crohn’s disease, Ulcerative Colitis, GERD, Migraine Headaches, Depression,
and Osteoarthritis. In addition, we have a family of patents that cover the use of certain information technology (“IT”)
platforms and artificial intelligence/machine learning (“AI/ML”) tools that could assist patients in identifying and avoiding
packaged or processed food that contain specific foods that they are trying to eliminate from their diet.
In
addition to our IBS related issued patents, we have also been issued inFoods® technology patents in the following countries
pertaining to the following diseases: Australia – Attention Deficit Disorder (“ADD”) and Attention Deficit Hyperactivity
Disorder (“ADHD”); Australia – GERD; Japan - psychological depression, IT based food monitoring and elimination technology;
China – IT based food monitoring and elimination technology.
We
believe the claims in these issued inFoods® IBS patents and claims in our pending patents that protect the use of the
inFoods® technology to diagnose and treat various 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, we have 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. We anticipate that we will license or purchase the rights to other products or technologies in the future.
We
also engage in contract research and development and contract manufacturing for third party companies. The technologies that relate to
this contract R&D and manufacturing are protected by patents and other intellectual property. In these situations, this intellectual
property is typically licensed to us under a limited license agreement enabling us to perform the services being contracted.
We
have recently launched the inFoods® IBS product. Our business model for this product includes the potential out-licensing
of the product and related patents to a large international life sciences or technology company that could commercialize it or support
us in its commercialization. Additionally, we may explore out-licensing opportunities for the patents or intellectual property associated
with other products, including our H. pylori product.
EMPLOYEES
As
of May 31, 2024 and 2023, we employed a total of 64 and 62 employees, respectively, in the United States, Mexico, UK and Germany, of
which 63 and 62 were full-time employees, respectively. Various employees listed in the production department also perform research and
development duties as a routine function of their job. We occasionally employ temporary employees when needed.
The
following is a breakdown of employees by departments:
Administrative 6 5
Research & Development 7 9
Sales & Marketing 13 7
Production & Operations 38 41
We
do engage in a range of external experts, including Ph.D.’s, M.D.’s, and other industry specialists, as well as medical institutions,
to support various aspects of our operations. These services include technical support, regulatory guidance, marketing and public relations,
financial advisory, and contract product development and manufacturing. To safeguard the Company, we implement confidentiality agreements,
intellectual property ownership clauses, and indemnification provisions with these external parties. Despite these measures, we cannot
guarantee complete protection against third-party claims or potential intellectual property theft.
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
We
have a history of operating losses.
We
have a history of operating losses, and there is no guarantee that we will achieve profitability in the future. Our ability to generate
net profits and maintain positive cash flows is uncertain. Failure to achieve or sustain profitability could result in a decline in the
value of our common stock and may necessitate seeking additional funding under potentially unfavorable conditions.
Although our financial statements have been prepared on a going concern basis, our current level of cash
and cash equivalents available to us is not sufficient to meet our operating plans for the next 12 months, raising substantial doubt regarding
our ability to continue as a going concern.
Our
financial statements as of May 31, 2024, have been prepared under the assumption that we will continue as a going concern for the next
twelve months from the date of issuance. However, our independent registered public accounting firm has issued a report that includes
an explanatory paragraph highlighting our operational losses and expressing substantial doubt about our ability to continue as a going
concern for a period of at least the next twelve months from the date this report is filed.
Our
ability to continue as a going concern depends on obtaining additional financing, achieving further operating
efficiencies, increasing sales, reducing costs, and ultimately generating profitable operations. There is no assurance that we will be
able to secure the necessary capital on favorable terms, achieve sufficient revenue growth, or implement adequate cost reductions. Our
financial statements do not reflect any adjustments that might result from the resolution of this uncertainty.
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 subject to fluctuations due to factors outside our control, which may adversely affect our business, financial
condition, and stock price. Key factors include:
● Health Crises: Potential resurgence of COVID-19 or new health threats.
Fluctuations
in our operating results, for any reason, could cause operating losses as a result of significant fixed expenses.
We
base the scope of our operations and related expenses on our estimates of future revenues. A significant portion of our operating expenses
are fixed, and we may not be able to rapidly adjust our expenses if our revenues fall short of our expectations. Our revenue estimates
for future periods are based, among other factors, on estimated end-user demand for our products. If end-user consumption is less than
estimated, revenues from our distribution partners and other distribution channels would be expected to fall short of expectations, and
because such a significant portion of our costs are fixed, could result in operating losses.
To
remain competitive, we must continue to develop, obtain, and protect our proprietary technology rights; otherwise, we may lose market
share or need to reduce prices as a result of competitors selling technologically superior products that compete with our products, or
selling products at lower prices.
Our
ability to compete successfully in the diagnostic market depends on continued development and introduction of new products, technology,
and the improvement of existing technology. If we cannot continue to improve upon or develop, obtain, and protect our technology, our
operating results could be adversely affected.
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 and hp+detectTM, will
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.
The
Company is required to obtain government or regulatory certification in many countries and the European community to sell its products
in those countries or regions. There is no assurance that the Company will be able to retain its certification in the future. This includes
the possibility and risk that the Company’s products do not meet the new EU IVDR testing and documentation requirements in the
future as described in the above “Research and Development” section of this document.
Significant
government regulation exists in countries in which we conduct business. A large part of the Company’s sales is to distributors
in Europe, China, and other countries, which require us to maintain certain certifications to sell our products. Failure to comply with
current governmental regulations and quality assurance guidelines could cause the loss of these certifications, which could materially
adversely affect the results of the Company. Loss of certifications could lead to temporary manufacturing shutdowns, product recalls,
product shortages, or delays in product manufacturing and a decline in sales.
The
Company maintains a manufacturing plant in Mexico which presents risks to the Company including risks associated with doing business
outside the United States.
We
operate a significant manufacturing facility in Mexico through our subsidiary, Biomerica de Mexico. This international presence introduces
a range of risks, including exposure to local economic and political conditions. Factors such as social unrest, potential terrorism,
export and import restrictions, and fluctuations in currency exchange rates could impact our operations. Additionally, there is a risk
of labor shortages, which could affect our manufacturing capabilities. These factors could lead to unforeseen costs and disruptions,
materially impacting our business, financial results, and operational stability.
We
use hazardous materials in our research and production that may result in unexpected and substantial claims against us relating to handling,