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What changed in BIOMERICA INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of BIOMERICA INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+225 added−210 removedSource: 10-K (2023-08-25) vs 10-K (2022-08-29)

Top changes in BIOMERICA INC's 2023 10-K

225 paragraphs added · 210 removed · 170 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

78 edited+31 added−17 removed34 unchanged
Biggest changeWe have added new employees in our sales and marketing department in order to increase sales of existing products during fiscal 2022. Through these efforts, our EZ Detect colon disease home screening test and our Aware ® Breast Self Exam product are seeing an increased interest from retailers such as Walmart, distributors, and screening programs in other countries.
Biggest changeWe 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.
The trial is expected to include the large medical institution participants that conducted the endpoint trial, in addition to other new institutions and a Clinical Research Organization.
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.
Manufacturers need 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.
Manufacturers need to update their technical documentation and processes to meet the more stringent regulatory requirements of the European Union. Notified Bodies can begin certifying devices to the new IVDR requirements once they have been designated under IVDR by their Competent Authority.
We cannot be certain that these contractual arrangements or the other steps taken by us to protect our intellectual property will prevent misappropriation of our technology. We have licensed in the past, and expect that we may license in the future, certain of our proprietary rights, such as trademarks, patents, trade secrets, or copyrighted material, to third parties.
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.
Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products to treat gastrointestinal diseases, such as irritable bowel syndrome, and other inflammatory diseases. These products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets.
Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of 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.
Biomerica involves its employees in a continuous improvement process to increase productivity, improve quality and maintain the suitability, adequacy, and effectiveness of our quality management system. The new EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 was effective on May 26, 2022.
Biomerica involves its employees in a continuous improvement process to increase productivity, improve quality and maintain the suitability, adequacy, and effectiveness of our quality management system. The EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 was effective on May 26, 2022.
Changes in economic factors, government regulations, terrorism, tariffs, embargos, trade wars, import/export restrictions, disruptions in shipping and distribution channels and drop in demand for our products due to regional or national shut-downs from the COVID-19 pandemic, and 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.
Changes in economic factors, government regulations, terrorism, tariffs, embargos, trade wars, import/export restrictions, disruptions in shipping and distribution channels, drops 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.
This trial monitored IBS patients over an 8-week 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.
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.
Class I devices are those devices for which safety and effectiveness can reasonably be assured through general controls, such as device listing, adequate labeling, and adherence to the Quality System Regulation ("QSR") as well as Medical Device Reporting (“MDR”), labeling and other regulatory requirements. Some Class I medical devices are exempt from the requirement of Pre-Market Notification or clearance.
Class I devices are those devices for which safety and effectiveness can reasonably be assured through general controls, such as device listing, adequate labeling, and adherence to the Quality System Regulation (“QSR”) as well as Medical Device Reporting (“MDR”), labeling and other regulatory requirements. Some Class I medical devices are exempt from the requirement of Pre-Market Notification or clearance.
The United States Patent and Trademark Office (“USPTO”) has issued the Company two patents with broad claims that protect this InFoods® IBS product. Patents have also been issued in the countries of Australia, Japan, Korea, Mexico, and Singapore. Additional patent application pertaining to the InFoods ® IBS product have been filed in the United States and in other countries.
The United States Patent and Trademark Office (“USPTO”) has issued the Company two patents with broad claims that protect this InFoods ® IBS product. Patents have also been issued in the countries of Australia, Japan, Korea, Mexico, and Singapore. Additional patent applications pertaining to the InFoods ® IBS product have been filed in the United States and in other countries.
The purpose of the endpoint study was 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.
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.
Our goal is to provide high quality medical diagnostic products that generally meet or exceed customer requirements and comply with all applicable regulatory requirements: FDA 21 CFR Part 820 Quality Management System, ISO 13485:2016, Medical Devices Quality Management Systems - Requirements for Regulatory Purposes, In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Regulation 2017/745, Guidelines related to Medical Devices Directive/Regulation and Guidance on CE Marking, etc.
Our goal is to provide high quality medical diagnostic products that generally meet or exceed customer requirements and comply with all applicable regulatory requirements: FDA 21 CFR Part 820 Quality Management System, ISO 13485:2016, Medical Devices Quality Management Systems - Requirements for Regulatory Purposes, In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Regulation 2017/745, Guidelines related to Medical Devices Directive/Regulation Guidance on CE Marking, among others.
Further, we are required to comply with other FDA requirements with respect to labeling and MDR regulation which requires that we provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of our products, as well as product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur.
Further, we are required to comply with other FDA requirements with respect to labeling and MDR regulations which requires that we provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of our products, as well as any product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur.
Technological advances in medical diagnostics have made it possible to perform diagnostic tests within the home and the physician's office (the point-of-care), rather than in the clinical laboratory. One of our objectives also has been to develop and market rapid diagnostic tests that are accurate, employ easily obtained specimens, and are simple to perform without instrumentation.
Technological advances in medical diagnostics have made it possible to perform diagnostic tests within the home and the physician’s office (the point-of-care), rather than in the clinical laboratory. One of our objectives also has been to develop and market rapid diagnostic tests that are accurate, utilize easily obtained patient specimens, and are simple to perform without instrumentation.
We believe that we are currently in material compliance with all relevant QSR and MDR requirements. 8 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.
We believe that we are currently in material compliance with all relevant QSR and MDR requirements. In addition, our facility is required to have a California Medical Device Manufacturing License. The license is not transferable and must be renewed biannually. Our current license is valid until November 19, 2024.
Our over-the-counter (home use) and professional use (doctor’s office, clinics, etc.) rapid diagnostic products help to manage existing medical conditions and may save lives through early detection and prompt diagnosis. Typically, tests of this kind require the services of medical technologists and sophisticated instrumentation. Further, results are often not available until at least the following day.
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 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.
Several of the patents pertaining to the InFoods ® IBS technology have been issued and many more are in active review and prosecution. In August 2018, we received our first patent from the Korean Intellectual Property Office, covering our InFoods® IBS product.
Several of these patents pertaining to the InFoods ® IBS technology have been issued and many more are in active review and prosecution. In August 2018, we received our first patent pertaining to the InFoods ® technology platform from the Korean Intellectual Property Office, covering IBS.
Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in all patient subtypes (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.
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.
EMPLOYEES As of May 31, 2022 and 2021, we employed a total of 64 and 67 employees, respectively, in the United States, Mexico, and Germany, of which 64 and 67 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.
EMPLOYEES As of May 31, 2023 and 2022, we employed a total of 62 and 64 employees, respectively, in the United States, Mexico, and 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.
Research and development expenses include the costs of materials, supplies, personnel, consultants, 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, 2022 and 2021, aggregated to approximately $1,812,000, and $2,194,000, respectively.
Research and development expenses include the costs of materials, supplies, personnel, consultants, 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, 2023 and 2022, aggregated to approximately $1,584,000, and $1,812,000, respectively.
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.
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.
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 United States by the FDA.
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 United States by the FDA.
Our inventory consists of various types of materials including antibodies, antigens, bottles, boxes, various chemicals and reagents utilized in the manufacture of our test kits as well as products in various stages of completion. Our sourcing and receiving of raw materials have been negatively impacted due to the global COVID-19 pandemic.
Our inventory consists of various types of materials including antibodies, antigens, bottles, boxes, various chemicals, and reagents utilized in the manufacture of our test kits as well as products in various stages of completion. Our sourcing and receiving of raw materials were negatively impacted during the global COVID-19 pandemic.
Our research and development spending are due to our focus on these tests and outside clinical studies intended to demonstrate the feasibility of FDA clearance for such tests.
Our research and development spending driven by our focus on these tests and outside clinical studies intended to demonstrate the feasibility of FDA clearance for such tests.
We rely on affiliated and unaffiliated distributors, advertising in medical and trade journals, exhibitions at trade shows, direct mailings and an internal sales staff to market our diagnostic products. We target two main markets: (a) clinical laboratories and (b) point-of-care testing (physicians' offices and over-the-counter drug stores). Due to the Coronavirus global pandemic, our operations have been negatively impacted.
We rely on affiliated and unaffiliated distributors, advertising in medical and trade journals, exhibitions at trade shows, direct mailings, and an internal sales staff to market our diagnostic products. We target two main markets: (a) clinical laboratories and (b) point-of-care testing (physicians’ offices and over-the-counter drug stores).
We occasionally employs temporary employees when needed. 12 The following is a breakdown of employees by departments: May 31, 2022 2021 Administrative 8 10 Research & Development 8 8 Sales & Marketing 6 5 Production & Operations 42 44 Total 64 67 We also engage the services of many outside Ph.D.’s, 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 occasionally employ temporary employees when needed. 11 The following is a breakdown of employees by departments: May 31, 2023 2022 Administrative 5 8 Research & Development 9 8 Sales & Marketing 7 6 Production & Operations 41 42 Total 62 64 We also engage the services of many outside Ph.D.’s, 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.
Additionally, we have filed for over 100 international and USPTO patents. 11 We believe the claims in these issued InFoods® IBS patents and claims in our pending patents that protect the use of the InFoods® technology to diagnose and treat various diseases, provide us with broad protections from other companies making or selling competing products in this highly disruptive new field of medicine.
We believe the claims in these issued InFoods® IBS patents and claims in our pending patents that protect the use of the InFoods® technology to diagnose and treat various other diseases, provide us with broad protections from other companies making or selling competing products in this highly disruptive new field of medicine.
ITEM 1. BUSINESS BUSINESS OVERVIEW THE COMPANY Biomerica, Inc. ("Biomerica," the "Company," "we," “us,” or "our") was incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc., and later changed its name to Biomerica, Inc.
ITEM 1. BUSINESS BUSINESS OVERVIEW THE COMPANY Biomerica, Inc. (“Biomerica,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc., and later changed its name to Biomerica, Inc.
We employ experienced and highly trained technical personnel (including Ph.D.’s and scientists) to develop new products and evaluate and implement technology technical transfer activities. Our technical staff, many of whom have been previously employed at large diagnostic manufacturing companies, has extensive industry experience.
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.
Following the successful completion and positive results from the Company’s InFoods ® IBS clinical trial we’ve seen significant interest from Gastroenterology (“GI”) physicians who would like to provide the InFoods ® IBS Product to for their patients immediately.
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.
Our unregistered tradenames are "EZ Detect," "EZ-H.P.," and "EZ-PSA". A trademark for "Aware" was issued and assigned in 2001, renewed in 2011 and 2021. On January 11, 2020, the USPTO renewed our “FORTEL” trademark for another ten years.
Our unregistered tradenames are “EZ Detect,” “EZ-H.P.,” and “EZ-PSA”. A trademark for “Aware” was issued and assigned in 2001, renewed in 2011 and 2021. On January 11, 2020, the USPTO renewed our “FORTEL” trademark for another ten years.
We have faced disruptions in certain of the following areas, and may face further challenges from supply chain disruptions, loss of contracts and/or customers, closure of our manufacturing or distribution facilities or of the facilities of our suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where we make and/or sell our products, loss of human capital or personnel at the Company, its partners and its customers, interruptions of production, customer credit risk, and general economic calamities.
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 the facilities of the Company’s suppliers, partners and customers, travel, shipping and logistical disruptions, government responses of all types, international business risks in countries where the Company makes and/or sells 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.
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 . 5 PRODUCTION Most of our diagnostic test kits are manufactured and/or assembled at our facilities in Irvine, California and in Mexicali, Mexico.
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 .
INTERNATIONAL BUSINESS The following table sets forth the dollar volume of revenue attributable to sales to domestic customers and foreign customers during our last two fiscal years: For the year ended May 31, 2022 2021 Asia $ 13,375,000 71% $ 1,908,000 26% Europe 4,339,000 23% 4,301,000 60% North America 997,000 5% 548,000 8% South America 90,000 1% 250,000 3% Middle East 70,000 0% 192,000 3% Total $ 18,871,000 100% $ 7,199,000 100% We recognize that our foreign sales could be subject to some special or unusual risks, which are not present in the ordinary course of business in the United States.
INTERNATIONAL BUSINESS The following table sets forth the dollar volume of revenue attributable to sales to domestic customers and foreign customers during our last two fiscal years: For the Year Ended May 31, 2023 2022 Asia $ 2,021,000 38 % $ 13,375,000 71 % Europe 1,798,000 34 % 4,339,000 23 % North America 1,470,000 28 % 997,000 5 % Middle East 39,000 1 % 70,000 0 % South America 11,000 0 % 90,000 1 % Total $ 5,339,000 100 % $ 18,871,000 100 % We recognize that our foreign sales could be subject to some special or unusual risks, which are not present in the ordinary course of business in the United States.
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 communications with the FDA answering certain follow-up questions and providing additional data as requested. We are currently awaiting FDA clearance of the product. Once cleared, we will begin marketing the product in the U.S. market.
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.
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.
On May 31, 2023, this consisted primarily of orders to a distributor in Asia. 6 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.
This trial was 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.
During fiscal 2022, we completed an endpoint determination clinical trial on our InFoods® IBS product. This trial was 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.
Biomerica’s test is designed to provide highly accurate sensitivity and specificity for H. pylori testing and for monitoring of treatment. 6 MARKETS AND METHODS OF DISTRIBUTION Biomerica has approximately 250 current customers for its diagnostic business, of which approximately 80 are foreign distributors, 10 are domestic distributors and the balance are primarily domestic hospital and clinical laboratories, medical research institutions, medical schools, pharmaceutical companies, chain drugstores, wholesalers, physicians' offices, and e-commerce customers.
MARKETS AND METHODS OF DISTRIBUTION Biomerica has approximately 80 current customers for its diagnostic business, of which approximately 40 are foreign distributors, 10 are domestic distributors and the balance are primarily domestic hospital and clinical laboratories, medical research institutions, medical schools, pharmaceutical companies, chain drugstores, wholesalers, physicians’ offices, and e-commerce customers.
Biomerica received an extended CE Certificate on May 24, 2022, which remains effective until May 26, 2025. Biomerica has until May 26, 2025, to update the technical documentation and processes to meet the new, more stringent regulatory requirements of IVDR 2017/746.
Exceptional Renewal of CE Certificate for IVDD Quality System was granted to Biomerica. Biomerica received an extended CE Certificate on May 24, 2022, which remains effective until May 26, 2025. We have until May 26, 2025, to update the technical documentation and processes to meet these regulatory requirements of IVDR 2017/746.
Biomerica also has until the following dates to update the technical documentation and processes to meet the new, more stringent regulatory requirements of IVDR 2017/746: 9 (1) May 26, 2025, for class D devices; (2) May 26, 2026, for class C devices; (3) May 26, 2027, for class B devices; and (4) May 26, 2027, for class A devices placed on the market in sterile condition.
Biomerica also has until the following dates to update the technical documentation and processes to meet these regulatory requirements of IVDR 2017/746: (1) May 26, 2025, for class D devices. (2) May 26, 2026, for class C devices.
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. 10 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.
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.
These agencies include the FDA, Environmental Protection Agency, Federal Trade Commission, Occupational Safety and Health Administration, U.S. Department of Agriculture ("USDA"), and Consumer Product Safety Commission, as well as European Government agencies. These activities are also regulated by various agencies of the states and localities in which our products are sold.
Department of Agriculture (“USDA”), and Consumer Product Safety Commission, as well as European Government agencies. Our activities are also regulated by various agencies of the states and localities in which our products are sold.
Our InFoods® IBS product uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate Irritable Bowel Syndrome (“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 a patient’s above normal immunoreactivity to specific foods.
Our 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.
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.
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.
For the fiscal years ended May 31, 2022 and 2021, the Company had two distributors, which accounted for a total of 65% and 60% of our net sales, respectively. Of this, for the fiscal years ended May 31, 2022 and 2021, the largest of the distributors mentioned above accounted for 55% and 33%, respectively, of net sales.
For the fiscal years ended May 31, 2023 and 2022, the Company had one distributor and two distributors, respectively, which accounted for a total of 35% and 65% of total net sales, respectively.
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. 7 INFLATION Due to the global and domestic supply chain disruptions, and overall inflationary pressures in the economy, we have experienced material increases in the cost of our raw materials and in our operating and labor costs.
INFLATION Due to the global and domestic supply chain disruptions, and overall inflationary pressures in the economy, we have experienced material increases in the cost of our raw materials and in our operating and labor costs.
We believe that rapid point-of-care tests can be as accurate as laboratory tests when used properly, require limited to no instrumentation, give reliable results in minutes and can be performed with confidence in the home or the physician's office.
We believe 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’s office. 4 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.
Through compliance with FDA and California regulations, we can market some of our medical devices throughout the United States. International sales of medical devices are also subject to the regulatory requirements of each country. In Europe, the directives of the European Union (“EU’) require that a device have a CE Mark in order to be sold in EU countries.
Through compliance with FDA and California regulations, we can market some of our medical devices throughout the United States. International sales of medical devices are also subject to the regulatory requirements of each country where the product is sold.
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.
At present, outside of the EU, the international regulatory review process varies from country to country. We work with our distributors and sales representatives in the foreign countries in which we market our products to ensure that we comply with the regulatory laws of those countries.
However, during the past 18 months, we have expanded our sales and marketing capability, through marketing and strategic cooperation with larger companies and distributors and by hiring new employees with marketing and sales expertise.
We offer a broad range of products but have had limited marketing capability. However, recently we have expanded our sales and marketing capability, through marketing and strategic cooperation with larger companies and distributors and by hiring new employees with marketing and sales expertise.
Of the 50% as of May 31, 2022, 50% was owed by a distributor in Asia. BACKLOG On May 31, 2022 and 2021, Biomerica had a backlog of unshipped orders of approximately $754,000 and $85,000, respectively. On May 31, 2022, this consisted primarily of orders to a distributor in Asia.
As of May 31, 2023 and 2022, the Company had one distributor which accounted for 36% and 50%, respectively, of gross accounts receivable. Of the 36% as of May 31, 2023, 100% was owed by a distributor in Asia. BACKLOG On May 31, 2023 and 2022, Biomerica had a backlog of unshipped orders of approximately $655,000 and $754,000, respectively.
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.
We are working closely with our Notified Body to update our technical documentation to comply with these more stringent IVDR requirements. 8 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.
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 (“USC”), a European University and several other U.S. locations.
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.
Since August 19, 2021, our Notified Body is officially designated under the IVDR and listed in the European Commission NANDO database. We are working closely with our Notified Body to update our technical documentation to comply with these new and more stringent IVDR requirements.
Our Notified Body is officially designated under the IVDR and listed in the European Commission NANDO database since August 19, 2021.
GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS Our primary business consists of selling products that are generally legally defined to be in vitro diagnostic medical devices and medical devices. As a result, we are considered to be an in vitro diagnostic medical devices and medical device manufacturer, and as such are subject to the regulations of numerous governmental entities.
GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS Our primary business consists of selling products that are generally legally defined as medical devices and in vitro diagnostic medical devices.
We will also continue to evaluate partnership/licensing opportunities, as they arise, with U.S. and multinational companies that could help us commercialize, or accelerate revenue growth of, the InFoods products in the United States and overseas. 4 Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter drugstores like Walmart and Walgreens).
We are also continuing to evaluate partnership/licensing opportunities, as they arise, with U.S. and multinational companies that could help us commercialize, or accelerate revenue growth of, the InFoods ® products in the United States and overseas.
These ongoing pandemic related disruptions can materially negatively impact our operations and financial performance and may continue to have significant material negative impacts on us. Our net sales were approximately $18,871,000 for fiscal 2022 compared to $7,199,000 for fiscal 2021.
The pandemic, war, and geopolitical related disruptions have materially negatively impacted the Company’s operations and financial performance and may continue to have significant material negative impacts on 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.
The Food, Drug & Cosmetic Act of 1938 (the "FDCA") regulates medical devices in the United States by classifying them into one of three classes based on the extent of regulation believed necessary to ensure safety and effectiveness.
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. 7 The Food, Drug & Cosmetic Act of 1938 (the “FDCA”) regulates medical devices in the United States by classifying them into one of three classes based on the extent of regulation believed necessary to ensure safety and effectiveness.
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 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 comply with In Vitro Diagnostic Medical Devices Directive (“IVDD”) 98/79/EC and Medical Devices Regulation 2017/745 (“MDR”). We also comply with ISO 13485:2016 Medical Devices Quality Management Systems - Requirements for Regulatory Purposes. At present, outside the EU the regulatory international review process varies from country to country.
In Europe, the directives of the European Union (“EU’) require that a device have a CE Mark in order to be sold in EU countries. We comply with In Vitro Diagnostic Medical Devices Directive (“IVDD”) 98/79/EC and Medical Devices Regulation 2017/745 (“MDR”). We also comply with ISO 13485:2016 Medical Devices Quality Management Systems - Requirements for Regulatory Purposes.
Our most important family of patent applications pertains to our InFoods ® technology platform, which is a new method of diagnosing and treating symptoms of many different inflammatory diseases. Our first planned product launch using this technology is the InFoods ® IBS product which is designed to diagnose and treat IBS.
Substantially all of our patents that are pending or registered pertain to the InFoods® technology platform. 10 Our most important family of patent applications pertains to our InFoods ® technology platform, which is a method of diagnosing and treating symptoms of many different inflammatory diseases.
As Biomerica moves forward with development, validation and commercialization of additional key products that address diseases with large market opportunities, research and development expenses are expected to increase during upcoming quarters.
As Biomerica moves forward with development, validation and commercialization of additional key products that address diseases with large market opportunities, research and development expenses are expected to be 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.
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.
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’ve developed a unique diagnostic-guided therapy that is designed to allow physicians to identify patient-specific foods (e.g. pork, milk, onions, sugar, chickpeas, etc.), that when removed from the patient’s diet, may alleviate or improve their symptoms of IBS.
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. 5 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 their symptoms of IBS and other diseases.
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.
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.
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.
These products have certain and significant 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.
RESEARCH AND DEVELOPMENT During most of the fiscal year, in addition to our focus on development our InFoods ® IBS product, we also focused a portion of our Research and Development (“R&D”) resources on developing a H. Pylori diagnostic test.
We have alternate, approved sources for most critical raw materials and are working to procure alternate sources for the few that we do not have. RESEARCH AND DEVELOPMENT Beyond our focus on development of our InFoods ® IBS product, we also focused a portion of our Research and Development (“R&D”) resources on continued validation of our H. Pylori diagnostic test.
We are also beginning the work of selecting and validating at least 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 these indications.
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. 3 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.
Sales of products manufactured under this agreement are not material to total sales for the fiscal years ended May 31, 2022 and 2021, respectively. We may license other products or technology in the future as it deems necessary or opportunistic for conducting business.
Royalty expenses of approximately $13,000 and $19,000, respectively, are included in cost of sales for this agreement for the fiscal years ended May 31, 2023 and 2022. Sales of products manufactured under this agreement are not material to total sales for the fiscal years ended May 31, 2023 and 2022, respectively.
For the fiscal years ended May 31, 2022 and 2021, the Company had one vendor, which accounted for 84% and 58%, respectively of our purchases of raw materials.
For the fiscal year ended May 31, 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 84% of our purchases of raw materials largely related to COVID-19 products.
These license agreements typically require royalties and other payments. We have a royalty agreement in which we obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions). Royalty expense of approximately $19,000 and $11,000, respectively, is included in cost of sales for this agreement for the fiscal years ended May 31, 2022 and 2021.
LICENSE OF THIRD-PARTY INTELLECTUAL PROPERTY On occasion, we in-licensed both exclusive and non-exclusive rights to intellectual property and patents owned by third parties. These license agreements typically require royalties and other payments. We have a royalty agreement in which we obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions).
A food identified as positive, and causing an abnormal immune response in the patient is simply removed from the diet to help alleviate IBS symptoms. During fiscal 2022, we completed an endpoint determination clinical trial on our InFoods® IBS product.
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 the 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.
However, we do have certain proprietary products, such as our EZ Detect colon disease home test, the Aware Breast Self Exam product and our InFoods ® IBS that do not have significant competition from tests offered by competitors, and that do not have the features and benefits of our tests. Our competitors vary greatly in size.
While we have attempted to respond by increasing the selling 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, the Aware Breast Self Exam product and our InFoods ® IBS product.
Therefore, while we are proceeding with the work needed to seek FDA clearance for this product, we also are currently preparing to launch the InFoods ® IBS product through a CLIA-certified, high-complexity laboratory facility and offering the product as a laboratory developed test (“LDT”).
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.
PATENTS AND INFOODS TECHNOLOGY We have filed over 100 international and Patent Corporation Treaty patents and have over 10 provisional and non-provisional patents currently filed with the USPTO. Some of these patent applications pertain to COVID-19 and other products, however, the majority of our patents that are pending, allowed or issued pertain to the InFoods® technology platform.
PATENTS AND INFOODS TECHNOLOGY We have filed over 100 international and Patent Corporation Treaty patents (“PCT”) and have over multiple provisional and non-provisional patents currently filed with the USPTO.
Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic , in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19, or is currently infected.
Due to the global 2019 SARS-CoV-2 novel coronavirus (“COVID-19”) pandemic, in March 2020, we began developing, marketing, and selling COVID-19 diagnostic tests. In fiscal 2022, we generated revenues from the international sale of our COVID-19 antigen tests.
We anticipate that we will license or purchase the rights to other products or technologies in the future. We recently completed an endpoint determination clinical trial on our InFoods® IBS product.
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 on our InFoods® IBS product.
Total gross receivables at May 31, 2022 and 2021 were approximately $927,000 and $2,292,000, respectively. As of May 31, 2022 and 2021, the Company had one distributor and two distributors, respectively, which accounted for a total of 50% and 73%, respectively, of gross accounts receivable.
Of this, for the fiscal years ended May 31, 2023 and 2022, the largest of the distributors mentioned above accounted for 35% and 55%, respectively, of net sales. Total gross receivables on May 31, 2023 and 2022 were approximately $751,000 and $927,000, respectively.
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We are now in the process of reviewing the complete dataset and selecting the target endpoint(s) to be used in the pivotal trial.
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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.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn 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 United States or other countries; • lawsuits or liability claims from shareholders or other parties; • legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, and the results of any proceedings or lawsuits, including patent or shareholder litigation; • sales of our common stock or other securities by us or our stockholders in the future; • trading volume of our common stock; • actual or anticipated variations in quarterly operating results; • publication of research reports about us or our industry or positive or negative recommendations or withdrawal of research coverage by securities analysts; • effects of natural or man-made catastrophic events, including widespread public health epidemics like the pandemic related to COVID-19; and • general stock market conditions and other factors unrelated to our operating performance.
Biggest changeIn 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 by us or by our competitors; ● 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 United States or other countries; ● lawsuits or liability claims from shareholders or other parties; ● legal disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our product candidates, and the results of any proceedings or lawsuits, including patent or shareholder litigation; ● possible recalls of our products or false positive/false negative results; ● 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; ● general stock market conditions and other factors unrelated to our operating performance; ● volatility and disruptions in the capital and credit markets due to rising inflation and interest rates ● wars or expansion of wars or other related actions and events that impact the markets in which we operate; and ● political or societal unrest in the markets in which we operate.
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 United States. We cannot predict the many ways that healthcare reform in the United States and internationally, and changing trade legislation and policies could adversely affect our business.
Such changes could include tariffs, embargos, trade wars, modifications to existing legislation, such as U.S. tax policy, or entirely new legislation, such as the Affordable Healthcare Act in the United States. We cannot predict the many ways that healthcare reform in the United States and internationally, and changing trade legislation and policies could adversely affect our business.
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. 13 Our operating results may fluctuate adversely as a result of many factors that are outside our control, which may negatively impact our stock price.
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.
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. 18 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.
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.
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. 14 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.
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 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. 17 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.
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.
We are subject to numerous government regulations in addition to FDA regulation, and compliance with laws, including changed or new laws, could increase our costs and adversely affect our operations. There is also the risk that our facilities could fail to get the proper licensing at our next inspection or renewal.
We are subject to numerous government regulations in addition to FDA 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.
If one or more of our products is claimed to be defective or does not meet the performance criteria we claim in our marketing materials we could be subject to product recalls, claims of liability and harm to patients or users of our products, or harm to our reputation that could adversely affect our business.
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, harm to patients or users of our products, or harm to our reputation that could adversely affect our business.
We cannot guarantee that such claims will not be made in the future. 16 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.
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.
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.
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. 17 Our business and products are highly regulated by various governmental agencies.
The testing, manufacture and sale of our products are subject to regulation by numerous governmental authorities in the United States, principally the FDA and corresponding state and foreign regulatory agencies.
The testing, manufacturing, and sale of our products are subject to regulation by numerous governmental authorities in the United States, principally the FDA, and corresponding state and foreign regulatory agencies.
Further, we have filed over 100 patents around the world on much of the research and development done by the Company, and the proposed products to come from this research. The vast majority of these filed patents are still under review and have not yet been allowed or issued.
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.
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.
Factors that are beyond our control and that could affect our operating results in the future include: ● regulatory clearance of our products in the U.S. and in other markets; ● regulatory compliance in the U.S., Europe and other territories; ● 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, lock downs or other crisis related orders; ● potential resurgence of the COVID-19 virus or mutations of the virus; and ● changes in the healthcare market including consolidation in our customer base.
As a result of this COVID-19 outbreak and potential future pandemic outbreaks, the Company faces significant risks including, but not limited to: a) supply chain disruptions making it difficult for the Company to contract and receive materials needed for production of its products, and needed to ship finished products to our end customers, b) loss of contracts and customers from the financial strains or other disruptions they are experiencing as a result of the pandemic, c) financial risks pertaining to receivables due from customers that may fall into insolvency or otherwise be unable to pay their bills, d) government responses including orders that make it difficult to remain open for business, restrict imports of raw materials or exports of finished goods, refusal to allow the Company’s product to be licensed for sale in their countries, and other seen and unforeseen actions taken by government agencies, e) absenteeism or loss of employees at the Company, or at our partner’s companies, due to health reasons or government restrictions, that are needed to develop, validate, manufacture and perform other necessary functions for our operations, f) equipment failures, loss of utilities and other disruptions that could impact our operations or render them inoperable, g) litigation or government actions against the Company pertaining to existing products 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, i) a drop in demand for our products, that are all medical related, due to patients’ reluctance or refusal to visit hospitals, labs, and doctors’ offices where our products are used due to their fear of contracting a disease, and many other seen and unforeseen events and circumstances, all of which could negatively impact the Company.
The Company faces significant future risks 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 receive materials needed for production of its products, and needed to ship finished products to our customers, b) loss of contracts and customers from the financial strains or other disruptions they are experiencing as a result of the 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 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, 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. 12 We have a history of operating losses.
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.
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.
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.
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. 19 We may rely on third parties to conduct or be part of our clinical trials.
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.
Our ability to obtain patents and licenses, and their benefits, is uncertain. 13 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.
While we do not know of any patents with claims that we are violating by manufacturing or selling our current products, there is a risk that certain third-party patents will emerge that prohibit us from selling our products or that require us to pay royalty payments. Such third-party claims could have a material negative impact on the Company.
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.
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 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.
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. 19 We are exposed to business risks which, if not covered by insurance, could have an adverse effect on our results of operations.
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.
Third-party reimbursement and coverage may not be available or adequate in either the 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.
Third-party reimbursement and coverage may not be available or adequate in either the 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. 18 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.
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.
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. 14 We rely on a limited number of key distributors that account for a substantial majority of our total revenue.
For the fiscal years ended May 31, 2022 and 2021, the Company had two distributors, which accounted for a total of 65% and 60% of our net sales, respectively. Of this, for the fiscal years ended May 31, 2022 and 2021, the largest of the distributors mentioned above accounted for 55% and 33%, respectively, of net sales.
For the fiscal years ended May 31, 2023 and 2022, the Company had one distributor and two distributors, respectively, which accounted for a total of 35% and 65% of our net sales, respectively.
Although we have Federal income tax net operating loss carryforwards of approximately $17,116,000 and California state income tax net operating loss carryforwards of approximately $10,805,000, use of these loss carryforwards will depend on future income in relationship to expirations dates of these carryforwards. 22 We face risks related to our intellectual property including our patents (IP).
Although we have Federal income tax net operating loss carryforwards of approximately $21,778,000 and California state income tax net operating loss carryforwards of approximately $17,090,000, use of these loss carryforwards will depend on future income in relationship to expirations dates of these carryforwards.
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 $18,871,000 for fiscal 2022 compared to $7,199,000 for fiscal 2021.
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.
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.
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.
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.
Any of these IP-related risks could cause material damage to future revenues and to the long-term enterprise values of the Company. 15 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.
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.
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.
Costs related to development projects and approvals are hard to estimate due to factors that are unknown to us at this time. These future costs could be much higher than anticipated and current operations are unlikely be able to cover these costs.
Costs related to development projects and approvals are hard to estimate due to factors that are unknown to us at this time.
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.
These future costs could be much higher than anticipated and current operations are unlikely to be able to cover these costs. 16 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.
The outbreak of the COVID-19 virus caused various governments, including the United States, to implement quarantines, various restrictions on travel and shelter in place orders and other restrictions.
We may be materially impacted by ongoing outbreaks of illness or other health issues, such as the COVID-19 outbreak. The outbreak of the COVID-19 virus caused various governments, including the United States, to implement quarantines, various restrictions on transportation, and shelter in place orders and other broad restrictions.
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.
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.
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. 15 We extend credit to customers outside the United States which can be difficult to collect.
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.
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. 20 The Company’s lease obligations and growth expectations could create financial and operating risks.
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. 20 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.
On January 22, 2021, we filed a prospectus supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering under the shelf registration statement, of which approximately $9,600,000, remains available for sale under the prospectus supplement. 21 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.
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 approximately $5,290,000 were sold under the ATM.
Total gross receivables on May 31, 2022 and 2021 were approximately $927,000 and $2,292,000, respectively. As of May 31, 2022 and 2021, the Company had one distributor and two distributors, respectively, which accounted for a total of 50% and 73%, respectively, of gross accounts receivable.
As of May 31, 2023 and 2022, the Company had one distributor which accounted for a total of 36% and 50%, respectively, of gross accounts receivable. Of the 36% as of May 31, 2023, 100% was owed by a distributor in Asia.
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.
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.
We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities.
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.
RISKS RELATED TO OUR BUSINESS Our business could be adversely affected by the effects of widespread public health epidemics . We are susceptible to ongoing outbreaks of illness or other health issue, such as the recent COVID-19 Coronavirus outbreak.
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 . During recent years, certain aspects of our business were negatively impacted by the COVID-19 pandemic.
Our competitive position is heavily dependent on obtaining and protecting our own proprietary technology or obtaining licenses from others. Our ability to obtain patents and licenses, and their benefits, is uncertain. The Company is required to obtain government or regulatory certification in many countries and the European community to sell its products in those countries or regions.
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.
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.
Our products are primarily sold internationally, with the majority of our international sales to our distributors in Asia and Europe.
Governments have also implemented work restrictions that prohibit many employees from going to work, and for businesses that are allowed to remain open, many employees are electing to remain at home to avoid spread of the disease.
Governments have also implemented sweeping work restrictions that prohibit most employees from going to work.
Removed
In the event that we fail to achieve profitability in future periods, the value of our common stock may decline.
Added
Our competitive position is heavily dependent on obtaining and protecting our own proprietary technology or obtaining licenses from others.
Removed
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.
Added
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.
Removed
Of the 50% as of May 31, 2022, 50% was owed by a distributor in Asia.
Added
Of this, for the fiscal years ended May 31, 2023 and 2022, the largest of the distributors mentioned above accounted for 35% and 55%, respectively, of net sales. Total gross receivables on May 31, 2023 and 2022 were approximately $751,000 and $927,000, respectively.
Removed
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.
Added
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 United States which can be difficult to collect.
Removed
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.
Added
Such third-party claims could have a material negative impact on the Company.
Removed
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.
Added
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.
Removed
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.
Added
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.
Removed
Any of these IP related risks could cause material damage to future revenues and to the long-term enterprise values of the Company.
Added
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.
Added
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. 21 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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company had an option to extend the term of its lease for two additional sixty-month periods. On November 30, 2015, the Company exercised its option to extend its lease for an additional sixty-month period and entered into the First Amendment to Lease wherein it extended its lease until August 31, 2021.
Biggest changeOn November 30, 2015, the Company exercised its option to extend its lease for an additional sixty-month period and entered into the First Amendment to Lease wherein it extended its lease until August 31, 2021. On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years.
The security deposit is approximately $22,000. In November 2016, the Company’s Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space located in Mexicali, Mexico. The Company has one 10-year option to renew at the end of the initial lease period. The current rent is approximately $3,400 per month.
In November 2016, the Company’s Mexican subsidiary, Biomerica de Mexico, entered into a 10-year lease for approximately 8,100 square feet of manufacturing space located in Mexicali, Mexico. The Company has one 10-year option to renew at the end of the initial lease period. The current rent is approximately $3,100 per month.
ITEM 2. PROPERTIES The Company leases its facilities. On May 31, 2022, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, 92614 which it has been leasing since 2009. The lease for its headquarters expired on August 31, 2016.
ITEM 2. PROPERTIES The Company leases its facilities. On May 31, 2023, the Company had approximately 22,000 square feet of floor space at its corporate headquarters at 17571 Von Karman Avenue in Irvine, California, 92614 which it has been leasing since 2009.
Biomerica de Mexico also leases a smaller unit on a month-to-month basis for use in one manufacturing process. In addition, the Company leases a small office in Lindau, Germany on a month-to-month basis, as headquarters for BioEurope GmbH, its Germany subsidiary.
Biomerica de Mexico also leases a smaller unit on a month-to-month basis for use in one manufacturing process. In addition, the Company leases a small office in Lindau, Germany on a month-to-month basis, as headquarters for BioEurope GmbH, its Germany subsidiary. We believe our space is adequate for our current needs.
On April 9, 2021, the Company exercised its second option to extend its lease for an additional five years. When the Company extended its lease in April 2021, it was also granted an additional five- year lease extension option. The current rent is approximately $25,000 per month and will increase on September 1, 2022, to $26,000 per month.
When the Company extended its lease in April 2021, it was also granted an additional five- year lease extension option. The current rent is approximately $26,000 per month and will increase on September 1, 2023, to $27,000 per month. The security deposit is approximately $22,000.
Added
This lease was scheduled to expire on August 31, 2016, but the Company had an option to extend the term of its lease for two additional sixty-month periods.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business. While the amounts claimed may be substantial, the ultimate liability cannot be estimated because of considerable uncertainties that exist.
Biggest changeITEM 3. LEGAL PROCEEDINGS The Company is, from time to time, involved in legal proceedings, claims and litigation arising in the ordinary course of business that have a negative impact on the financial results of the Company. While the amounts claimed may be substantial, the ultimate liability cannot be estimated because of considerable uncertainties that exist.
However, based on facts currently available, management believes such matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows. There were no legal proceedings pending as of May 31, 2022.
However, based on facts currently available, management believes such matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. There were no legal proceedings pending as of May 31, 2023.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe table below provides information relating to our equity compensation plans as of May 31, 2022: Securities Remaining Available for Future Issuance Under Compensation Plans (Excluding those Reflected in Second Column) Securities Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options Compensation Plans Weighted-Average Exercise Price of Outstanding Options Equity compensation Plans approved by Securities holders 2,321,616 $3.72 102,801
Biggest changeWe did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2023. 23 The table below provides information relating to our equity compensation plans as of May 31, 2023: Securities Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options Compensation Plans Weighted-Average Exercise Price of Outstanding Options Securities Remaining Available for Future Issuance Under Compensation Plans (Excluding those Reflected in Second Column) Equity compensation Plans approved by Securities holders 2,342,616 $ 3.52 28,301
The Company has not paid any cash dividends on its common stock in the past and does not plan to pay any cash dividends on its common stock in the foreseeable future. The Company's Board of Directors (“Board”) intends, for the foreseeable future, to retain any earnings to finance the continued operation and expansion of the Company's business.
The Company has not paid any cash dividends on its common stock in the past and does not plan to pay any cash dividends on its common stock in the foreseeable future. The Company intends, for the foreseeable future, to retain any earnings to finance the continued operation and expansion of the Company’s business.
As of August 29, 2022, the number of holders of record of Biomerica's common stock was approximately 800, excluding stock held in street name. The number of record holders does not bear any relationship to the number of beneficial owners of the common stock as most of the Company’s common stock is held in street name at securities brokerage firms.
The number of record holders does not bear any relationship to the number of beneficial owners of the common stock as most of the Company’s common stock is held in street name at securities brokerage firms.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES On August 26, 2016, the Company’s common stock became listed and began trading on the Nasdaq Capital Market stock exchange where it trades under the symbol BMRA. Previous to that date, the Company’s stock traded on the OTC Bulletin Board.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s common stock is listed for trading on the Nasdaq Capital Market stock exchange under the symbol BMRA. As of August 25, 2023, the number of holders of record of Biomerica’s common stock was approximately 800, excluding stock held in street name.
Removed
We did not sell any unregistered equity securities during the year ended May 31, 2022. We did not purchase any of our shares of common stock or other securities during our fiscal year ended May 31, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAs of August 29, 2022, the date on which this Annual Report on Form 10-K for the fiscal year ended May 31, 2022, is filed with the SEC, our 2020 Registration Statement remains subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because our public float is less than $75 million.
Biggest changeIn March 2023, we terminated the at-the-market offering and sold 3,333,333 shares of our common stock in a firm commitment public offering under the 2020 Shelf Registration Statement at a price to the public of $2.40 per share, for total gross proceeds of $8,00 0 ,000, before deducting underwriting discounts and commissions and other offering-related expenses payable by the Company. 27 As of August 25, 2023, the date on which this Annual Report on Form 10-K for the fiscal year ended May 31, 2023, is filed with the SEC, our 2020 Registration Statement remains subject to the offering limits set forth in General Instruction I.B.6 of Form S-3 because our public float is less than $75 million.
The fair value of each option award is estimated on the date of grant using the Black-Scholes options-pricing model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the foreseeable future.
The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses assumptions for expected volatility, expected dividends, expected forfeiture rate, expected term, and the risk-free interest rate. The Company has not paid dividends historically and does not expect to pay them in the foreseeable future.
CRITICAL ACCOUNTING POLICIES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.
CRITICAL ACCOUNTING ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements.
This trial monitored IBS patients over an 8-week 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.
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.
The Company's products are designed to enhance the health and well-being of people, while reducing total healthcare costs. 24 Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products to treat gastrointestinal diseases, such as irritable bowel syndrome, and other inflammatory diseases.
The Company’s products are designed to enhance the health and well-being of people, while reducing total healthcare costs. Our primary focus is the research, development, commercialization and in certain cases regulatory approval, of patented, diagnostic-guided therapy (“DGT”) products to treat gastrointestinal diseases, such as irritable bowel syndrome (“IBS”), and other inflammatory diseases.
The purpose of the endpoint study was 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.
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 also beginning the work of selecting and validating at least 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 these indications.
We are also beginning the work of selecting and 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 these indications.
These products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. Our InFoods® IBS product uses a simple blood sample and is designed to identify patient-specific foods that, when removed from the diet, may alleviate Irritable Bowel Syndrome (“IBS”) symptoms such as pain, bloating, diarrhea and constipation.
These products are directed at chronic inflammatory illnesses that are widespread and common, and as such address very large markets. Our 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.
Multiple endpoints demonstrated statistically significant improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in all patient subtypes (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.
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.
We suggest that our significant accounting policies be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Please refer to Note 2 for information on Significant Accounting Policies. REVENUE RECOGNITION The Company has various contracts with customers.
We suggest that our significant accounting policies be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations. Please refer to Note 2 of the Company’s consolidated financial statements for information on Significant Accounting Policies. 28 REVENUE RECOGNITION The Company has various contracts with customers.
We have sold $3,374,328 of our common stock pursuant to General Instruction I.B.6 of Form S-3 in the 12 calendar months preceding the date of filing this Annual Report on Form 10-K.
We have sold $7,631,000 of our common stock pursuant to General Instruction I.B.6 of Form S-3 in the 12 calendar months preceding the date of filing this Annual Report on Form 10-K.
The other existing products that contributed to our fiscal 2022 revenues 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.
Pylori product, and our InFoods® IBS product. 25 Our existing products that contributed to our fiscal 2023 revenues 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.
To satisfy our capital requirements, including ongoing future operations, we may seek to raise additional financing through debt and equity financings. Operating Activities During fiscal 2022, cash used in operating activities were approximately $486,000, as compared to $5,252,000 for fiscal 2021.
To satisfy our capital requirements, including ongoing future operations, beyond next year, we may seek to raise additional financing through debt and equity financings. Operating Activities During fiscal 2023, cash used in operating activities was approximately $5,474,000, as compared to $479,000 for fiscal 2022.
In fiscal 2022 and 2021, the Company had proceeds from the exercise of stock options of approximately $77,000 and $102,000, respectively. During fiscal 2022 and 2021, the Company received approximately $2,317,000 and $1,011,000, respectively, in net proceeds from the sale of common stock.
In fiscal 2023 and 2022, the Company had proceeds from the exercise of stock options of approximately $81,000 and $77,000, respectively. During fiscal 2023 and 2022, the Company received approximately $9,309,000 and $2,317,000, respectively, in net proceeds from the sale of common stock.
For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was $39,995,179, based on 12,193,652 shares of our outstanding common stock held by non-affiliates and a price of $3.28 per share, which was the price at which our common stock was last sold on The Nasdaq Capital Market on August 22, 2022 (a date within 60 days of the date hereof), calculated in accordance with General Instruction I.B.6 of Form S-3.
For purposes of this limitation, the aggregate market value of our outstanding common stock held by non-affiliates, or public float, was $25,638,909, based on 15,538733 non-restricted shares of our outstanding common stock held by non-affiliates and a price of $1.65 per share, which was the price at which our common stock was last sold on the Nasdaq Capital Market on August 3, 2023 (a date within 60 days of the date hereof), calculated in accordance with General Instruction I.B.6 of Form S-3.
We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions. 28 We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us.
We believe that the estimates and assumptions that are most important to the portrayal of our financial condition and results of operations, in that they require subjective or complex judgments, form the basis for the accounting policies deemed to be most critical to us.
The common stock sold and issued in fiscal 2021 and 2022 was issued under the S-3 “shelf” Registration Statement base prospectus filed with the SEC on July 21, 2020 (the “2020 Shelf Registration Statement”) and declared effective by the SEC on September 30, 2020, and under the prospectus supplement filed with the SEC on January 22, 2021 (“2021 Prospectus Supplement”) (See Shareholders’ Equity and Subsequent Events in the notes to the consolidated financial statements for further details about SEC registrations).
The common stock sold and issued in fiscal 2022 and 2023 was issued under the Company’s shelf registration statement filed with the SEC on July 21, 2020 (the “2020 Shelf Registration Statement”) and declared effective by the SEC on September 30, 2020, and under the prospectus supplement filed with the SEC on January 22, 2021 (“2021 Prospectus Supplement”), and the prospectus supplement filed in conjunction with the Company’s underwritten public offering of common shares on March 7, 2023 (the “2023 Prospectus Supplement”) (See Shareholders’ Equity in the notes to the consolidated financial statements for further details about SEC registration statements).
On January 22, 2021, we filed the 2021 Prospectus Supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering under the 2020 Shelf Registration Statement, of which $9,609,945 remains available for sale under the 2021 Prospectus Supplement.
On January 22, 2021, we filed the 2021 Prospectus Supplement for the sale of up to $15,000,000 of shares of our common stock in an at-the-market offering under the 2020 Shelf Registration Statement, of which $5,290,000 was issued through March 7, 2023.
We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances.
We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable under the current conditions; however, actual results may differ from these estimates under different future conditions.
These were partially offset by a decrease in accounts receivable of $1,365,000, a decrease in inventories of $1,562,000, an increase in accounts payable and accrued expenses of $389,000, and non-cash expenses of approximately $1,855,000.
These were partially offset by a decrease in accounts receivable of $1,365,000, a decrease in inventories of $1,562,000, an increase in accounts payable and accrued expenses of $389,000, and non-cash expenses of approximately $1,855,000. Investing Activities During fiscal 2023, cash used in investing activities was approximately $78,000, as compared to $170,000 for fiscal 2022.
Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians' offices and over-the-counter drugstores like Walmart and Walgreens).
Our existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians’ offices and OTC at Walmart, CVS Pharmacy, Amazon, etc.).
Operating Expenses The following is a summary of operating expenses: Twelve Months Ended May 31, 2022 2021 Increase (Decrease) Operating Expense As a % of Total Revenues Operating Expense As a % of Total Revenues $ % Selling, General and Administrative Expenses $ 5,699,000 30% $ 5,672,000 79% $ 27,000 0% Research and Development $ 1,812,000 10% $ 2,194,000 30% $ (382,000) -17% 26 Selling, General and Administrative Expenses Our selling, general and administrative expenses were approximately $5,699,000 for fiscal 2022 compared to $5,672,000 for fiscal 2021, an increase of $27,000, or 0%.
Operating Expenses The following is a summary of operating expenses: Year Ended May 31, 2023 2022 Increase (Decrease) Operating Expense As a % of Total Revenues Operating Expense As a % of Total Revenues $ % Selling, General and Administrative Expenses $ 6,085,000 114% $ 5,699,000 30% $ 386,000 7% Research and Development $ 1,584,000 30% $ 1,812,000 10% $ (228,000 ) -13% Selling, General and Administrative Expenses Our selling, general and administrative expenses were approximately $6,085,000 for fiscal 2023 compared to $5,699,000 for fiscal 2022, an increase of $386,000, or 7%.
Research and Development Our research and development expenses were approximately $1,812,000 for fiscal 2022 compared to $2,194,000 for fiscal 2021, a decrease of $382,000, or 17%, primarily as a result of decreases in costs related to the research, development and validation of COVID-19, IBS and H. Pylori.
Research and Development Our research and development expenses were approximately $1,584,000 for fiscal 2023 compared to $1,812,000 for fiscal 2022, a decrease of $228,000, or 13%, primarily as a result of decreases in costs related to the research, development and validation of COVID-19. See “Research and Development” for a more extensive description of the research being conducted.
After giving effect to the $13,331,726 offering limit imposed by General Instruction I.B.6 of Form S-3, and after deducting the shares we sold within the preceding 12 months, as of the date of filing this Annual Report, we may offer and sell from time to time up to $9,609,945 under the 2021 Prospectus Supplement.
After giving effect to the $8,546,303 offering limit imposed by General Instruction I.B.6 of Form S-3, and after deducting the shares we sold within the preceding 12 months, as of the date of filing this Annual Report, we may sell $915,3030 shares of our common stock at this time under the 2020 Shelf Registration Statement.
Investing Activities During fiscal 2022, cash used in investing activities were approximately $170,000, as compared to $296,000 for fiscal 2021. During fiscal 2022, the Company purchased approximately $57,000 of property and equipment and had $113,000 in expenditures related to patents.
During fiscal 2023, the Company purchased approximately $64,000 of property and equipment and had $14,000 in expenditures related to patents. During fiscal 2022, the Company purchased approximately $57,000 of property and equipment and $113,000 in expenditures related to patents. Financing Activities Cash provided by financing activities for fiscal 2023 was approximately $9,390,000 as compared to $2,394,000 for fiscal 2022.
Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under the straight-line attribution method. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 to our consolidated financial statements for a listing of adopted and soon to be adopted accounting pronouncements.
Treasury yield curve in effect at the time of grant for the period of the expected term. The grant date fair value of the award is recognized under the straight-line attribution method.
RESULTS OF OPERATIONS Net Sales and Cost of Sales The following is a breakdown of revenues according to markets to which the products are sold: Twelve Months Ended May 31, Increase (Decrease) 2022 2021 $ % Physician's office $ 14,259,000 $ 2,801,000 $ 11,458,000 409% Clinical lab 3,064,000 3,077,000 (13,000) 0% Over-the-counter 1,089,000 766,000 323,000 42% Contract manufacturing 459,000 555,000 (96,000) -17% Total $ 18,871,000 $ 7,199,000 $ 11,672,000 162% Our net sales were approximately $18,871,000 for fiscal 2022 compared to $7,199,000 for fiscal 2021, an increase of $11,672,000, or 162%.
RESULTS OF OPERATIONS Net Sales and Cost of Sales The following is a breakdown of revenues according to markets to which the products are sold: For the Year Ended May 31, Increase (Decrease) 2023 2022 $ % Clinical lab $ 3,310,000 $ 3,064,000 $ 246,000 8% Over-the-counter 1,169,000 1,089,000 $ 80,000 7% Contract manufacturing $ 610,000 $ 459,000 $ 151,000 33% Physician’s office 250,000 14,259,000 $ (14,009,000 ) -98% Total $ 5,339,000 $ 18,871,000 $ (13,532,000 ) -72% Our net sales were approximately $5,339,000 for fiscal 2023 compared to $18,871,000 for fiscal 2022, a decrease of $13,532,000, or 72%.
This increase in annual sales is primarily attributable to sales of COVID-19 tests. Our cost of sales were approximately $15,894,000 for fiscal 2022 compared to $6,833,000 for fiscal 2021, an increase of $9,061,000, or 133%. This increase was driven by the cost of additional COVID-19 sales.
This decrease in annual sales is primarily attributable to the decrease of $13,950,000 in sales of COVID-19 tests. Our cost of sales were approximately $4,893,000 for fiscal 2023 compared to $15,894,000 for fiscal 2022, a decrease of $11,001,000, or 69%. This decrease was driven by the significant decrease in the demand for our COVID-19 tests.
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 communications with the FDA answering certain follow-up questions and providing additional data as requested. We are currently awaiting FDA clearance of the product. Once cleared, we will begin marketing the product in the U.S. market.
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.
The primary factors that contributed to this was a loss of approximately $4,531,000, a decrease in inventory reserves of $772,000, and a decrease in the allowance on accounts receivable of $684,000.
The primary factors that contributed to this were a loss of approximately $7,140,000, an increase in accounts receivable of $291,000, a decrease in inventory reserves of $174,000, and a decrease in accounts payable and accrued expenses of $79,000.
LIQUIDITY AND CAPITAL RESOURCES The following are the principal sources of liquidity: May 31, 2022 2021 Cash and cash equivalents $ 5,917,000 $ 4,199,000 Working capital including cash and cash equivalents $ 7,416,000 $ 7,931,000 As of May 31, 2022 and 2021, the Company had cash and cash equivalents of approximately $5,917,000 and $4,199,000, respectively.
The $106,000 increase was due to higher market interest rates on our higher cash balance due to the current fiscal year financings. 26 LIQUIDITY AND CAPITAL RESOURCES The following are the principal sources of liquidity: May 31, 2023 2022 Cash and cash equivalents $ 9,719,000 $ 5,917,000 Working capital including cash and cash equivalents $ 10,852,000 $ 7,416,000 As of May 31, 2023 and 2022, the Company had cash and cash equivalents of approximately $9,719,000 and $5,917,000, respectively.
As of May 31, 2022 and 2021, the Company had working capital of approximately $7,416,000 and $7,931,000, respectively. We believe that the aggregate of our existing cash and cash equivalents is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next year.
Based on management’s analysis of the Company’s cash flow requirements through August 2024 and beyond, we believe that the aggregate of our existing cash and cash equivalents is sufficient to meet our operating cash requirements and strategic objectives for growth for at least the next year.
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.
However, in fiscal 2023, due to the decline in severity of COVID-19 and the corresponding lower sales volumes we no longer sell these products. 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.
During fiscal 2021, the Company had a net loss of approximately $7,446,000, an increase in accounts receivable of $456,000, an increase in inventories of $1,906,000, and an increase in prepaid expenses of $1,139,000. These were offset by an increase in accrued compensation of approximately $110,000, a non-cash stock option expense of $1,355,000 and depreciation and amortization of $138,000.
These were partially offset by an increase in the allowance on accounts receivable of $342,000, a decrease in inventories of $534,000, and non-cash expenses of approximately $1,237,000. During fiscal 2022, the Company had a net loss of approximately $4,531,000, a decrease in inventory reserves of $772,000, and a decrease in the allowance on accounts receivable of $684,000.
While sales continue to occur in our COVID-19 products, the majority of our research and development efforts are focused on development and commercialization of non-COVID related products such as our H. Pylori product, and our InFoods® IBS product.
We have already begun discussions with international distributors for this product and expect to see revenues through these international channels during 2024. The majority of our research and development efforts are focused on development and commercialization of non-COVID related products such as our H.
While we offer a COVID-19 antibody diagnostic test to determine if a person has previously been infected by the COVID-19 virus, all our COVID-19 revenues in fiscal 2022 have come from international sales of our COVID-19 antigen tests that use a patient’s nasal fluid sample to detect if the patient is currently infected with the virus.
Due to the global COVID-19 pandemic, in March 2020, we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected. In fiscal 2022, we generated revenues from the international sale of our COVID-19 antigen tests.
Therefore, while we are proceeding with the work needed to seek FDA clearance for this product, we also are currently preparing to launch the InFoods ® IBS product through a CLIA-certified, high-complexity laboratory facility and offering the product as a laboratory developed test (LDT).
As such, we are currently working with key GI physician groups who are interested in offering this product to their patients. In fiscal 2023, we worked to set up the InFoods® IBS test to be performed in a CLIA certified, and College of American Pathologists (“CAP”) accredited high-complexity laboratory facility and offered as a laboratory developed test (“LDT”).
The percentage of cost of sales in fiscal 2022 was 84%, versus 95% in fiscal 2021. In fiscal 2021, we recorded a non-recurring inventory allowance, this increased our cost of sales to 95%. We don’t expect to record a significant inventory allowance in future years.
The percentage of cost of sales compared to revenue in fiscal 2023 was 92%, versus 84% in fiscal 2022.
The increase was due to an approximate increase of $400,000 in wages, $300,000 in consulting fees, and $200,000 in amortization. Which was primarily offset by a decrease of $800,000 in bad debt expense related to a specific customer charge in the fiscal 2021.
The increase was primarily due to $350,000 in legal expenses and a $290,000 non-recurring write-off of bad debt expense related to COVID-19 sales. This was partially offset by a decrease of $75,000 in share-based compensation expense.
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We are now in the process of reviewing the complete dataset and selecting the target endpoint(s) to be used in the pivotal trial.
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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.
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We are also writing the protocols for this trial and expect to present these protocols to the FDA during fiscal 2023, with the intention of beginning the trial by the end of fiscal 2023, or May 31, 2023.
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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. 24 Following the successful completion and positive statistical results from the Company’s InFoods® IBS clinical trial (run at several prominent centers including Mayo Clinic, Beth Israel Deaconess Medical Center Inc. – a Harvard Medical School Teaching Hospital, Houston Methodist Hospital, and the University of Michigan) which was completed in early calendar 2022, Biomerica received interest from Gastroenterology (“GI”) physicians who would like to order the InFoods® IBS test for their patients.
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The trial is expected to include the large medical institution participants that conducted the endpoint trial, in addition to other new institutions and a Clinical Research Organization.
Added
During the quarter ended February 28, 2023, the CLIA lab completed all validation testing necessary for the InFoods® IBS product to be offered as an LDT and, as of quarter end, is now accepting patient samples.
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Following the successful completion and positive results from the Company’s InFoods ® IBS clinical trial we’ve seen significant interest from Gastroenterology (GI) physicians who would like to provide the InFoods ® IBS Product to for their patients immediately.
Added
We also worked to optimize the process for GI physicians to order the InFoods® IBS test, send patient blood samples to the CLIA lab, and receive the test results for their patients. We believe ease of order and workflow for physicians, with easy to understand and actionable results for patients, is critical to our success.
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Our expectation is that we will begin to generate revenues from this product by the end of December 31, 2022. In preparation for the launch of this LDT, we are in negotiations with large physician groups that would like to offer the LDT to their IBS patients.
Added
During the fiscal third quarter, we also set up customer service and payment systems, along with a dedicated website for patients to receive answers to questions they may have about the test and attain information about how to eliminate a specific food from their diet.
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Following fiscal year-end, we announced that Walmart has begun selling our Aware ® Breast Self Exam product through their on-line retailing platform, Walmart.com.
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This is especially important for foods that are ingredients in common processed foods like milk, eggs, and wheat. As of the end of the fiscal third quarter, the product is now available to physicians and their patients.
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We are also in final discussions with Walmart to offer this product in their U.S. based retail stores. 25 We have added new employees in our sales and marketing department in order to increase sales of existing products during fiscal 2022.
Added
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. Once cleared, we will begin marketing the product in the U.S. market.
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Through these efforts, our EZ Detect colon disease home screening test and our Aware ® Breast Self Exam product are seeing an increased interest from retailers such as Walmart, distributors, and screening programs in other countries Due to the global 2019 SARS-CoV-2 novel coronavirus pandemic , in March 2020 we began developing COVID-19 products to indicate if a person has been infected by COVID-19 or is currently infected.
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Interest and Dividend Income Interest and dividend income for fiscal 2023 and 2022 was approximately $133,000 and $27,000, respectively.
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See “Research and Development” for a more extensive description of the research being conducted. Interest and Dividend Income Interest expense decreased in fiscal 2022 to $0, as compared to $367 in fiscal 2021. Interest and dividend income for those same years decreased to approximately $27,000 from $67,000, respectively. The $40,000 decrease was due to lower dividend payment from our investment.
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As of May 31, 2023 and 2022, the Company had working capital of approximately $10,852,000 and $7,416,000, respectively.
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During fiscal 2021, the Company purchased approximately $136,000 of property and equipment and $160,000 in expenditures related to patents. 27 Financing Activities Cash provided by financing activities for fiscal 2022 were approximately $2,395,000 as compared to $1,114,000 for fiscal 2021.
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SUBSEQUENT EVENTS On August 3, 2023, the Company announced it had entered into a sales agreement with CVS Pharmacy wherein the Company’s EZ Detect™ colorectal disease screening test will be offered at approximately 7,000 CVS Pharmacy retail stores.
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The Company intends to use the net proceeds from these offerings for general corporate purposes, including, without limitation, sales and marketing activities, clinical studies, and product development, making acquisitions of assets, businesses, companies or securities, capital expenditures, and for working capital needs.
Added
Biomerica has shipped the EZ Detect product to CVS Health distribution centers in the United States, and the product is projected to be on store shelves in September. OFF BALANCE SHEET ITEMS There were no off-balance sheet arrangements as of May 31, 2023.
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SUBSEQUENT EVENTS Subsequent to May 31, 2022, the Company sold 523,977 shares of its common stock under its S-3 “shelf” Registration statement. The average sale price was $3.46 per share. Net proceeds to the Company were approximately $1,765,000.
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VALUATION OF INVENTORIES, NET Our inventories are made up of raw materials, work in progress, and finished goods and are valued at the lower of cost (determined using a combination of specific lot identification and the first-in, first-out methods) or net realizable value. We record valuation reserves for inventory items with excess quantities and obsolescence exposure.
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On July 14, 2022, the Company announced they had entered into a General Merchandise Supplier Agreement with Walmart, for the Company’s Aware ® Breast Self Exam product to be sold in Walmart’s retail system. OFF BALANCE SHEET ITEMS There were no off-balance sheet arrangements as of May 31, 2022.
Added
These reserves are estimates of a reduction in value to reflect inventory valuation at the lower of cost or net realizable value. Management evaluates quantities on hand, physical condition, and technical functionality as these characteristics may be impacted by anticipated customer demand for current products and new product introductions.
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RECLASSIFICATIONS Certain comparative figures in the 2021 Statement of Operations have been reclassified to conform to the current year’s presentation.
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Our inventory valuation reserves totaled $672,000 and $846,000 as of May 31, 2023 and 2022, representing approximately 25% and 26% of our inventory, respectively. RECENT ACCOUNTING PRONOUNCEMENTS See Note 2 to our consolidated financial statements for a listing of adopted and soon to be adopted accounting pronouncements.

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