Item 1. Business
ITEM
1. BUSINESS
BUSINESS
OVERVIEW
THE
COMPANY
Biomerica,
Inc. (“Biomerica,” the “Company,” “we,” “us,” or “our”) was incorporated
in Delaware in September 1971 as Nuclear Medical Systems, Inc., and later changed its name to Biomerica, Inc. The Company has two wholly
owned subsidiaries, Biomerica de Mexico, which is used for assembly/manufacturing, and BioEurope GmbH, which acts as a distributor of
Biomerica products in certain markets.
We
are a global biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products
used at the point-of-care (in home and in physicians’ offices) and in hospital/clinical laboratories for detection and/or treatment
of medical conditions and diseases. Our products are designed to enhance the health and well-being of people, while reducing total healthcare
costs.
Our
primary focus is the research, development, commercialization and 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. 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. 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.
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. This trial monitored
IBS patients over an 8-week treatment period to determine the efficacy of our InFoods® IBS product to improve the patients’
IBS symptoms or endpoints. The top-line trial results were reported in February 2022. Multiple endpoints demonstrated statistically significant
improvements, indicating that the elimination of specific foods may meaningfully reduce the symptoms of IBS in each patient subtype (including
patients with IBS-Constipation, IBS-Diarrhea & IBS-Mixed). The greatest clinical improvements, including but not limited to abdominal
pain and bloating, were seen in patients diagnosed with IBS-Mixed and IBS-Constipation, in the top line data. The purpose of the endpoint
study was to validate the efficacy of the product, and to determine the primary symptom endpoint, or endpoints to be used in a final
pivotal trial that will be conducted to attain the validation data needed to apply for U.S. Food and Drug Administration (“FDA”)
clearance for the product. We are continuing to review and refine the complete dataset and have selected the final endpoint
that we would intend to use in a final pivotal trial. We are starting to develop the protocol for submission to the FDA, and once
approved the trial will be run thereafter. The trial is expected to include the large medical institution participants that conducted
the endpoint clinical trial, in addition to other new institutions and a Clinical Research Organization.
Following
the successful completion and positive results from the Company’s InFoods ® IBS clinical trial, we saw
significant interest from Gastroenterology (“GI”) physicians who would like to provide the InFoods ® IBS product
to their patients. Therefore, while we continue the work of advancing this product toward FDA clearance, during our fourth quarter of
fiscal 2023, we launched the InFoods ® IBS product through a CAP-Certified high-complexity Clinical Laboratory Improvement Amendments (“CLIA”) laboratory facility and
began offering the product as a laboratory developed test (“LDT”) to GI physicians. The first physician group to offer InFoods ®
IBS to their IBS patients is Gastro Health at their flagship location in Miami, Florida. Gastro Health is a leading GI physician
group with over 390 physicians operating in over 150 offices in seven states.
InFoods ®
IBS product is currently offered on a “cash-pay” basis (without insurance reimbursement) to IBS patients. However,
we have begun the process of speaking to reimbursement consultants who can help us seek and attain reimbursement through government pay
(i.e., Medicare and Medicaid), and from private insurers.
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. Each InFoods ® test
is developed specifically for patients suffering from the disease being targeted. For instance, the panel of foods that would be
tested for patients with migraines will be different from the known problematic foods that we test for in IBS. We have already
performed much of the initial research and development work necessary to determine what foods are commonly problematic for each of
eight different diseases. We have found that some diseases show approximately 20 foods that are commonly problematic for patients,
while other diseases show over 70 foods for which patients commonly show an abnormal immune response. Once the panel of problematic
foods is identified for a specific disease, the panel must then be tested to confirm which of the problematic food are
causing an abnormal and harmful immune response. We expect
any new disease we target will follow a similar development pathway as InFoods ® IBS in simultaneously seeking FDA
clearance of the product while also launching the product as an LDT.
We
are also continuing to evaluate partnership/licensing opportunities, as they arise, with U.S. and multinational companies that could
help us commercialize, or accelerate revenue growth of, the InFoods ® products in the United States and overseas.
Our
existing medical diagnostic products are sold worldwide primarily in two markets: 1) clinical laboratories and 2) point-of-care (physicians’
offices and over-the-counter drugstores like Walmart and Walgreens). The diagnostic test kits are used to analyze blood, urine, nasal
or fecal specimens from patients in the diagnosis of various diseases, food intolerances and other medical complications, by measuring
or detecting the existence and/or level of specific bacteria, hormones, antibodies, antigens, or other substances, which may exist in
a patient’s body, stools, or blood, often in extremely small concentrations.
During
fiscal 2022, we finalized development of our H. Pylori diagnostic test that indicates if a patient is infected with the H. Pylori bacteria.
H. Pylori infection is extremely common, and if left untreated, can lead to ulcers and possibly stomach cancers. During our fourth quarter
of fiscal 2022, we applied for FDA clearance of this product though a 510(k) premarket submission. We have been in communication with
the FDA answering certain follow-up questions and providing additional data as requested. We are working with the FDA to perform one
additional set of in-lab tests that the FDA has requested prior to making their final determination on clearance of the product. Provided we receive FDA clearance, we will begin marketing the product in the U.S. market. We have already begun discussions with international distributors for
this product and expect to see revenues through these international channels during 2024.
We
have recently added new employees in our sales and marketing department in order to increase sales of existing products. In fiscal 2023,
we also hired a Chief Commercial Officer (“CCO”) with broad experience launching new products at large diagnostic companies.
Our CCO is focused on the commercial launch of the InFoods ® IBS product to the GI physician groups in the U.S. market.
Due
to the global 2019 SARS-CoV-2 novel coronavirus (“COVID-19”) pandemic, in March 2020, we began developing, marketing, and
selling COVID-19 diagnostic tests. In fiscal 2022, we generated revenues from the international sale of our COVID-19 antigen tests. Due
to falling demand for such tests, the Company generated 4% of our sales during fiscal year 2023, as compared to 75% of our revenue during
fiscal year 2022. Due to the dramatic increase in fiscal 2022 revenues, and subsequent decrease in fiscal 2023 revenues from this COVID-related
product, we saw significant volatility in our revenues and our earnings during those two fiscal years. By the end of fiscal year 2023,
and during our fourth quarter, none of our revenues came from the sale of COVID-related tests.
Our
non-COVID-19 products that accounted for approximately 96% and 25% of our revenues during the fiscal years ended May 31, 2023, and 2022,
respectively, are primarily focused on gastrointestinal diseases, food intolerances, and certain esoteric tests. These diagnostic test
products utilize immunoassay technology. Most of our products are CE marked and/or sold for diagnostic use where they are registered
by each country’s regulatory agency. In addition, some products are cleared for sale in the United States by the FDA.
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. 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.
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. These products are both internally developed and licensed from others. We employ
experienced and highly trained technical personnel (including Ph.D.’s and other scientists) to develop new products and evaluate
and implement technology technical transfer activities. Our technical staff, many of whom have been previously employed at large diagnostic
manufacturing companies, has extensive industry experience. We also rely on our Scientific Advisory Board of leading medical doctors
and clinicians to assist in guiding our clinical studies and product development.
Biomerica
maintains its headquarters in Irvine, California, where it houses administration, finance, regulatory compliance, product development,
sales and marketing, customer services and its primary manufacturing operations. Biomerica maintains manufacturing and assembly operations
in Mexicali, Mexico, in order to reduce the cost of manufacturing and compete more effectively worldwide. Biomerica also has a legal
entity in Europe, BioEurope GmbH, for the purpose of selling certain products internationally.
Additional
information about Biomerica is available on our website at www.biomerica.com. The content on any website referred to in this Form 10-K
is not a part of or incorporated by reference in this Form 10-K unless expressly noted. Our Annual Report on Form 10-K, Quarterly Reports
on Forms 10-Q, Current Reports on Forms 8-K, Proxy Statements and all other filings we make with the Securities and Exchange Commission
(“SEC”) are available on our website, free of charge, as soon as reasonably practical after we file them with or furnish
them to the SEC and are also available online at the SEC’s website at www.sec.gov .
PRODUCTION
Most
of our diagnostic test kits are manufactured and/or assembled at our facilities in Irvine, California and in Mexicali, Mexico. We established
our manufacturing facility in Mexicali, Mexico in fiscal 2003 and moved a significant portion of our diagnostic packaging and assembly
to that facility.
Production
of diagnostic tests can involve formulating component antibodies and antigens in specified concentrations, attaching a tracer to the
antigen, filling components into vials, packaging and labeling. We continually engage in quality control procedures to assure the consistency
and quality of our products and to comply with applicable FDA and international regulations.
Our
manufacturing operations and facilities are regulated by the FDA Good Manufacturing Practices for medical devices. We have an internal
quality department that monitors and evaluates product quality and output. We also have an internal Quality Systems department whose
goal is to ensure that our operating procedures are in compliance with current FDA, CE Mark and International Organization for Standardization
(“ISO”) regulations. We either produce our own antibodies and antigens or purchase these materials from qualified vendors.
We have alternate, approved sources for most critical raw materials and are working to procure alternate sources for the few that we
do not have.
RESEARCH
AND DEVELOPMENT
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. 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 also utilize technical
personnel, with Ph.D. and other degrees and extensive experience in development and production of health diagnostic
tests, to conduct other development activities and improve existing products, as well as explore potential new technologies that we may
wish to develop and commercialize. Research and development expenses include the costs of materials, supplies, personnel, consultants,
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.
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.
The clinical studies for our H. Pylori were conducted at the University of Southern California, a European University, and several other
U.S. locations. Biomerica’s test is designed to provide highly accurate sensitivity and specificity for H. Pylori testing and for
monitoring of treatment. We are in the process of finalizing one additional set of in-house validation tests that the FDA has requested
us to complete before they review the submission and decide on the allowance on this product.
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 have filed patents throughout the world pertaining to the use of
our InFoods ® diagnostic technology to detect abnormal immune responses in patients suffering from various diseases. Many
of these patents have recently been issued with many more in the review and prosecution phase. The United States Patent and Trademark
Office (“USPTO”) has issued the Company two patents with broad claims that protect 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. We are also developing and have
filed patents for products that target other diseases utilizing the InFoods ® technology platform which include: Functional
Dyspepsia, Crohn’s disease, Ulcerative Colitis, Gastroesophageal Reflux disease (“GERD”), Migraine Headaches, Depression,
and Osteoarthritis. Our first patent to be allowed for a disease/illness other than IBS was allowed in Japan in August 2021. This patent
covers the use of our InFoods ® technology to diagnose and treat persons suffering from depression.
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.
We
employ a director of sales and marketing for Europe and South America who is headquartered in Germany. She has over 20 years of experience
selling and marketing diagnostic and life science products across multiple diagnostics technologies and disciplines. She possesses broad
international business experience, with communication skills in German, English, Spanish, French, and Portuguese, and scientific and technical
understanding of gastrointestinal diagnostic products. She also has strong relationships with key strategic entities in Europe, Eastern
Europe, Latin America, Canada, and the United States and we expect that she will continue to help Biomerica add new distributors for existing
products and add new product-lines for future distribution by us.
We
rely on affiliated and unaffiliated distributors, advertising in medical and trade journals, exhibitions at trade shows, direct mailings,
and an internal sales staff to market our diagnostic products. We target two main markets: (a) clinical laboratories and (b) point-of-care
testing (physicians’ offices and over-the-counter drug stores).
Due
to global and economic disruptions caused by the global COVID-19 pandemic, the ongoing war in Ukraine, and tensions between the
country of China and the United States, the Company’s operations have been negatively impacted. 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. 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.
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. 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. 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. 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. However,
due to the limited number of suppliers of some materials, especially those such as antibodies, there is always the possibility that we
may encounter difficulty in the future obtaining key raw materials for its manufacturing processes or that such materials may be exceedingly
costly. For the fiscal year ended May 31, 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.
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. While most of these disruptions
have since been resolved, 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.
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. 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. 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.
The
primary competitive factors affecting the sale of diagnostic products are uniqueness, technology, quality of product, performance, price,
service, and marketing. We believe we compete primarily on the basis of the uniqueness of our products, the quality of our products,
the speed of our test results, our patent position, our pricing and our prompt shipment of orders. We offer a broad range of products
but have had limited marketing capability. However, 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.
We have also hired a social media manager who focuses on social media campaigns that are directed at increasing awareness of our products
and driving sales of these products. In addition, during fiscal 2023, we hired an experienced Chief Commercial Officer, who is focused
on growing sales of our InFoods ® IBS product that is now being offered as an LDT through a certified CLIA lab.
GOVERNMENT
REGULATION OF OUR DIAGNOSTIC BUSINESS
Our
primary business consists of selling products that are generally legally defined as medical devices and in vitro diagnostic medical devices.
As a result, we are considered to be a medical devices and in vitro diagnostic medical devices manufacturer, and as such, we are subject
to the regulations issued and enforced by of numerous governmental entities. These agencies include the FDA, Environmental Protection
Agency, Federal Trade Commission, Occupational Safety and Health Administration, U.S. Department of Agriculture (“USDA”),
and Consumer Product Safety Commission, as well as European Government agencies. Our activities are also regulated by various agencies
of the states and localities in which our products are sold. These regulations govern the introduction of new in vitro diagnostic medical
devices and medical devices, the observance of certain standards with respect to the manufacture and labeling of medical devices, the
maintenance of certain records, the reporting of potential product problems, and other matters.
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. Class I devices are those
devices for which safety and effectiveness can reasonably be assured through general controls, such as device listing, adequate labeling,
and adherence to the Quality System Regulation (“QSR”) as well as Medical Device Reporting (“MDR”), labeling
and other regulatory requirements. Some Class I medical devices are exempt from the requirement of Pre-Market Notification or clearance.
Class II devices are those devices for which safety and effectiveness can reasonably be ensured through the use of special controls,
such as performance standards, post-market surveillance and patient registries, as well as adherence to the general controls’ provisions
applicable to Class I devices. Class III devices are devices that generally must receive clearance prior to marketing by the FDA pursuant
to a pre-market approval to ensure their safety and effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting,
or implantable devices. However, this classification can also apply to novel technology or new intended uses or applications for existing
devices. Our products are primarily either Class I or Class II medical devices.
Pursuant
to FDA requirements, we have registered our manufacturing facility with the FDA as a medical device manufacturer and listed the medical
devices we manufacture. We are also subject to inspection on a routine basis for compliance with FDA regulations. This includes the QSR,
which requires that we manufacture our products and maintain our documents in a prescribed manner with respect to issues such as design
controls, manufacturing, testing, and validation activities. Further, we are required to comply with other FDA requirements with respect
to labeling and MDR regulations which requires that we provide information to the FDA on deaths or serious injuries alleged to have been
associated with the use of our products, as well as any product malfunctions that are likely to cause or contribute to death or serious
injury if the malfunction were to recur. We believe that we are currently in material compliance with all relevant QSR and MDR requirements.
In
addition, our facility is required to have a California Medical Device Manufacturing License. The license is not transferable and must
be renewed biannually. Our current license is valid until November 19, 2024. Through compliance with FDA and California regulations,
we can market some of our medical devices throughout the United States. International sales of medical devices are also subject to the
regulatory requirements of each country where the product is sold. In Europe, the directives of the European Union (“EU’)
require that a device have a CE Mark in order to be sold in EU countries. We comply with In Vitro Diagnostic Medical Devices Directive
(“IVDD”) 98/79/EC and Medical Devices Regulation 2017/745 (“MDR”). We also comply with ISO 13485:2016 Medical
Devices Quality Management Systems - Requirements for Regulatory Purposes.
At
present, outside of the EU, the international regulatory review process varies from country to country. We work with our distributors
and sales representatives in the foreign countries in which we market our products to ensure that we comply with the regulatory laws
of those countries. We believe that our international sales to date have been in compliance with the laws of all foreign countries in
which we have made sales. Exports of most medical devices are also subject to certain FDA regulatory controls.
The
designing, development, manufacturing, marketing, post-market surveillance, distribution, advertising, and labeling of Biomerica’s
immunoassay in vitro diagnostic (“IVD”) medical device products are subject to regulation in the United States by the Center
for Devices and Radiological Health of the FDA and state agencies. FDA regulations require that some new products have pre-marketing
clearance or approval by the FDA and require these products to be manufactured in accordance with the FDA’s current Good Manufacturing
Practice (cGMP) regulations, to be extensively tested and to be properly labeled to disclose test results and performance claims and
limitations. After a product that is subject to FDA regulation is placed on the market, numerous regulatory requirements apply, including,
for example, the requirement that we comply with recordkeeping and reporting requirements, such as the FDA’s medical device reporting
regulations and reporting of corrections and removals. The FDA enforces these requirements by inspection and post-market surveillance.
The last FDA announced inspection was in November 2019 and no observations were noted. We believe that all Biomerica products sold in
the United States comply with the FDA and state regulations.
We
are an FDA regulated and ISO 13485:2016 certified In Vitro Diagnostic Medical Devices company. Our goal is to provide high quality medical
diagnostic products that generally meet or exceed customer requirements and comply with all applicable regulatory requirements: FDA 21
CFR Part 820 Quality Management System, ISO 13485:2016, Medical Devices Quality Management Systems - Requirements for Regulatory Purposes,
In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Regulation 2017/745, Guidelines related to Medical Devices
Directive/Regulation Guidance on CE Marking, among others. Biomerica involves its employees in a continuous improvement process to increase
productivity, improve quality and maintain the suitability, adequacy, and effectiveness of our quality management system.
The
EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 was effective on May 26, 2022. Manufacturers need to update
their technical documentation and processes to meet the more stringent regulatory requirements of the European Union. Notified Bodies
can begin certifying devices to the new IVDR requirements once they have been designated under IVDR by their Competent Authority. Our
Notified Body is officially designated under the IVDR and listed in the European Commission NANDO database since August 19, 2021. We
are working closely with our Notified Body to update our technical documentation to comply with these more stringent IVDR requirements.
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.
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.
Per
IVDR 2017/746 Amendment 2021/0323 (COD), devices without a CE certificate that was issued in accordance with IVDD, for which a declaration
of conformity was drawn up prior to May 26, 2022, per IVDD and for which the conformity assessment procedure pursuant to IVDR requires
the involvement of a Notified Body, may be placed on the market, or put into service until the following dates. Biomerica also has until
the following dates to update the technical documentation and processes to meet these regulatory requirements of IVDR 2017/746:
(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.
SEASONALITY
OF BUSINESS
Our
business has not been subject to significant seasonal fluctuations.
INTERNATIONAL
BUSINESS
The
following table sets forth the dollar volume of revenue attributable to sales to domestic customers and foreign customers during our
last two fiscal years:
For
the Year Ended May 31,
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. 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. In addition, these factors could also impact our ability to collect foreign
accounts receivable. Foreign countries have licensing requirements applicable to the sale of diagnostic products, which vary substantially
from domestic requirements; depending upon the product and the foreign country, these may be more or less restrictive than requirements
within the United States and may change without notice. Foreign sales of our diagnostic products are made primarily through a network
of approximately 40 independent distributors in approximately 30 countries.
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INTELLECTUAL
PROPERTY
We
regard the protection of our methodologies, designs, product formulations, manufacturing processes, diagnostic procedures,
copyrights, service marks, trademarks, and trade secrets as important to our future success. We rely on a combination of copyright,
trademark, patent, service mark and trade secret laws, and contractual restrictions to establish and protect our proprietary rights
in products and services. We have entered into confidentiality and invention assignment agreements with our employees and
contractors, and nondisclosure agreements with most of our fulfillment partners and strategic partners to limit access to and
disclosure of proprietary information. We cannot be certain that these contractual arrangements or the other steps taken by us to
protect our intellectual property (“IP”) will prevent misappropriation of our technology. We have licensed in the past,
and expect that we may license in the future, certain of our proprietary rights, such as trademarks, patents, trade secrets, or
copyrighted material, to third parties. While we attempt to ensure that the quality of our product brands is maintained by such
licensees, we cannot be certain that such licensees will not take actions that might hurt the value of our proprietary rights or
reputation.
LICENSE
OF THIRD-PARTY INTELLECTUAL PROPERTY
On
occasion, we in-licensed both exclusive and non-exclusive rights to intellectual property and patents owned by third parties. These license
agreements typically require royalties and other payments.
We
have a royalty agreement in which we obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions).
Royalty expenses of approximately $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. We may license other products or technology in the future as it is deemed necessary
or opportunistic for conducting business.
Some
of the products that we manufacture, sell, or use may be covered by claims in issued patents held by other persons or entities, and as
such, upon notice from such persons or entity we may be required to pay a license fee or may be required to cease all manufacture, sale
or use of such products, which could negatively impact us. While we have not been notified of any such claims by third parties, we cannot
guarantee that such claims will not be made in the future.
BRANDS
AND TRADEMARKS
We
occasionally register our tradenames with the U.S. Patent and Trademark Office (“USPTO”). Of note, we registered the tradename
“InFoods” on December 24, 2016. Our unregistered tradenames are “EZ Detect,” “EZ-H.P.,” and “EZ-PSA”.
A trademark for “Aware” was issued and assigned in 2001, renewed in 2011 and 2021. On January 11, 2020, the USPTO renewed
our “FORTEL” trademark for another ten years.
The
laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Effective
copyright, trademark, and trade secret protection may not be available in such jurisdictions.
PATENTS
AND INFOODS TECHNOLOGY
We
have filed over 100 international and Patent Corporation Treaty patents (“PCT”) and have over multiple provisional and non-provisional
patents currently filed with the USPTO. Substantially all of our patents that are pending or registered pertain to the InFoods® technology
platform.
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Our
most important family of patent applications pertains to our InFoods ® technology platform, which is a method of diagnosing
and treating symptoms of many different inflammatory diseases. Our first product launch using this technology is the InFoods ®
IBS product which is designed to diagnose and treat IBS. Using a patient blood sample, a physician or lab can run our test to identify
specific foods (e.g., pork, milk, shrimp, broccoli, eggs) that, if eliminated from an IBS patient’s diet, can alleviate or reduce
the individual’s IBS symptoms, including, but not limited to, constipation, diarrhea, bloating, cramping, severe pain, and indigestion.
We have filed many patent applications with the USPTO and with other such similar agencies in other countries outside of the United States
pertaining to this InFoods ® technology. These patent applications include claims that address the diagnosis and treatment
of several disease states including IBS, functional dyspepsia, Crohn’s disease, ulcerative colitis, gastroesophageal reflux disease,
osteoarthritis, psoriasis, migraine headaches, and depression. These applications include the use of this technology in both humans and
animals. The first InFoods ® patents filed by us pertained to IBS. Several of these patents pertaining to the InFoods ®
IBS technology have been issued and many more are in active review and prosecution.
In
August 2018, we received our first patent pertaining to the InFoods ® technology platform from the Korean Intellectual
Property Office, covering IBS. Since then, we have been granted a total of 19 patents; The United States Patent and Trademark
Office (“USPTO”) has issued the Company two patents with broad claims that protect our InFoods ® technology
in testing and treating patients with IBS. Patents have also been issued in the countries of Australia (two patents), Canada, Japan (two
patents), Korea (two patents), Mexico, Panama, Peru, and Singapore, covering our InFoods ® IBS technology. Additional patent
applications pertaining to the InFoods ® IBS product are in prosecution and review at the USPTO and with the patent issuance
authorities in other countries.
We
are also developing and have filed patents with claims that cover products that target other diseases utilizing the InFoods ®
technology platform. We have dozens of patents in prosecution or review pertaining to these other diseases, including: Functional
Dyspepsia, Crohn’s disease, Ulcerative Colitis, Gastroesophageal Reflux disease (“GERD”), Migraine Headaches, Depression,
and Osteoarthritis. In addition, we have a family of patents that cover the use of certain information technology (“IT”)
platforms and artificial intelligence/machine learning (“AI/ML”) tools that could assist patients in identifying and avoiding
packaged or processed food that contain specific foods that they are trying to eliminate from their diet.
In
addition to our IBS related issued patents, we have also been issued InFoods ® technology patents in the following countries
pertaining to the following diseases: Australia – Attention Deficit Disorder (“ADD”) and Attention Deficit Hyperactivity
Disorder (“ADHD”); Australia – GERD; Japan - psychological depression, IT based food monitoring and elimination technology;
China – IT based food monitoring and elimination technology.
We
believe the claims in these issued InFoods® IBS patents and claims in our pending patents that protect the use of the InFoods®
technology to diagnose and treat various other diseases, provide us with broad protections from other companies making or selling competing
products in this highly disruptive new field of medicine.
In
addition to the use of our own patents, we have acquired from third parties the rights to manufacture and sell certain products that
are protected by patents or intellectual property owned by these third parties. In some cases, royalties are paid on the sales of these
products. We anticipate that we will license or purchase the rights to other products or technologies in the future.
We
also engage in contract research and development and contract manufacturing for third party companies. The technologies that relate to
this contract R&D and manufacturing are protected by patents and other intellectual property. In these situations, this intellectual
property is typically licensed to us under a limited license agreement enabling us to perform the services being contracted.
We
recently completed an endpoint determination clinical trial on our InFoods® IBS product. Our business model for this product includes
the possible out-licensing of this product and the related patents to a large international life sciences or technology company that
would commercialize the product or assist us with the commercialization. We may also out-license the patents or other intellectual property
pertaining to one or more of our other products including but not limited to our H. Pylori product.
EMPLOYEES
As
of May 31, 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. We occasionally employ temporary employees when needed.
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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. We try to protect the Company with
the use of confidentiality, intellectual property ownership, and indemnifications agreements. However, we cannot guarantee that the use
of such experts will fully protect the Company from third-party claims or from theft of our intellectual property.