PART I

ITEM 1. BUSINESS

BUSINESS OVERVIEW

THE COMPANY

Biomerica, Inc. ("Biomerica",(“Biomerica,” the "Company", "we", “us”“Company,” “we,” “us,” or "our"“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'physicians’ offices) and in hospital/clinical laboratories for detection and/or treatment of medical conditions and diseases. Our products are designed to enhance the health and well-being of people, while reducing total healthcare costs.

Our primary focus is the research, development, commercialization and developmentin certain cases regulatory approval, of revolutionary, patented, diagnostic-guided therapy (“DGT”) products to treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases. These products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. If these DGT products prove effectiveOur InFoods® IBS product uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate IBS symptoms such as pain, bloating, diarrhea and constipation. Instead of broad and difficult to manage dietary restrictions, the InFoods® IBS product works by identifying specific foods that may be an abnormally high immune response   in their clinical trials, and are ultimately cleared for sale by the U.S. Food and Drug Administration (“FDA”),patient. A food identified as positive, which is causing the abnormal immune response in the patient, can be simply removed from the diet to help alleviate IBS symptoms.

During fiscal 2022, we believe the revenues potential to the Company is significant.

We are currently finalizingcompleted an endpoint determination clinical studytrial on its InFoods®our InFoods® IBS product. This trial is beingwas 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. This trial monitored IBS patients over an 8-week treatment period to determine the efficacy of our InFoods® IBS product to improve the patients’ IBS symptoms or endpoints. The top-line trial results were reported in February 2022. Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in each patient subtype (including patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed). The greatest clinical improvements, including but not limited to abdominal pain and bloating, were seen in patients diagnosed with IBS-Mixed and IBS-Constipation, in the top line data. The purpose of the endpoint study was to validate the efficacy of the product, and to determine the primary symptom endpoint, or endpoints to be used in a final pivotal trial that will be conducted to attain the validation data needed to apply for U.S. Food and Drug Administration (“FDA”) clearance for the product.   We are continuing to review and refine the complete dataset and have selected the final endpoint that we would intend to use in a final pivotal trial. We are starting to develop the protocol for submission to the FDA, and once approved the trial will be run thereafter. The trial is expected to include the large medical institution participants that conducted the endpoint clinical trial, in addition to other new institutions. and a Clinical Research Organization.

Following the successful completion and positive results from the Company’s InFoods^® IBS clinical trial, we saw significant interest from Gastroenterology (“GI”) physicians who would like to provide the InFoods^® IBS product to their patients. Therefore, while we continue the work of advancing this product toward FDA clearance, during our fourth quarter of fiscal 2023, we launched the InFoods^® IBS product through a CAP-Certified high-complexity Clinical Laboratory Improvement Amendments (“CLIA”) laboratory facility and began offering the product as a laboratory developed test (“LDT”) to GI physicians. The first physician group to offer InFoods^® IBS to their IBS patients is Gastro Health at their flagship location in Miami, Florida. Gastro Health is a leading GI physician group with over 390 physicians operating in over 150 offices in seven states.

InFoods^® IBS product is currently offered on a “cash-pay” basis (without insurance reimbursement) to IBS patients. However, we have begun the process of speaking to reimbursement consultants who can help us seek and attain reimbursement through government pay (i.e., Medicare and Medicaid), and from private insurers.

We are also beginning the work of validating one new disease (such as ulcerative colitis or migraines), where there is evidence that certain foods can trigger or contribute to the symptoms found in patients suffering from those illnesses. Each InFoods^® test is developed specifically for patients suffering from the disease being targeted. For instance, the panel of foods that would be tested for patients with migraines will be different from the known problematic foods that we test for in IBS. We have already performed much of the initial research and development work necessary to determine what foods are commonly problematic for each of eight different diseases. We have found that some diseases show approximately 20 foods that are commonly problematic for patients, while other diseases show over 70 foods for which patients commonly show an abnormal immune response. Once the panel of problematic foods is identified for a specific disease, the panel must then be tested to confirm which of the problematic food are causing an abnormal and harmful immune response. We expect final patient enrollmentany new disease we target will follow a similar development pathway as InFoods^® IBS in September 2021,simultaneously seeking FDA clearance of the product while also launching the product as an LDT.

We are also continuing to evaluate partnership/licensing opportunities, as they arise, with U.S. 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 technologymultinational 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 outsideor accelerate revenue growth of, the US.  InFoods^® products in the United States and overseas.

Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians'(physicians’ offices and over-the-counter drugstores)drugstores like Walmart and Walgreens). The diagnostic test kits are used to analyze blood, urine, nasal or fecal specimens from patients in the diagnosis of various diseases, food intolerances 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.

During fiscal 2022, we finalized development of our H. Pylori diagnostic test that indicates if a patient is infected with the H. Pylori bacteria. H. Pylori infection is extremely common, and if left untreated, can lead to ulcers and possibly stomach cancers. During our fourth quarter of fiscal 2022, we applied for FDA clearance of this product though a 510(k) premarket submission. We have been in communication with the FDA answering certain follow-up questions and providing additional data as requested. We are working with the FDA to perform one additional set of in-lab tests that the FDA has requested prior to making their final determination on clearance of the product. Provided we receive FDA clearance, we will begin marketing the product in the U.S. market. We have already begun discussions with international distributors for this product and expect to see revenues through these international channels during 2024.

We have recently added new employees in our sales and marketing department in order to increase sales of existing products. In fiscal 2023, we also hired a Chief Commercial Officer (“CCO”) with broad experience launching new products at large diagnostic companies. Our CCO is focused on the commercial launch of the InFoods^® IBS product to the GI physician groups in the U.S. market.

Due to the global 2019 SARS-CoV-2 novel coronavirus (“COVID-19”) pandemic, in March 2020, we began redirectingdeveloping, marketing, and focusing a majorityselling COVID-19 diagnostic tests. In fiscal 2022, we generated revenues from the international sale of our resourcesCOVID-19 antigen tests. Due to develop, test, validate, seek regulatory approvalfalling demand for such tests, the Company generated 4% of our sales during fiscal year 2023, as compared to 75% of our revenue during fiscal year 2022. Due to the dramatic increase in fiscal 2022 revenues, and sell diagnosticsubsequent decrease in fiscal 2023 revenues from this COVID-related product, we saw significant volatility in our revenues and our earnings during those two fiscal years. By the end of fiscal year 2023, and during our fourth quarter, none of our revenues came from the sale of COVID-related tests.

Our non-COVID-19 products that indicate if a person has been infected by COVID-19. Duringaccounted for approximately 96% and 25% of our revenues during the 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,years ended May 31, 2023, and 2) COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if a patient is currently infected with the virus.  During the year, we sold these products outside of the U.S. under a CE Mark (European Conformity). Because individual orders for these tests have been large in size, this has created volatility and material fluctuations in our monthly and quarterly revenues. We continue to receive and fill orders for our COVID-19 test products.

Aside from the COVID-19 products we offer, the other products we sell2022, respectively, 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.United States 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 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'sphysician’s office (the point-of-care), rather than in the clinical laboratory. One of our objectives also has also been to develop and market rapid diagnostic tests that are accurate, employutilize easily obtained patient specimens, and are simple to perform without instrumentation. Our over-the-counter (home use) and professional use (doctor’s office, clinics, etc.) rapid diagnostic test products help to manage existing medical conditions and may save lives through early detection and prompt diagnosis.diagnosis of specific diseases. Typically, tests of this kind require the services of medical technologists and sophisticated instrumentation. Further, results are often not available until at least the following day. We believe that rapid point-of-care tests can be as accurate as laboratory tests when developed and used properly, may require limited to no instrumentation, can give reliable results in minutes, and can be performed with confidence in the home or the physician'sphysician’s office.

Biomerica maintains its headquarters in Irvine, California, where it houses administration, product development, sales and marketing, customer services and its primary manufacturing operations.  Biomerica also maintains manufacturing and assembly operations in Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more effectively worldwide.   We expend considerable funds in research and development of certain new products that diagnose and, in certain cases, are designed to be used as a therapy for several major medical diseases. These products are both internally developed and licensed from others. We employ experienced and highly trained technical personnel (including Ph.D.’s and other 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.

Biomerica maintains its headquarters in Irvine, California, where it houses administration, finance, regulatory compliance, product development, sales and marketing, customer services and its primary manufacturing operations. Biomerica maintains manufacturing and assembly operations in Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more effectively worldwide. Biomerica also has a legal entity in Europe, BioEurope GmbH, for the purpose of selling certain products internationally.

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/A10-K is not a part of or incorporated by reference in this Form 10-K/A10-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.www.sec.gov.

PRODUCTION

Most of our diagnostic test kits are manufactured and/or assembled at our facilities in Irvine, California and in Mexicali, Mexico. We established our manufacturing facility in Mexicali, Mexico in fiscal 2003 and moved a significant portion of our diagnostic packaging and assembly to that facility.

Production of diagnostic tests can involve formulating component antibodies and antigens in specified concentrations, attaching a tracer to the antigen, filling components into vials, packaging and labeling. We continually engage in quality control procedures to assure the consistency and quality of our products and to comply with applicable FDA and international regulations.

Our manufacturing operations and facilities are regulated by the FDA Good Manufacturing Practices for medical devices. We have an internal quality department that monitors and evaluates product quality and output. We also have an internal Quality Systems department whose goal is to ensure that our operating procedures are in compliance with current FDA, CE Mark and International Organization for Standardization(“ISO”) regulations. We either produce our own antibodies and antigens or purchase these materials from qualified vendors. We have alternate, approved sources for most critical raw materials and are working to procure alternate sources for the few that we do not have.

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RESEARCH AND DEVELOPMENT

During mostBeyond our focus on development of the fiscal year,our InFoods^® IBS product, we also focused mucha portion of our Research and Development (“R&D”) resources on developing several COVID-19continued validation of our H. Pylori diagnostic tests, as discussed in this section below, and pursuing the regulatory approval of two tests for the gastrointestinal market.test. Our increase in research and development spending is due todriven by our focus on these tests and outside clinical studies intended to demonstrate the feasibility of FDA clearance for such tests. We also utilize technical personnel, with Ph.D. and other degrees and extensive experience in development and production of health diagnostic tests, to conduct other development activities and improve existing products, as well as explore potential new technologies that we may wish to develop and commercialize. Research and development expenses include the costs of materials, supplies, personnel, consultants, legal fees, facilities, outside clinical trial sites and equipment as well as outside contract services. Consolidated research and development expenses incurred by Biomerica for the years ended May 31, 20212023 and 20202022, aggregated $2,471,453,to approximately $1,584,000, and $1,932,570,$1,812,000, respectively. As Biomerica moves forward with development, validation and commercializecommercialization of additional key products that address diseases with large market opportunities, research and development expenses are expected to increasebe consistent during upcoming quarters.

During the fourth quarter of fiscal 2022, we also submitted our proprietary H. Pylori test to the FDA for clearance through a 510(k) submission. The clinical studies for our H. Pylori were conducted at the University of Southern California, a European University, and several other U.S. locations. Biomerica’s test is designed to provide highly accurate sensitivity and specificity for H. Pylori testing and for monitoring of treatment. We are in the process of finalizing one additional set of in-house validation tests that the FDA has requested us to complete before they review the submission and decide on the allowance on this product.

We have developed a unique diagnostic-guided therapy which we call the InFoods^® technology, that is designed to allow physicians to identify patient-specific foods (e.g. pork, milk, onions, sugar, chickpeas, etc.), that when removed from the patient’s diet, may alleviate or improve an individual'stheir symptoms of Irritable Bowel Syndrome (IBS). This product is called InFoods® IBSand is currently in clinical studies at the Mayo Clinics in Florida and Arizona, Houston Methodist, the University of Michigan and other institutions.diseases. We have filed patents throughout the world pertaining to the use of our InFoods^® diagnostic technology to detect abnormal immune responses in patients suffering from various diseases. Many of these patents have recently been issued with many more in the review and prosecution phase. The United States Patent and Trademark Office (“USPTO”) has issued the Company two patents with broad claims that protect the InFoods®this InFoods^® IBS product. Patents have also been allowed or issued in the countries of Australia, Japan, Korea, Mexico, and Singapore. Additional patents for thispatent applications pertaining to the InFoods^® IBS product have been filed in the U.S.United States and in other countries. We are also developing and have filed patents for products that target other diseases that utilizeutilizing the InFoods® DGTInFoods^® technology platform which include: Functional Dyspepsia, Crohn’s Disease,disease, Ulcerative Colitis, Gastroesophageal refluxReflux disease (“GERD”), Migraine Headaches, Depression, and Osteoarthritis. Our first patent to be allowed for a disease/illness other than IBS was allowed in Japan in August 2021. This patent covers the use of our InFoods®InFoods^® technology to diagnose and treat persons suffering from depression. We are planning to pursue a de novo 510(k) clearance with the FDA rather than a Premarket Approval Application (“PMA”) for the InFoods® IBS product. De novo clearance is typically faster and less expensive than the PMA route, which is the most stringent type of device marketing application required by the FDA for this type of product.

We are also in studies to evaluate the performance of our new and proprietary H. Pylori test.  The clinical studies were conducted at the University of Southern California (“USC”), a European University and several other U.S. locations. We are working to complete the analytical studies needed to prepare for submission to the FDA and plans to utilize a 510(k) clearance pathway for this test. Biomerica’s test is designed to provide highly accurate sensitivity and specificity for H. pylori testing and for monitoring of treatment.

During fiscal 2021, we dedicated much of our resources to develop, test, validate, seek regulatory approval for, and sell diagnostic products that indicate if a person has been infected by COVID-19. Our COVID-19 R&D efforts focused primarily on the following two types of tests: 1) antibody diagnostic tests that use a patient’s blood sample to detect if the patient has certain antibodies to COVID-19 that were created as part of their body’s immune response to a COVID-19 infection, even if the infection was asymptomatic, and 2) antigen tests that use a patient’s nasal fluid sample to detect if a patient is currently infected with the virus. These tests were sold, and continue to be sold by us, in various markets outside of the US. We currently do not intend to offer either of these tests in the US.

During the fiscal year we also submitted to the FDA an application under and Emergency Use Authorization (“EUA”) to sell in the U.S. a lab-scale, high throughput ELISA COVID-19 antibody test kit that would be sold to labs and hospitals to perform COVID-19 antibody testing. After the EUA was submitted to the FDA, on two separate occasions the FDA assigned reviewers to this EUA who each requested additional information and interacted with us on this submission, as is customary. However, we have not yet been issued clearance for this product to be sold. It appears that the FDA began redirecting and focusing its resources on reviewing applications for products that pertain to patients who are currently infected with the COVID-19 virus such as polymerase chain reaction tests and antigen tests, as the demand for antibody tests diminished in the second half of calendar year 2020.   

Beginning in our fourth quarter of fiscal 2021, the focus of our R&D resources returned to non-COVID-19 products such as our H. Pylori product, our InFoods® IBS product and other products that we sell or would like to sell in the future.

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MARKETS AND METHODS OF DISTRIBUTION

Biomerica has approximately 40080 current customers for its diagnostic business, of which approximately 7540 are foreign distributors, 4010 are domestic distributors and the balance are primarily domestic hospital and clinical laboratories, medical research institutions, medical schools, pharmaceutical companies, chain drugstores, wholesalers, physicians'physicians’ offices, and e-commerce customers.

We employ a director of sales and marketing for Europe and South America who is headquartered in Germany. She has over 20 years of experience selling and marketing diagnostic and life science products across multiple diagnostics technologies and disciplines. She possesses broad international business experience, with communication skills in German, English, Spanish, French, and Portuguese, and scientific and technical understanding of gastrointestinal diagnostic products. She also has strong relationships with key strategic entities in Europe, Eastern Europe, Latin America, Canada, and the U.S. who isUnited 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'(physicians’ offices and over-the-counter drug stores).

Due to global and economic disruptions caused by the Coronavirus global COVID-19 pandemic, ourthe ongoing war in Ukraine, and tensions between the country of China and the United States, the Company’s operations have been negatively impacted. We have The Company has faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, cost inflation, loss of contracts and/or customers, closure of our manufacturing or distribution facilities or of the facilities of ourthe Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where we makethe Company makes and/or sell oursells its 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 ongoingThe pandemic, war, and geopolitical related disruptions canhave materially negatively impact ourimpacted the Company’s operations and financial performance and may continue to have significant material negative impacts on us.  the Company depending on possible disruptions from future outbreaks or issues. Our net sales were approximately $5,339,000 for fiscal 2023 compared to $18,871,000 for fiscal 2022.

For the fiscal years ended May 31, 20212023 and 2020,2022, the Company had two distributorsone distributor and threetwo distributors, respectively, which accounted for a total of 60%35% and 57%65% of ourtotal net consolidated sales, respectively. Of this, for the fiscal years ended May 31, 20212023 and 2020,2022, the largest of the distributors mentioned above accounted for 33%35% and 26%55%, respectively, of net consolidated sales.

AtTotal gross receivables on May 31, 20212023 and 2020,2022 were approximately $751,000 and $927,000, respectively. As of May 31, 2023 and 2022, the Company had two distributors and three distributors, respectively,one distributor which accounted for a total of 73%36% and 80%50%, respectively, of gross accounts receivable. Of the 73%36% as of May 31, 2021, 41%2023, 100% was owed by a distributor in China. Total gross receivables atAsia.

BACKLOG

On May 31, 20212023 and 2020 were $2,292,466 and $1,836,852, respectively.

BACKLOG

At May 31, 2021 and 2020,2022, Biomerica had a backlog of unshipped orders of approximately $85,000$655,000 and $727,000$754,000, respectively. AtOn May 31, 2021,2023, this consisted primarily of orders to oura distributor in the Middle East.Asia.

RAW MATERIALS

The principal raw materials utilized by Biomerica consist of various chemicals, serums, reagents, and packaging supplies. Almost all of our raw materials are available from several sources, and we are not dependent upon any single source of supply or a few suppliers. However, due to the limited number of suppliers of some materials, especially those such as antibodies, there is always the possibility that we may encounter difficulty in the future obtaining key raw materials for its manufacturing processes or that such materials may be exceedingly costly. For the fiscal year ended May 31, 2021,2023, the Company did not have any significant concentration of vendor spend for raw materials. For the fiscal year ended May 31, 2022, the Company had one vendor, which accounted for 58%84% of our purchases of raw materials. For the year ended May 31, 2020, one vendor accounted for 59% of our purchases of raw materials.materials largely related to COVID-19 products.

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.

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Our sourcing and receiving of raw materials have beenwere negatively impacted due toduring the global COVID-19 pandemic. ManyWhile most of our suppliersthese disruptions have since been impacted by plant shut-downs, state or national mandated or recommended shut-downs, restrictions and constraints on distribution channels including ship freight, air freight and trucking, among other things. These suppliers are also experiencing their own disruptions in sourcing raw materials.  Itresolved, 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.

COMPETITIONINFLATION

Immunodiagnostic products, including COVID-19 products are currently produced globally by hundreds of companies. Biomerica is not a significant playerDue to the global and domestic supply chain disruptions, and overall inflationary pressures in the overall market for mosteconomy, we have experienced material increases in the cost of our raw materials and in our operating and labor costs. While we have attempted to respond by increasing the product categories in which we compete. However, we doselling price of our own products, the gross margins on our products sold have been negatively impacted.

COMPETITION

We have certain proprietary products, such as our EZ Detect colon disease home test, that do notthe Aware Breast Self Exam product and our InFoods^® IBS product. These products have certain and significant competition from competitors with identical tests. competitive advantages compared to tests offered by competitors.

Our competitors vary greatly in size. Many are divisions or subsidiaries of well-established medical and pharmaceutical companies which are much larger than Biomerica and expend substantially greater amounts than we do for research and development, manufacturing, advertising, and marketing.

The primary competitive factors affecting the sale of diagnostic products are uniqueness, technology, quality of product, performance, price, service, and marketing. We believe we compete primarily on the basis of the uniqueness of our products, the quality of our products, the speed of our test results, our patent position, our pricing and our prompt shipment of orders. We offer a broad range of products but have had limited marketing capability. However, during the past 18 months,recently we have expanded our sales and marketing capability, through marketing and strategic cooperation with larger companies and distributors and by hiring several new employees with marketing and sales expertise. We have also hired a social media manager who focuses on social media campaigns that are directed at increasing awareness of our products and driving sales of these products. In addition, during fiscal 2023, we hired an experienced Chief Commercial Officer, who is focused on growing sales of our InFoods^® IBS product that is now being offered as an LDT through a certified CLIA lab.

GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS

Our primary business consists of selling products that are generally legally defined to beas medical devices and in vitro diagnostic medical devices and medical devices. As a result, we are considered to be ana medical devices and in vitro diagnostic medical devices and medical device 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"(“USDA”), and Consumer Product Safety Commission, as wellswell as European Government agencies. TheseOur 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"“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"(“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 controlscontrols’ 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 regulationregulations 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.

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In addition, our facility is required to have a California Medical Device Manufacturing License. The license is not transferable and must be renewed biannually. Our current license is valid until November 19, 2022.

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.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. Our Company compliesWe comply with In Vitro Diagnostic Medical Devices Directive (“IVDD”) 98/79/EC and Medical Devices Directive 93/42/EECRegulation 2017/745 (“MDD”MDR”). We also comply with ISO 13485 13485:2016 Medical Devices Quality Management Systems - Requirements for Regulatory Purposes.

At present, outside of the EU, the international regulatory international review process varies from country to country. We work with our distributors and sales representatives in the foreign countries in which we market our products to ensure that we comply with the regulatory laws of those countries. We believe that our international sales to date have been in compliance with the laws of all foreign countries in which we have made sales. Exports of most medical devices are also subject to certain FDA regulatory controls.

The designing, development, manufacturing, marketing, post-market surveillance, distribution, advertising, and labeling of Biomerica’s immunoassay in vitro diagnostic (“IVD”) medical device products are subject to regulation in the United States by the Center for Devices and Radiological Health of the FDA and state agencies. FDA regulations require that some new products have pre-marketing clearance or approval by the FDA and require these products to be manufactured in accordance with the FDA’s “Currentcurrent Good Manufacturing Practice”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 -marketpost-market surveillance. The last FDA announced inspection was in November 2019 and no observations were noted. We believe that all Biomerica products sold in the U.S.United States comply with the FDA and state regulations.

Biomerica isWe 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, EN ISO 13485:2016, Medical Devices Quality Management Systems - Requirements for Regulatory Purposes, In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Directive 93/42/EEC,Regulation 2017/745, Guidelines related to Medical Devices Directives andDirective/Regulation Guidance on CE Marking, etc.among others. Biomerica involveinvolves its employees in a continuous improvement process to increase productivity, improve quality and maintain the suitability, adequacy, and effectiveness of our quality management system.

The new EU Medical Device Regulation (“MDR”) 2017/745 entered into force on May 25, 2017. The MDR transition period ends May 26, 2021 and will replace MDD 93/42/EEC. Manufacturers have less than one year to update their technical documentation and processes to meet the new, more stringent regulatory requirements of the European Union. Our Notified Body became designated under MDR in July 2020.

The new EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 transition period endswas effective on May 26, 2022 and will replace IVDD 98/79/EC.2022. Manufacturers have less than one yearneed to update their technical documentation and processes to meet the new, more stringent regulatory requirements of the European Union. Notified Bodies can begin certifying devices to the new IVDR requirements once they have been designated under IVDR by their Competent Authority. While weOur 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 new and more stringent IVDR requirements, it is unclearrequirements.

Per IVDR 2017/746 Amendment 2021/0323 (COD), devices with a CE certificate that was issued in accordance with IVDD may be placed on the market or put into service until 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 of our product willremains effective until May 26, 2025. We have until May 26, 2025, to update the technical documentation and processes to meet these newregulatory 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,of IVDR 2017/746.

Per IVDR 2017/746 Amendment 2021/0323 (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, we will potentially be unableper IVDD and for which the conformity assessment procedure pursuant to sell these products in markets that require compliance with these EU IVDR regulations. In addition, our currentrequires the involvement of a Notified Body, which representsmay be placed on the regulatory bodies inmarket, or put into service until the EU, may themselves not be ablefollowing dates. Biomerica also has until the following dates to update the technical documentation and processes to meet allthese regulatory requirements of the new IVDR requirements and become designated under IVDR. If this happens, we may need to transfer to a new Notified Body that does meet the new IVDR requirements and has been designated, or we may need to delay selling products in these regions until our Notified Body becomes designated under IVDR regulations.2017/746:

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SEASONALITY OF BUSINESS

The businesses of our Company and its subsidiaries haveOur 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 theour last two fiscal years for Biomerica:years:

We recognize that our foreign sales could be subject to some special or unusual risks, which are not present in the ordinary course of business in the United States. Changes in economic factors, government regulations, terrorism, tariffs, embargos, trade wars, import/export restrictions, disruptions in shipping and distribution channels, and dropdrops in demand for our products due to regional or national shut-downs from the COVID-19 pandemic, other disease outbreaks that cause patients’ fear or refusal to visit hospitals and healthcare providers due to the pandemic where our products are sold and used, the erosion of economic conditions in those countries, and many other factors all could impact sales within certain foreign countries. In addition, these factors could also impact our ability to collect foreign accounts receivable. Foreign countries have licensing requirements applicable to the sale of diagnostic products, which vary substantially from domestic requirements; depending upon the product and the foreign country, these may be more or less restrictive than requirements within the United States and may change without notice. Foreign sales of our diagnostic sales at Biomericaproducts are made primarily through a network of approximately 7540 independent distributors in approximately 6530 countries.

The COVID-19 related factors mentioned above and in “Risk Factors” have also negatively impacted domestic sales of our non-COVID-19 products and may continue to negatively impact our domestic and international sales into the foreseeable future.

INTELLECTUAL PROPERTY

We regard the protection of our methodologies, designs, product formulations, manufacturing processes, diagnostic procedures, copyrights, service marks, trademarks, and trade secrets as important to our future success. We rely on a combination of copyright, trademark, patent, service mark and trade secret laws, and contractual restrictions to establish and protect our proprietary rights in products and services. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with most of our fulfillment partners and strategic partners to limit access to and disclosure of proprietary information. We cannot be certain that these contractual arrangements or the other steps taken by us to protect our intellectual property (“IP”) 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, trade secrets, 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.

We have a royalty agreement in which it haswe obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions). Royalty expenseexpenses of approximately $11,000$13,000 and $15,000,$19,000, respectively, isare included in cost of sales for this agreement for the fiscal years ended May 31, 20212023 and 2020.2022. Sales of products manufactured under this agreement are non-materialnot material to total sales for the fiscal years ended May 31, 20212023 and 2020,2022, respectively. We may license other products or technology in the future as it deemsis deemed necessary or opportunistic for conducting business.

In May, 2020, we signed an exclusive license agreement with The Regents of the University of California, to license patents pertaining to a CRISPR-based technology that we hope to use to produce a rapid test for the COVID-19 virus, that could be used to test individuals to determine if they are currently infected with the COVID-19 virus. This agreement requires the payment of certain milestone payments and a royalty on all sales that utilize the licensed technology. Collaboration efforts with the University on a CRISPR product that may be commercialized using this technology continues, however, there are no imminent plans to launch a product from this collaboration.    

Some of the products that we manufacture, sell, or use may be covered by claims in issued patents held by other persons or entities, and as such, upon notice from such persons or entity we may be required to pay a license fee or may be required to cease all manufacture, sale or use of such products, which could negatively impact us. While we have not been notified of any such claims by third parties, we cannot guarantee that such claims will not be made in the future.

We are nearing completion of the endpoint determination clinical trial for our patented InFoods® IBS diagnostic guided therapy product. Our business model for this product includes the possible licensing of this product to a large international life sciences or technology company that would commercialize the product or assist us with the commercialization.  

BRANDS AND TRADEMARKS

We occasionally register our tradenames with the U.S. Patent and Trademark Office of Patents and Trademarks.(“USPTO”). Of note, we registered the tradename “InFoods” on December 24, 2016. Our unregistered tradenames are "EZ Detect"“EZ Detect,” “EZ-H.P., "EZ-H.P."” and "EZ-PSA"“EZ-PSA”. A trademark for "Aware"“Aware” was issued and assigned in November 2001, and renewed in 2011.2011 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 U.S.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 has 12have over multiple provisional and non-provisional patents currently filed with the USPTO. Some of these patent applications pertain to COVID-19 and other products, however, the majoritySubstantially all of our patents that are pending allowed or issuedregistered pertain to the InFoods® technology platform.

Our most important family of patent applications pertains to our InFoods® InFoods^® technology platform, which is a new method of possibly diagnosing and treating symptoms of many different inflammatory diseases. Our first planned product launch using this technology is the InFoods® InFoods^® IBS product which is designed to diagnose and treat Irritable Bowel Syndrome.IBS. 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 thean IBS patient’s diet, can alleviate or reduce the individual'sindividual’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® 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 thethese patents pertaining to the InFoods® InFoods^® IBS technology have been issued and many more are in active review and prosecution.

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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 United States Patent and Trademark Office (“KIPO”USPTO”) has issued a Certificatethe 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 Patent (#10-1887545) Australia (two patents), Canada, Japan (two patents), Korea (two patents), Mexico, Panama, Peru, and Singapore, covering our InFoods®InFoods^® IBS technology. Additional patent applications pertaining to the 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® IBSare in Korea until November 13, 2035.

In June 2019, we received our first issued patent fromprosecution and review at the USPTO (#10,309,970) pertaining to our InFoods® IBS product,and with the patent issuance authorities in other countries.

We are also developing and have filed patents with claims that coverscover products that target other diseases utilizing the test kitInFoods^® technology platform. We have dozens of patents in prosecution or review pertaining to these other diseases, including: Functional Dyspepsia, Crohn’s disease, Ulcerative Colitis, Gastroesophageal Reflux disease (“GERD”), Migraine Headaches, Depression, and Osteoarthritis. In addition, we have a family of patents that is usedcover 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 determine patient food intolerances. eliminate from their diet.

In March 2020, the Japanese Patent Officeaddition to our IBS related issued our first InFoods® IBS patent in that country (6681907) which covers the compositions, devices and methods of IBS sensitivity testing.

In September 2020, the USPTOpatents, we have also been issued our second InFoods® IBS patentInFoods^® technology patents in the U.S. (10,788,498) which covers IBS sensitivity testing.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.

In November 2020, the Singapore Patent Office issued our first InFoods® IBS patent in that country (11201705102Q) which covers the compositions, devices and methods of IBS sensitivity testing.

In March 2021, the Korean Patent Office issued a second InFoods® IBS patent in that country (10-2224649) which covers the compositions, devices and methods of IBS sensitivity testing.

In April 2021, the Japanese Patent Office issued a notice of allowance for an InFoods® IBS patent in that country (6876338) which covers the compositions, devices and methods of IBS sensitivity testing.

In May 2021, the Company received a notice of allowance for an InFoods® IBS patent in Mexico which covers the compositions, devices and methods of IBS sensitivity testing.

We believe the claims in these issued InFoods® IBS patents and claims in our pending patents that protect the use of the InFoods® IBS 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, Biomerica haswe 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. Biomerica anticipatesWe anticipate that itwe 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 nearing completion ofprotected 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 recently completed an endpoint determination clinical trial foron 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. We may also out-license the patents or other intellectual property pertaining to one or more of our other products including but not limited to our H. Pylori product.

EMPLOYEES

As of May 31, 20212023 and 2020, the Company2022, we employed 49a total of 62 and 4564 employees, respectively, in the U.S.United States, Mexico, and Europe.Germany, of which 62 and 64 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. The CompanyWe occasionally employsemploy temporary employees when needed.

The following is a breakdown of employees by departments:

In addition, Biomerica de Mexico employs 17 people at its Mexico facility.

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We also engage the services of many outside Ph.D.’s, and M.D.’s, and other types of industry expert consultants and organizations as well as medical institutions for technical support, regulatory advisors, marketing and public relations advisors, financial advisors, contract product development and manufacturing organization, and other advisors on a regular basis. We try to protect the Company with the use of confidentiality, intellectual property ownership, and indemnifications agreements. However, we cannot guarantee that the use of such experts will fully protect the Company from third-party claims or from theft of our intellectual property.

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/A,10-K, including our consolidated financial statements and related notes.

RISKS RELATED TO OUR INTERNAL CONTROLS

We have identified a material weakness in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

On September 29, 2021, our audit committee, following discussions with management, determined that our audited financial statements for the year ended May 31, 2021 and 2020, as included in our Annual Report on Form 10-K filed with the SEC on August 27, 2021 required restatement to correct an error regarding the accounting for stock compensation.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation of those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As described elsewhere in this filing, we have identified a material weakness in our internal control over financial reporting related to the accounting for non-cash stock based compensation. As a result of this material weakness, our management has concluded that our internal control over financial reporting was not effective as of the end of the period covered by this report.

We are taking measures to address the material weakness described herein. However, if we are unable to address our material weakness in a timely manner or we identify additional material weaknesses or significant deficiencies in our internal controls or disclosure controls, we may be unable to provide required financial information in a timely and reliable manner and we may incorrectly report financial information. If our financial statements are not filed on a timely basis, we could be subject to adverse action by shareholders, Nasdaq, the SEC or other regulatory authorities.

The existence of material weaknesses or significant deficiencies in internal control over financial reporting could adversely affect our reputation or investor perceptions of us, which could have a negative effect on the trading price of our stock. In addition, we may incur additional costs to address material weaknesses or significant deficiencies in our internal control over financial reporting.

We cannot assure you that the measures we are taking will address the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

RISKS RELATED TO OUR BUSINESS

Our business could be adversely affected by the effects of widespread public health epidemics or other broad government-imposed restrictions on societies.

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During recent years, certain aspects of our business were negatively impacted by the COVID-19 pandemic. We are susceptible tomay be materially impacted by ongoing outbreaks of an illness or other health issue,issues, such as the recent COVID-19 Coronavirus outbreak, including outbreaks of variants of the COVID-19 virus such as the “Delta” variant.outbreak. The outbreak of the COVID-19 virus caused the various governments, including the U.S.,United States, to implement quarantines, various restrictions on travel causing airlines to suspend internationaltransportation, and certain domestic flights, shelter in place orders and other broad restrictions. Governments have also implemented sweeping work restrictions that prohibit manymost 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, thework. The Company faces significant future risks including,from such government imposed restrictions, laws and regulations pertaining to health epidemics or various other government declared crisis’, that include but are 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,government restrictions, 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 and 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,economic and financial systems, 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 j) many other seen and unforeseen events and circumstances, all of which could negatively impact the Company.

We have a history of operating losses.

We have historically incurred net losses. There can be no assurance that we will generate net profits in future periods. Further, there can be no assurance that we will be cash flow positive in future periods. In the event that we fail to achieve profitability in future periods, the value of our common stock may decline. In addition, if we are unable to achieve or maintain positive cash flows, we would be required to seek additional funding, which may not be available on favorable terms, if at all.

Our operating results may fluctuate adversely as a result of many factors that are outside our control, which may negatively impact our stock price.

Our operating results are dependent upon many factors that are substantially outside of our control that could materially and adversely affect our business, results of operations, and financial condition. Factors that are beyond our control and that could affect our operating results in the future include:

•          regulatory clearance;

•          changes in the level of competition, such as would occur if one of our competitors introduced a new, better performing or lower priced product to compete with one or more of our
 products;

•          changes in the reimbursement systems or reimbursement amounts that end-users may rely upon in choosing to use our products;

•          changes in economic conditions in our domestic and international markets, such as economic downturns, decreased healthcare spending, reduced consumer demand, inflation and currency
 fluctuations; changes in government laws and regulations affecting our business; reluctance for consumers to visit healthcare providers;

•          lower than anticipated market penetration of our new or more recently introduced products;

•          significant quantities of our product or that of our competitors in our distributors’ inventories or distribution channels;

•          changes in distributor buying patterns;

•          government mandated shelter-in-place or other lock-down orders;

•          continued spread of the COVID-19 virus or mutations of the virus; and

•          changes in the healthcare market including consolidation in our customer base.

Fluctuations in our operating results, for any reason, could cause operating losses as a result of significant fixed expenses.

We base the scope of our operations and related expenses on our estimates of future revenues. A significant portion of our operating expenses are fixed, and we may not be able to rapidly adjust our expenses if our revenues fall short of our expectations. Our revenue estimates for future periods are based, among other factors, on estimated end-user demand for our products. If end-user consumption is less than estimated, revenues from our distribution partners and other distribution channels would be expected to fall short of expectations, and because such a significant portion of our costs are fixed, could result in operating losses.

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To remain competitive, we must continue to develop, obtain, and protect our proprietary technology rights; otherwise, we may lose market share or need to reduce prices as a result of competitors selling technologically superior products that compete with our products, or selling products at lower prices.

Our ability to compete successfully in the diagnostic market depends on continued development and introduction of new products, technology, and the improvement of existing technology. If we cannot continue to improve upon or develop, obtain, and protect our technology, our operating results could be adversely affected.

Our competitive position is heavily dependent on obtaining and protecting our own proprietary technology or obtaining licenses from others. Our ability to obtain patents and licenses, and their benefits, is uncertain.

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.

The Company is required to obtain government or regulatory certification in many countries and the European community to sell its products in those countries or regions. There is no assurance that the Company will be able to retain its certification in the future. This includes the possibility and risk that the Company’s products do not meet the new EU IVDR testing and documentation requirements in the future as described in the above “Research and Development” section of this document.

Significant government regulation exists in countries in which we conduct business. A large part of the Company’s sales is to distributors in Europe, China, and other countries, which require us to maintain certain certifications to sell our products. Failure to comply with current governmental regulations and quality assurance guidelines could cause the loss of these certifications, which could materially adversely affect the results of the Company. Loss of certifications could lead to temporary manufacturing shutdowns, product recalls, product shortages, or delays in product manufacturing and a decline in sales.

The Company maintains a manufacturing plant in Mexico which presents risks to the Company including risks associated with doing business outside the United States.

The Company has a significant investment in its manufacturing facility in Mexico through its subsidiary, Biomerica de Mexico. In addition, the Company warehouses a significant amount of its inventory at the Mexico facility. There are a number of risks associated with doing business in Mexico, including, exposure to local economic and political conditions, social unrest, including risks of terrorism or other hostilities, export and import restrictions, the potential for shortages of trained labor, and the possible effects of currency exchange rate fluctuations.These risks could lead to additional costs that we cannot foresee at this time and may materially adversely impact our business, results of operations, and financial condition.

We use hazardous materials in our research and production that may result in unexpected and substantial claims against us relating to handling, storage, or disposal.

We use hazardous materials in our research and production. The risk of accidental contamination or injury from these materials cannot be completely eliminated. In the event of such an accident, the Company could be held liable for any harm or damages that result and any such liability could exceed the resources of the Company. The Company may incur substantial costs to comply with environmental regulations.

If any governmental authorities were to impose new environmental regulations requiring compliance in addition to that required by existing regulations or alter their interpretation of the requirements of such existing regulations, such environmental and safety regulations could impair our research, development, or production efforts by imposing additional, and possibly substantial, costs, restrictions, or compliance procedures on our business. In addition, because of the nature of the penalties provided for in some of these environmental and safety regulations, we could be required to pay sizable fines, penalties, or damages in the event of noncompliance with regulations and environmental laws. Any environmental or safety violation or remediation requirement could also partially or completely shut down our research and manufacturing facilities and operations, which would have a material adverse effect on our business. The risk of accidental contamination or injury from these hazardous materials cannot be completely eliminated and exposure of individuals to these materials could result in substantial fines, penalties, or damages that may not be covered by insurance.

In order to remain competitive, we must expend considerable resources to research new technologies and products and develop new markets, and there is no assurance our efforts to develop new technologies, products or markets will be successful or such technologies, products or markets will be commercially viable.

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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.

Our net sales were approximately $5,339,000 for fiscal 2023 compared to $18,871,000 for fiscal 2022. For the fiscal years ended May 31, 20212023 and 2020,2022, the Company had two distributorsone distributor and threetwo distributors, respectively, which accounted for a total of 60%35% and 57%65% of our net consolidated sales, respectively. Of this, for the fiscal years ended May 31, 20212023 and 2020,2022, the largest of the distributors mentioned above accounted for 33%35% and 26%55%, respectively, of net consolidated sales.

AtTotal gross receivables on May 31, 20212023 and 2020,2022 were approximately $751,000 and $927,000, respectively. As of May 31, 2023 and 2022, the Company had two distributors and three distributors, respectively,one distributor which accounted for a total of 73%36% and 80%50%, respectively, of gross accounts receivable. Of the 73%36% as of May 31, 2021, 41%2023, 100% was owed by a distributor in China. Total gross receivables at May 31, 2021 and 2020 were $2,292,466 and $1,836,852, respectively.Asia. 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 sell to countries in Asia including China where trade policies and political issues could impact our revenues.

Our revenues could be negatively impacted by complex relationships between the United States and other Asian countries including China. While trade between the countries remains extremely strong, there are no assurances that these trade relations continue to be strong.

We extend credit to customers outside the U.S.United States which can be difficult to collect.

We extend credit to many of our customers including those outside of the U.S.United States. 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.United States. Our inability to collect on receivables from customers, in particular those outside of the U.S.United States, 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.,United States, as new products and technologies are developed and commercialized or new geographical markets are entered. Because we have a small executive staff, acquisitions, and other future growth may divert management’s attention from core aspects of our business and place a strain on existing management and our operational, financial, and management information systems. Furthermore, we may expand into markets in which we have less experience or incur higher costs. Any and all of these potential growth and expansion strategies and events could impose material risks and cause the Company to incur adverse operating and financial results.

Intellectual property risks and third-party claims of infringement, misappropriation of proprietary rights, or other claims against us could adversely affect our ability to market our products, require us to redesign our products or attempt to seek licenses from third parties, result in significant costs, and materially adversely affect our operating results.

Companies in or related to our industry often aggressively protect and pursue their intellectual property rights. There are often intellectual property risks associated with developing and producing new products and entering new markets, and we may not be able to obtain, at reasonable cost or upon commercially reasonable terms, if at all, licenses to intellectual property of others that is alleged to be part of such new or existing products.

We rely on IP for the current products we sell and for the new products in research, development, and in clinical trials. While the Company tries to protect its IP with confidentiality agreements and internal policies, we still face risks that our IP will be stolen or otherwise misappropriated, by parties inside or outside of the United States. Further, we have filed many patents around the world on much of the research and development done by the Company, and the proposed products to come from this research. The majority of these filed patents are still under review and have not yet been allowed or issued. We may not be able to attain patent claims that adequately protect the company from competitors developing similar products or copying our products. Finally, there is a great number of issued patents owned by others that pertain to the product categories in which we operate. While we do not know of any patents with claims that we are violating by manufacturing or selling our current products, there is a risk that certain third-party patents will come to our attention that prohibit us from selling our products or that require us to pay royalty payments. Such third-party claims could have a material negative impact on the Company. Any of these IP-related risks could cause material damage to future revenues and to the long-term enterprise values of the Company.

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.

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The defense and prosecution of patent and trade secret claims are both costly and time consuming. We or our customers may be sued by other parties that claim that our products have infringed their patents or misappropriated their proprietary rights or that may seek to invalidate one or more of our patents. An adverse determination in any of these types of disputes could prevent us from manufacturing or selling some of our products, limit or restrict the type of work that employees involved with such products may perform for us, increase our costs, and expose us to significant liability. In addition, the defense of such claims could result in significant costs and divert the attention of our management and other key employees.

In addition to the foregoing, we may also be required to indemnify some customers, distributors, and strategic partners under our agreements with such parties if a third party alleges or if a court finds that our products or activities have infringed upon, misappropriated, or misused another person’s proprietary rights. Further, our products may contain technology provided to us by other parties such as contractors, suppliers, or customers. We may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. Our contractors, suppliers, and licensors may not be required or financially able to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages.

Some of the products that we manufacture, sell, or use may be covered by claims in issued patents held by other persons or entities, and as such, upon notice from such persons or entity, we may be required to pay a license fee or may be required to cease all manufacture, sale or use of such products, which could negatively impact our financial results or operations. We cannot guarantee that such claims will not be made in the future.

We need to continue to raise additional funds to finance our future capital or operating needs, which could have adverse consequences on our operations and the interests of our stockholders.

As a company focused on research and development of new products that do not yet generate revenues, we need to continue to raise funds through public or private debt or sale of equity to achieve our business strategy. When we raise funds or acquire other technologies or businesses through issuance of equity, this dilutes the interests of our stockholders. Moreover, the availability of additional capital, whether debt or equity from private capital sources (including banks) or the public capital markets, fluctuates as our financial condition and industry or market conditions in general change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources on favorable terms, if at all. We can give no assurance as to the terms or availability of additional capital.

Our inability to raise additional funds to finance our future capital or operating needs could force us to delay, reduce, or eliminate our development programs or commercialization efforts.

Costs related to development projects and approvals are hard to estimate due to factors that are unknown to us at this time. These future costs could be much higher than anticipated and current operations are unlikely to 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.

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Our results of operations and financial conditions may be adversely affected by the financial soundness of our customers, distributors, and suppliers.

If our customers’ or suppliers’ operating and financial performance deteriorates, or if they are unable to make scheduled payments or obtain credit, our customers may not be able to pay, or may delay payment of, accounts receivable owed to us, and our suppliers may restrict credit or impose different payment terms or reduce or terminate production of products they supply to us, or may cease all operations. Any inability of customers to pay us for our products and services, or any demands by suppliers for different payment terms, or inability for such suppliers to continue operations may adversely affect our operating results and financial condition. Additionally, both state and federal government sponsored and private payers, as a result of budget deficits or reductions, may seek to reduce their healthcare expenditures by cutting or eliminating reimbursements for, or cutting purchase of our products. Any reduction in payments by such government sponsored or private payers may adversely affect our earnings and cash flow.

We may not achieve market acceptance of our new products among healthcare providers and physicians, and this would have a negative effect on future sales.

We believe our ability to introduce new products that gain acceptance among consumers, healthcare providers, and physicians is an important part of our ability to grow our revenue in future periods. However, any new products we introduce may not gain market acceptance to the extent we anticipate or project. The acceptance in the medical community for any of our new products is unpredictable at this time. In addition, the Company will need to spend considerable funds in order to introduce new products into the marketplace. Sales, if any, of these products in the future are uncertain. In addition, our competitors may offer different products and product formats at suggested prices that are lower than our products or whose products are more accurate than our products. We can provide no assurances that consumers and the medical community will purchase our products or that they will not prefer to purchase a competitive product.

The industry and market segments in which we operate are highly competitive, and intense competition with other providers of diagnostic products may reduce our sales and margins.

Our diagnostic tests compete with similar products made by our competitors. There are a large number of multinational and regional competitors making investments in competing technologies and products. We also face competition from our distributors as some have created, and others may decide to create their own products to compete with ours. A number of our competitors have a potential competitive advantage because they have substantially greater financial, technical, research and other resources, larger, more established marketing, sales, distribution and service organizations; more established relationships with healthcare professionals; and greater experience in conducting research and development, manufacturing, clinical trials, and obtaining regulatory approval for products. Moreover, some competitors offer broader product lines and have greater name recognition than we have. If our competitors’ products are more effective than ours or take market share from our products through more effective marketing or competitive pricing, our operating results could be materially and adversely affected.

In addition, there has been a trend toward industry consolidation in our markets over the last few years. We may not be able to compete successfully in an increasingly consolidated industry. We expect this trend toward industry consolidation may continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable to continue operations.

Our business and products are highly regulated by various governmental agencies. Our results of operations would be negatively affected by failures or delays in the receipt of regulatory approvals or clearances, the loss of previously received approvals, or other changes to the existing laws and regulations that adversely impact our ability to manufacture and market our products.

The testing, manufacturemanufacturing, and sale of our products are subject to regulation by numerous governmental authorities in the U.S.,United States, 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.

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Changes in government policy could adversely affect our business and potential profitability.

Changes in government policy could have a significant impact on our business by increasing the cost of doing business, affecting our ability to sell our products and negatively impacting our profitability. Such changes could include tariffs, embargos, trade wars, or modifications to existing legislation, such as U.S. tax policy, or entirely new legislation, such as the Affordable Healthcare Act in the U.S.United States. We cannot predict the many ways that healthcare reform in the U.S.United States 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,regulations, and compliance with laws, including changed or new laws, could increase our costs and adversely affect our operations. There is also the risk that our facilities could fail to get the proper licensing at our next inspection or renewal.

In addition to FDA and other regulations referred to above, numerous laws relating to such matters as safe working conditions, manufacturing practices, data privacy, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances impact our business operations. If these laws or their interpretation change or new laws regulating any of our businesses are adopted, the costs of compliance with these laws could substantially increase our overall costs. Failure to comply with any laws, including laws regulating the manufacture and marketing of our products, could result in substantial costs and loss of sales or customers. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of future legislation or regulatory developments relating to our industry and our products. To the extent the costs and procedures associated with meeting new or changing requirements are substantial, our business, results of operations and financial condition could be adversely affected.

Our total revenue could be affected by third-party reimbursement policies and potential cost constraints.

The end-users of our products are primarily physicians, labs, and other healthcare providers. In the U.S.,United States, 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.United States 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.United States or foreign markets, current reimbursement amounts may be decreased in the future and future legislation, regulation, or reimbursement policies of third-party payers may reduce the demand for our products or adversely impact our ability to sell our products on a profitable basis.

Unexpected increases in, or inability to meet, demand for our products could require us to spend considerable resources to meet the demand or harm our reputation and customer relationships if we are unable to meet demand.

Our inability to meet customer demand for our products, whether as a result of manufacturing problems or supply shortfalls, could harm our customer relationships and impair our reputation within the industry. In addition, our product manufacturing of certain product lines is concentrated in our two manufacturing sites. Weather, natural disasters (including pandemics), fires, terrorism, political change, governmental restrictions or stay-at-home orders in response to natural disasters (including pandemics), failure to follow specific internal protocols and procedures, equipment malfunction, environmental factors, or damage to one or more of our facilities could adversely affect our ability to manufacture our products. This, in turn, could have a material adverse effect on our business.

If we experience unexpected increases in the demand for our products, we may be required to expend additional capital resources or engage third-party manufacturers to meet these demands. These capital resources could involve the cost of new machinery or even the cost of new manufacturing facilities. In addition, engaging third-party manufacturers would increase manufacturing costs and reduce margins. This would increase our capital costs or third-party expenses, which could adversely affect our earnings and cash resources. If we are unable to develop or obtain necessary manufacturing capabilities in a timely manner or to engage third-party manufacturers to meet demand, our total revenue could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems, including those encountered as a result of changes that we may make in our manufacturing processes to meet increased demand or changes in applicable laws and regulations, could result in shipment delays as well as increased manufacturing costs, which could also have a material adverse effect on our business, operating results and financial condition.

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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, andharm to patients or users of our products, or harm to our reputation that could adversely affect our business.

A claim of a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injuries and otherwise. Further, a claim that one of our products is defective or does not actually meet the performance criteria we claim in our marketing materials, could require a product recall or otherwise have a substantial impact on our revenues and financial performance. Any substantial underinsured loss resulting from such a claim or defect would have a material adverse effect on our operating results and financial conditions and the damage to our reputation or product lines in the industry could have a material adverse effect on our business.

We are exposed to business risks which, if not covered by insurance, could have an adverse effect on our results of operations. We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities.

We face a number of business risks, including exposure to product liability claims, employment law claims, claims that the Company or its officers, directors or employees have engaged in illegal or wrongful acts, claims of violation of environmental laws, and many other possible claims. Although we maintain insurance for a number of these risks, we may face claims for types of damages, or for amounts of damages, that are not covered by our insurance. For example, although we currently carry product liability insurance for liability losses, there is a risk that product liability or other claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of our policy. Also, our existing insurance may not be renewed at the same cost and level of coverage as currently in effect or may not be renewed at all. Further, we do not currently have insurance against many environmental risks we confront in our business. If we are held liable for a claim against which we are not insured or for damages exceeding the limits of our insurance coverage, whether arising out of product liability matters, cybersecurity matters, or from some other matter, that claim could have a material adverse effect on our results of operations.

We may rely on third parties to conduct or be part of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates.

We rely on third-party contract research organizations (“CROs”), universities or/clinical sites (“Vendors”), to coordinate, monitor and conduct of our clinical trials and to manage, analyze, and interpret data for our clinical programs. We, our Vendors, and our clinical sites are required to comply with current Good Clinical Practices (“GCPs”), regulations, and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor the activities conducted by our Vendors and at our clinical sites to confirm compliance with these requirements. In the future, if we, our Vendors or our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. If our Vendors do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

Failures in our information technology and storage systems could significantly disrupt our business or force us to expend excessive costs.

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We utilize complex information technology systems to support our business and store information. We cannot be sure that our systems will meet our future business needs or that necessary upgrades will operate as designed, which could result in excessive costs or disruptions in portions of our business. In particular, any disruptions, delays, or deficiencies caused by our enterprise resource planning system could adversely affect our ability to process orders, ship products, provide services and customer support, send invoices and track payments, fulfill contractual obligations, or otherwise operate our business. In addition, despite the implementation of security measures, information technology systems are vulnerable to damage from a variety of sources, including computer viruses, unauthorized access, telecommunications or network failures, malicious human acts, terrorism, and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Cyber security is a great and growing risk to operating companies. Cyber-attacks may result in loss of vital Company documentation and data, or confidential third-party documents held by the Company, that are necessary for the Company to operate. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our systems, sustained or repeated system failures that interrupt our ability to generate and maintain data, could result in a material disruption in our operations and material adverse financial costs to the Company. Furthermore, to the extent that any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could face a variety of negative consequences, including regulatory actions or litigation, fines or penalties, adverse publicity, increased cybersecurity protection costs, and lost revenue.

There is a risk that our measures to protect our systems from cyber-attack are not sufficient to avoid attacks by new sources and methods.

Our business could be negatively affected by the loss of or the inability to hire key personnel.

Our future success depends in part on our ability to retain our key technical, sales, marketing, and executive personnel and our ability to identify and hire additional qualified personnel. Competition for these personnel is intense, both in the industry in which we operate and where our operations are located. Further, we expect to grow our operations, and our needs for additional management and other key personnel are expected to increase. If we are not able to retain existing key personnel, or timely identify and hire replacement or additional qualified personnel to meet expected growth, our business could be adversely impacted. In addition, the loss of any of our key personnel, particularly key research and development personnel, could harm our business and prospects and could impede the achievement of our research and development, operation or strategic objectives.

The Company’s lease obligations and growth expectations could create financial and operating risks.

Given the recent growth in the Company’s operations, it is uncertain the current leased facilities will be able to accommodate the Company’s operations in the future. As such, the Company may need to move to new facilities that would require the Company to seek to sublease its current facilities for the remainder of the lease(s) at a potential discount to the existing monthly lease obligation cost. Alternatively, the Company could be required to move a portion of its operations to a new facility which could be disruptive both short term and long term to the Company’s operations and create additional fixed costs.

We face risks relating to our international sales, including inherent economic, political, and regulatory risks, which could impact our financial performance, cause interruptions in our current business operations and impede our growth strategy.

Our products are primarily sold internationally, with the majority of our international sales to our distributors in Asia Europe and South America.Europe. We currently sell and market our products through distributor organizations and sales agents which creates foreign risks include, among others:

•          compliance with multiple different registration requirements and new and changing registration requirements, our inability to benefit from registration for our products
 inasmuch as registrations may be controlled by a distributor, and the difficulty in transitioning our product registrations;

•          compliance with complex foreign and U.S. laws and regulations that apply to our international operations, including U.S. laws such as import/export limitations, the Foreign Corrupt
 Practices Act, and local laws;

•          tariffs or other barriers as we continue to expand into new countries and geographic regions, especially related to China as tariffs are changing constantly;

•          exposure to currency exchange fluctuations against the U.S. dollar;

•          longer payment cycles, generally lower average selling prices and greater difficulty in accounts receivable collection;

•          lack of ability to enforce receivables collections contracts in foreign legal courts;

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•          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.

A material portion of our revenues come specifically from sales to our distribution partner located in China, who sells into the Chinese market. Future political tensions between the U.S. and China governments could cause a disruption or reduction in our sales into that market.

Sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading price of our securities.

Future sales by the Company of a substantial number of shares of our common stock in the public market, or the perception that such sales may occur, could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds in the future through a public offering of our securities.

On July 21, 2020, we filed with the SEC a “shelf” registration statement on Form S-3. The registration statement registers common shares that may be issued by the Company in a maximum aggregate amount of up to $90,000,000. Shares of our common stock may be sold from time to time under this registration statement for up to three years from the filing date. On January 22, 2021, we filed a prospectus supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market (“ATM”) offering under the shelf registration statement, of which $12,984,273, remains available for saleapproximately $5,290,000 were sold under the prospectus supplement.ATM. In March 2023, we terminated the ATM offering and sold 3,333,333 shares of our common stock in a firm commitment public offering under the shelf registration statement. Shares sold in the underwritten public offering were sold at a gross sales price of $2.40 per share, resulting in net proceeds from the offering, after deducting issuance fees and expenses, of approximately $7,300,000. At fiscal year-end 2023, the Company did not have an open ATM offering in place. However, the Company may in the future commence a new ATM offering or otherwise sell securities under a registration statement or in private placements, which sales would be dilutive to existing shareholders.

The issuance of additional shares of our common stock, or issuances of additional securities, could dilute the ownership interest of our common stockholders and could depress the market price of shares of our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the size of future issuances or the effect, if any, that they may have on the market price for our common stock.

We also have a number of stockholders who own large blocks of our common stock. If one or more of these stockholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of shares of our common stock could be negatively affected.

The price of our stock may fluctuate unpredictably in response to factors unrelated to our operating performance.

The stock market periodically experiences significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These broad market fluctuations may cause the market price of our common stock to drop. In particular, the market price of our common stock has been very volatile and unpredictable and may vary substantially in the future in response to:

•      announcements by us or our competitors concerning technological innovations;

•      introductions of new products;

•      FDA, SEC, Financial Industry Regulation Authority and foreign regulatory actions against the Company;

•      developments or disputes relating to patents or proprietary rights;

•      failure to meet the expectations of stock market analysts and investors;

•      the Company reporting material weakness in our internal control;

•      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;

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•         legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, and the results
 of any proceedings or lawsuits, including patent or shareholder litigation;

•          sales of our common stock or other securities by us or our stockholders in the future;

•          trading volume of our common stock;

•          actual or anticipated variations in quarterly operating results;

•          publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts;

•          effects of natural or man-made catastrophic events, including widespread public health epidemics like the pandemic related to COVID-19; and

•          general stock market conditions and other factors unrelated to our operating performance.

Trading of our common stock is not significant, therefore sales of a larger volume of the stock could adversely affect the stock price.

As of August 26, 2016, our Company'sCompany’s stock has been traded on the Nasdaq Capital Market. Trading of our stock is limited and liquidation of the Company’s stock may be difficult as there is a limited market for our stock.

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

Although we have Federal income tax net operating loss carryforwards of approximately $12,957,000$21,778,000 and California state income tax net operating loss carryforwards of approximately $6,768,000,$17,090,000, 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.

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