BIOMERICA INC 10-K

ITEM 1. BUSINESS BUSINESS OVERVIEW THE COMPANY Biomerica, Inc. (“Biomerica,” the “Company,” “we,” “us,” or “our”) was incorporated in Delaware in September 1971 as Nuclear Medical Systems, Inc., and later changed its name to Biomerica, Inc. The Company has two wholly owned subsidiaries, Biomerica de Mexico, which is used for assembly/manufacturing, and BioEurope GmbH, which acts as a distributor of Biomerica products in certain markets. We are a global biomedical technology company that develops, patents, manufactures and markets advanced diagnostic and therapeutic products. Our diagnostic test kits are utilized in the analysis of blood, urine, nasal, or fecal samples for the diagnosis of various diseases, food intolerances, and other medical conditions. These kits also measure levels of specific hormones, antibodies, antigens, and other substances, which may exist in the human body at extremely low concentrations. Our products are designed to enhance health and well-being while reducing overall healthcare costs. Our extensive range of medical diagnostic products is sold worldwide, primarily in two markets: clinical laboratories and point-of-care settings, including physicians’ offices and over-the-counter sales at major retailers such as Walmart, CVS Pharmacy, and Amazon. Most of our products are Conformite Europeenne (“CE”) marked and/or registered with regulatory agencies in various countries for diagnostic use, with several also cleared for sale in the United States by the FDA. IMPACT OF COVID-19 ON REVENUES In response to the global COVID-19 pandemic, we began developing, marketing, and selling COVID-19 diagnostic tests in March 2020. These tests contributed significantly to our revenues during fiscal years 2021 and 2022. However, demand sharply declined in fiscal 2023, leading to no sales of COVID-19-related products in fiscal 2024. As a result, our COVID-19 product sales have caused significant fluctuations in our revenues over the past four years. In contrast, our non-COVID-19 products, have accounted for approximately 100% and 96% of our revenues during the fiscal years ended May 31, 2024, and 2023, respectively, and have remained our core focus. TECHNOLOGICAL ADVANCEMENTS AND PRODUCT DEVELOPMENT Technological advances in medical diagnostics have enabled the performance of diagnostic tests not only in clinical laboratories but also at home and in point-of-care settings, such as physicians’ offices. A key objective for us has been the development and marketing of rapid diagnostic tests that are accurate, utilize easily obtained patient specimens, and can be performed without the need for complex instrumentation. Our over-the-counter (home use) and professional use (physicians’ office, clinics, etc.) rapid diagnostic test products help manage existing medical conditions and may save lives through early detection and diagnosis of specific diseases. Traditionally, such tests required the expertise of medical technologists and sophisticated equipment, with results often not available for days. We believe that properly developed and utilized rapid point-of-care tests can match the accuracy of laboratory tests, delivering reliable results in minutes with minimal or no instrumentation. RESEARCH AND DEVELOPMENT We invest considerable resources in the research and development of new products designed to diagnose and, in some cases, treat several major medical diseases. These products are both internally developed and obtained through licensing agreements. Our experienced and highly trained technical personnel, including Ph.D. holders and other scientists, are dedicated to developing new products and managing technology transfer activities. Many of our technical staff have extensive industry experience from previous employment at large diagnostic manufacturing companies. We also rely on our Scientific Advisory Board, comprised of leading medical doctors and clinicians, to guide our clinical studies and product development efforts. KEY PRODUCT LAUNCHES A key outcome of our recent research and development efforts is our patented diagnostic-guided therapy (“DGT”) product, developed on the inFoods® technology platform. This innovative product is designed to treat gastrointestinal conditions such as irritable bowel syndrome (“IBS”) and other inflammatory diseases, targeting chronic inflammatory conditions prevalent in large markets. The inFoods® IBS product, which we have already launched, uses a simple blood test to identify patient-specific foods that, when eliminated, may alleviate IBS symptoms such as pain, bloating, diarrhea, cramping, and constipation. Unlike broad dietary restrictions, the inFoods® IBS product pinpoints a patient’s heightened immunoreactivity to specific foods known to frequently trigger IBS symptoms, providing targeted relief. We have launched our inFoods® product across numerous gastroenterology (“GI”) physician groups in various states and regions, including collaboration with one of the largest GI groups in the U.S. Feedback from GI specialty physicians has been positive, and we are actively expanding our network by onboarding additional physician practices. Our dedicated sales team is focused on deepening relationships within the GI segment and targeting opportunities to introduce inFoods® to other medical specialties, including integrated health practices and concierge physicians. We are also evaluating distribution, partnership, and licensing opportunities with U.S. and multinational companies to accelerate the commercialization and growth of inFoods® products both domestically and internationally. 3 Beyond our inFoods ® product line, our additional efforts have led to a significant milestone by receiving FDA clearance in December 2023 for hp+detect ™ , a new diagnostic test for detecting Helicobacter pylori (H. pylori) bacteria in the gastrointestinal tract. H. pylori is a widespread infection, affecting an estimated 35% of the U.S. population and 45% of the population in Europe’s five largest countries. This bacterium is recognized as the strongest known risk factor for gastric cancer, which is the third most common cause of cancer-related deaths globally. The hp+detect™ test provides physicians and medical centers with a reliable tool for diagnosing H. pylori infections and monitoring the effectiveness and safety of treatments. The diagnostic test is marketed directly to laboratories, where patient samples are analyzed. We are actively promoting hp+detect™ to large end-customer labs to support its launch and distribution, aiming to enhance patient care through timely and accurate detection of H. pylori infections. STRATEGIC INITIATIVES AND COST MANAGEMENT Due to slower-than-expected launches of our key products, inFoods ® IBS and hp+detect ™ , we have initiated significant cost-cutting measures to extend our cash runway and work towards increasing revenues to cover overhead costs. These measures include a workforce reduction of nearly 15% and a significant reduction in expenses. Additionally, we are actively exploring strategic opportunities to enhance shareholder value. OPERATIONS AND GLOBAL PRESENCE Biomerica is headquartered in Irvine, California, where it centralizes administration, finance, regulatory compliance, product development, sales, marketing, customer service, and primary manufacturing operations. To enhance global competitiveness, the Company maintains manufacturing and assembly operations in Mexicali, Mexico, aiming to reduce production costs. Additionally, Biomerica operates BioEurope GmbH in Europe, facilitating the international sales of specific products. Additional information about Biomerica is available on our website at www.biomerica.com. The content on any website referred to in this Form 10-K is not a part of or incorporated by reference in this Form 10-K unless expressly noted. Our Annual Report on Form 10-K, Quarterly Reports on Forms 10-Q, Current Reports on Forms 8-K, Proxy Statements and all other filings we make with the Securities and Exchange Commission (“SEC”) are available on our website, free of charge, as soon as reasonably practical after we file them with or furnish them to the SEC and are also available online at the SEC’s website at www.sec.gov . PRODUCTION Our diagnostic test kits are manufactured and/or assembled at our facilities in Irvine, California and in Mexicali, Mexico. We established our manufacturing facility in Mexicali, Mexico in fiscal 2003 and moved a significant portion of our diagnostic packaging and assembly to that facility. Production of diagnostic tests can involve formulating component antibodies and antigens in specified concentrations, attaching a tracer to the antigen, filling components into vials, packaging and labeling. We continually engage in quality control procedures to assure the consistency and quality of our products and to comply with applicable FDA and international regulations. 4 Our manufacturing operations and facilities are regulated by the FDA Good Manufacturing Practices for medical devices. We have an internal quality department that monitors and evaluates product quality and output. We also have an internal Quality Systems department whose goal is to ensure that our operating procedures are in compliance with current FDA, CE Mark and International Organization for Standardization (“ISO”) regulations. We either produce our own antibodies and antigens or purchase these materials from qualified vendors. We have alternate, approved sources for most critical raw materials and are working to procure alternate sources for the few that we do not have. RESEARCH AND DEVELOPMENT We employ a team of highly qualified technical personnel, including Ph.D. holders and experts with extensive experience in the development and production of diagnostic tests, to support our research and development (“R&D”) initiatives. Our team is actively engaged in enhancing existing products and driving ongoing innovation. R&D expenses encompass materials, supplies, personnel, consultants, facilities, outside clinical trial sites, equipment, and contract services. For the fiscal years ended May 31, 2024, and 2023, consolidated R&D expenses totaled approximately $1,491,000 and $1,584,000, respectively. We anticipate that R&D expenses will decrease significantly in the upcoming quarters as we are in the commercialization phase of inFoods ® and hp+detect ™ and in an effort to preserve cash. A cornerstone of our R&D efforts is the development of our proprietary diagnostic-guided therapy, known as the inFoods® technology. This platform enables physicians to identify patient-specific foods (e.g., pork, milk, onions, sugar, chickpeas) that, when eliminated from the patient’s diet, may alleviate or improve symptoms of IBS and other conditions. We have filed patents globally related to the use of inFoods® diagnostic technology for detecting abnormal immune responses in patients with various diseases. Many of these patents have been recently issued, while others are in the review and prosecution phase. The United States Patent and Trademark Office (“USPTO”) has granted us two patents with broad claims protecting the inFoods® IBS product. Additionally, patents have been issued in Australia, Japan, Korea, Mexico, and Singapore. Further patent applications related to the inFoods® IBS product are pending or under review in the United States and other countries. We are also developing and have filed patents for additional products targeting other diseases using the inFoods® technology platform. These diseases include Functional Dyspepsia, Crohn’s Disease, Ulcerative Colitis, Gastroesophageal Reflux Disease (“GERD”), Migraine Headaches, Depression, and Osteoarthritis. In addition to our issued U.S. patents, we now hold 3 6 foreign patents that have either been issued or for which we have received a notice of allowance, covering over 50 countries. These patents protect the use of inFoods® technology for IBS and several other conditions. Notably, our first patent allowed for a disease other than IBS was granted in Japan in August 2021, covering the use of inFoods® technology for diagnosing and treating depression. Our additional R&D efforts have led to the 510(k) clearance of our proprietary H. pylori test, hp+detect ™ , which is designed to provide highly accurate sensitivity and specificity for detecting H. pylori and monitoring treatment. MARKETS AND METHODS OF DISTRIBUTION Biomerica has approximately 80 current customers for its diagnostic business, of which approximately 38 are foreign distributors, 12 are domestic distributors and the balance are primarily domestic hospital and clinical laboratories, medical research institutions, medical schools, pharmaceutical companies, chain drugstores, wholesalers, physicians’ offices, and e-commerce customers. We employ a director of sales and marketing for Europe and South America who is headquartered in Germany. She has over 20 years of experience selling and marketing diagnostic and life science products across multiple diagnostics technologies and disciplines. She possesses broad international business experience, with communication skills in German, English, Spanish, French, and Portuguese, and scientific and technical understanding of gastrointestinal diagnostic products. She also has strong relationships with key strategic entities in Europe, Eastern Europe, Latin America, Canada, and the United States and we expect that she will continue to help Biomerica add new distributors for existing products and add new product-lines for future distribution by us. We rely on affiliated and unaffiliated distributors, advertising in medical and trade journals, exhibitions at trade shows, direct mailings, and an internal sales staff to market our diagnostic products. We target two main markets: (a) clinical laboratories and (b) point-of-care testing (physicians’ offices and over-the-counter drug stores). Our net sales were approximately $5,415,000 for fiscal 2024, compared to $5,339,000 for fiscal 2023. For the fiscal years ended May 31, 2024, and 2023, the Company had one distributor each year that accounted for 33% and 35% of our net sales, respectively. 5 Total gross receivables as of May 31, 2024, and 2023 were approximately $966,000 and $751,000, respectively. As of May 31, 2024, and 2023, the Company had four and one distributor, respectively, that accounted for a total of 64% and 36% of gross accounts receivable. Of the 64% as of May 31, 2024, 37% was owed by a distributor in Asia. BACKLOG As of May 31, 2024, and 2023, Biomerica’s backlog of unshipped orders was approximately $755,000 and $655,000, respectively. As of May 31, 2024, the majority of this backlog consisted of orders intended for a distributor in Asia. RAW MATERIALS Biomerica utilizes a range of principal raw materials including chemicals, serums, reagents, and packaging supplies. The majority of these materials are sourced from multiple suppliers, ensuring we are not reliant on any single source. However, for certain critical materials such as antibodies, where suppliers are limited, there exists a risk of potential supply challenges or increased costs in the future. Our inventory includes antibodies, antigens, bottles, boxes, chemicals, and reagents essential for manufacturing our test kits, along with products in various stages of completion. During the fiscal year ended May 31, 2024, purchases from one vendor accounted for 16% of our raw material procurement, primarily related to Plates. In contrast, for the fiscal year ended May 31, 2023, the Company did not experience significant vendor concentration in raw material purchases. COMPETITION We offer several proprietary products with notable competitive advantages, including our EZ Detect colon disease home test, the Aware Breast Self-Exam product, our inFoods ® IBS product, and hp+detect ™ for H. pylori detection. These products stand out due to their unique features and benefits compared to competing tests in the market. Our competitors vary greatly in size. Many are divisions or subsidiaries of well-established medical and pharmaceutical companies which are much larger than Biomerica and expend substantially greater amounts than we do for research and development, manufacturing, advertising, and marketing. The competitive landscape for diagnostic products is shaped by several factors, including product uniqueness, technology, quality, performance, pricing, and service. Our competitive edge is grounded in the distinctiveness of our offerings, the high quality of our products, and their rapid test results. Our strong patent portfolio further bolsters our market position despite our limited marketing capabilities. GOVERNMENT REGULATION OF OUR DIAGNOSTIC BUSINESS Our primary business consists of selling products that are generally legally defined as medical devices and in vitro diagnostic medical devices. As a result, we are considered to be a medical devices and in vitro diagnostic medical devices manufacturer, and as such, we are subject to the regulations issued and enforced by of numerous governmental entities. These agencies include the FDA, Environmental Protection Agency, Federal Trade Commission, Occupational Safety and Health Administration, U.S. Department of Agriculture (“USDA”), and Consumer Product Safety Commission, as well as European Government agencies. Our activities are also regulated by various agencies of the states and localities in which our products are sold. These regulations govern the introduction of new in vitro diagnostic medical devices and medical devices, the observance of certain standards with respect to the manufacture and labeling of medical devices, the maintenance of certain records, the reporting of potential product problems, and other matters. The Food, Drug & Cosmetic Act of 1938 (the “FDCA”) regulates medical devices in the United States by classifying them into one of three classes based on the extent of regulation believed necessary to ensure safety and effectiveness. Class I devices are those devices for which safety and effectiveness can reasonably be assured through general controls, such as device listing, adequate labeling, and adherence to the Quality System Regulation (“QSR”) as well as Medical Device Reporting (“MDR”), labeling and other regulatory requirements. Some Class I medical devices are exempt from the requirement of Pre-Market Notification or clearance. Class II devices are those devices for which safety and effectiveness can reasonably be ensured through the use of special controls, such as performance standards, post-market surveillance and patient registries, as well as adherence to the general controls’ provisions applicable to Class I devices. Class III devices are devices that generally must receive clearance prior to marketing by the FDA pursuant to a pre-market approval to ensure their safety and effectiveness. Generally, Class III devices are limited to life-sustaining, life-supporting, or implantable devices. However, this classification can also apply to novel technology or new intended uses or applications for existing devices. Our products are primarily either Class I or Class II medical devices. 6 Pursuant to FDA requirements, we have registered our manufacturing facility with the FDA as a medical device manufacturer and listed the medical devices we manufacture. We are also subject to inspection on a routine basis for compliance with FDA regulations. This includes the QSR, which requires that we manufacture our products and maintain our documents in a prescribed manner with respect to issues such as design controls, manufacturing, testing, and validation activities. Further, we are required to comply with other FDA requirements with respect to labeling and MDR regulations which requires that we provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of our products, as well as any product malfunctions that are likely to cause or contribute to death or serious injury if the malfunction were to recur. We believe that we are currently in material compliance with all relevant QSR and MDR requirements. In addition, our facility is required to have a California Medical Device Manufacturing License. The license is not transferable and must be renewed biannually. Our current license is valid until November 19, 2024. Through compliance with FDA and California regulations, we can market some of our medical devices throughout the United States. International sales of medical devices are also subject to the regulatory requirements of each country where the product is sold. In Europe, the directives of the European Union (“EU’) require that a device have a CE Mark in order to be sold in EU countries. We comply with In Vitro Diagnostic Medical Devices Directive (“IVDD”) 98/79/EC and Medical Devices Regulation 2017/745 (“MDR”). We also comply with ISO 13485:2016 Medical Devices Quality Management Systems – Requirements for Regulatory Purposes. At present, outside of the EU, the international regulatory review process varies from country to country. We work with our distributors and sales representatives in the foreign countries in which we market our products to ensure that we comply with the regulatory laws of those countries. We believe that our international sales to date have been in compliance with the laws of all foreign countries in which we have made sales. Exports of most medical devices are also subject to certain FDA regulatory controls. The designing, development, manufacturing, marketing, post-market surveillance, distribution, advertising, and labeling of Biomerica’s immunoassay in vitro diagnostic (“IVD”) medical device products are subject to regulation in the United States by the Center for Devices and Radiological Health of the FDA and state agencies. FDA regulations require that some new products have pre-marketing clearance or approval by the FDA and require these products to be manufactured in accordance with the FDA’s current Good Manufacturing Practice (“cGMP”) regulations, to be extensively tested and to be properly labeled to disclose test results and performance claims and limitations. After a product that is subject to FDA regulation is placed on the market, numerous regulatory requirements apply, including, for example, the requirement that we comply with recordkeeping and reporting requirements, such as the FDA’s medical device reporting regulations and reporting of corrections and removals. The FDA enforces these requirements by inspection and post-market surveillance. The last FDA announced inspection was in May 2024 and no observations were noted. We believe that all Biomerica products sold in the United States comply with the FDA and state regulations. We are an FDA regulated and ISO 13485:2016 certified In Vitro Diagnostic Medical Devices company. Our goal is to provide high quality medical diagnostic products that generally meet or exceed customer requirements and comply with all applicable regulatory requirements: FDA 21 CFR Part 820 Quality Management System, ISO 13485:2016, Medical Devices Quality Management Systems – Requirements for Regulatory Purposes, In Vitro Diagnostic Medical Devices Directive 98/79/EC & and Medical Device Regulation 2017/745, Guidelines related to Medical Devices Directive/Regulation Guidance on CE Marking, among others. Biomerica involves its employees in a continuous improvement process to increase productivity, improve quality and maintain the suitability, adequacy, and effectiveness of our quality management system. The EU In Vitro Diagnostic Medical Device Regulation (“IVDR”) 2017/746 was effective on May 26, 2022. Manufacturers need to update their technical documentation and processes to meet the more stringent regulatory requirements of the European Union. Notified Bodies can begin certifying devices to the new IVDR requirements once they have been designated under IVDR by their Competent Authority. Our Notified Body is officially designated under the IVDR and listed in the European Commission NANDO database since August 19, 2021. We are working closely with our Notified Body to update our technical documentation to comply with these more stringent IVDR requirements. 7 Per IVDR 2017/746 Amendment Regulation (EU) 2022/112, and published proposal 2024/0021 (COD), devices with a CE certificate that was issued in accordance with IVDD may be placed on the market or put into service until December 31, 2027, providing a formal application to the notified body has been made by May 26, 2025. Exceptional Renewal of CE Certificate for IVDD Quality System was granted to Biomerica. Biomerica received an extended CE Certificate on May 24, 2022, which remains effective until May 26, 2025. Per IVDR 2017/746 Amendment Regulation (EU) 2022/112, and published proposal 2024/0021 (COD), devices without a CE certificate that was issued in accordance with IVDD, for which a declaration of conformity was drawn up prior to May 26, 2022, per IVDD and for which the conformity assessment procedure pursuant to IVDR requires the involvement of a Notified Body, may be placed on the market, or put into service until the following dates. Biomerica also has until the following dates to update the technical documentation and processes to meet these regulatory requirements of IVDR 2017/746 providing a formal application to the notified body has been made: (1) December 31, 2027, for class D devices, formal application to notified body by May 26, 2025; (2) December 31, 2028, for class C devices, formal application to notified body by May 26, 2026; (3) December 31, 2029, for class B devices, formal application to notified body by May 26, 2027; and (4) December 31, 2029, for class A devices placed on the market in sterile condition, formal application to notified body by May 26, 2027. 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, 2024 2023 Asia $ 1,881,000 35 % $ 2,021,000 38 % Europe 1,438,000 27 % 1,798,000 34 % North America 1,285,000 24 % 1,470,000 28 % Middle East 800,000 15 % 39,000 1 % South America 11,000 0 % 11,000 0 % Total $ 5,415,000 100 % $ 5,339,000 100 % Our international operations face distinct risks that differ from those encountered in the United States. These risks include economic fluctuations, regulatory changes, geopolitical instability (such as terrorism and trade disputes), tariffs, embargoes, import/export restrictions, and potential disruptions in shipping and distribution channels. Such factors can significantly impact our foreign sales and may complicate our ability to collect accounts receivable in international markets during economic downturns. Each country has its own licensing requirements for diagnostic products, which can differ considerably from U.S. regulations and may change unexpectedly. Currently, our international sales rely on approximately 38 independent distributors across around 30 countries. These diverse factors contribute to the complexities and uncertainties associated with our international business operations. INTELLECTUAL PROPERTY We consider the protection of our methodologies, designs, product formulations, manufacturing processes, diagnostic procedures, copyrights, service marks, trademarks, and trade secrets essential for our future success. To safeguard our proprietary rights in products and services, we utilize copyright, trademark, patent, service mark, and trade secret laws, alongside contractual restrictions. Our efforts include confidentiality and invention assignment agreements with employees and contractors, as well as nondisclosure agreements with most fulfillment and strategic partners to restrict access to and disclosure of proprietary information. However, these measures may not entirely prevent unauthorized use or disclosure of our technology. 8 In the past, we have licensed and may continue to license certain proprietary rights, such as trademarks, patents, trade secrets, or copyrighted material, to third parties. While we strive to maintain the quality of our product brands through these license agreements, we cannot guarantee that licensees will always act in a manner that preserves the value of our proprietary rights or reputation. LICENSE OF THIRD-PARTY INTELLECTUAL PROPERTY On occasion, we in-licensed both exclusive and non-exclusive rights to intellectual property and patents owned by third parties. These license agreements typically require royalties and other payments. We have a royalty agreement in which we obtained rights to manufacture and market an ACTH test (used to detect chronic metabolic conditions). Royalty expenses of approximately $10,000 and $13,000, respectively, are included in cost of sales for this agreement for the fiscal years ended May 31, 2024 and 2023. Sales of products manufactured under this agreement are not material to total sales for the fiscal years ended May 31, 2024 and 2023, respectively. We may license other products or technology in the future as it is deemed necessary or opportunistic for conducting business. Some of the products that we manufacture, sell, or use may be covered by claims in issued patents held by other persons or entities, and as such, upon notice from such persons or entity we may be required to pay a license fee or may be required to cease all manufacture, sale or use of such products, which could negatively impact us. While we have not been notified of any such claims by third parties, we cannot guarantee that such claims will not be made in the future. BRANDS AND TRADEMARKS We occasionally register our tradenames with the USPTO. Of note, we registered the tradename “InFoods” on December 24, 2016. Our unregistered tradenames are “EZ Detect,” “EZ-H.P.,” and “EZ-PSA”. A trademark for “Aware” was issued and assigned in 2001, renewed in 2011 and 2021. On January 11, 2020, the USPTO renewed our “FORTEL” trademark for another ten years. The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Effective copyright, trademark, and trade secret protection may not be available in such jurisdictions. PATENTS AND INFOODS TECHNOLOGY We have filed over 100 international and Patent Corporation Treaty patents (“PCT”) and have multiple provisional and non-provisional patents currently filed with the USPTO. Substantially all of our patents that are pending or registered pertain to the inFoods ® technology platform. Our most important family of patent applications pertains to our inFoods ® technology platform, which is a method of diagnosing and treating symptoms of many different inflammatory diseases. Our first product launch using this technology is the inFoods ® IBS product which is designed to diagnose and treat IBS. Using a patient blood sample, a physician or lab can run our test to identify specific foods (e.g., pork, milk, onions, sugar, chickpeas) that, if eliminated from an IBS patient’s diet, can alleviate or reduce the individual’s IBS symptoms, including, but not limited to, constipation, diarrhea, bloating, cramping, severe pain, and indigestion. We have filed many patent applications with the USPTO and with other such similar agencies in other countries outside of the United States pertaining to this inFoods ® technology. These patent applications include claims that address the diagnosis and treatment of several disease states including IBS, functional dyspepsia, Crohn’s disease, ulcerative colitis, gastroesophageal reflux disease, osteoarthritis, psoriasis, migraine headaches, and depression. These applications include the use of this technology in both humans and animals. The first inFoods ® patents filed by us pertained to IBS. Several of these patents pertaining to the inFoods ® IBS technology have been issued and many more are in active review and prosecution. In August 2018, we received our first patent pertaining to the inFoods ® technology platform from the Korean Intellectual Property Office, covering IBS. Since then, we have been granted a total of 19 patents; The USPTO has issued the Company two patents with broad claims that protect our inFoods ® technology in testing and treating patients with IBS. Patents have also been issued in the countries of Australia (two patents), Canada, Japan (two patents), Korea (two patents), Mexico, Panama, Peru, and Singapore, covering our inFoods ® IBS technology. Additional patent applications pertaining to the inFoods ® IBS product are in prosecution and review at the USPTO and with the patent issuance authorities in other countries. 9 We are also developing and have filed patents with claims that cover products that target other diseases utilizing the inFoods ® technology platform. We have dozens of patents in prosecution or review pertaining to these other diseases, including: Functional Dyspepsia, Crohn’s disease, Ulcerative Colitis, GERD, Migraine Headaches, Depression, and Osteoarthritis. In addition, we have a family of patents that cover the use of certain information technology (“IT”) platforms and artificial intelligence/machine learning (“AI/ML”) tools that could assist patients in identifying and avoiding packaged or processed food that contain specific foods that they are trying to eliminate from their diet. In addition to our IBS related issued patents, we have also been issued inFoods ® technology patents in the following countries pertaining to the following diseases: Australia – Attention Deficit Disorder (“ADD”) and Attention Deficit Hyperactivity Disorder (“ADHD”); Australia – GERD; Japan - psychological depression, IT based food monitoring and elimination technology; China – IT based food monitoring and elimination technology. We believe the claims in these issued inFoods ® IBS patents and claims in our pending patents that protect the use of the inFoods ® technology to diagnose and treat various other diseases, provide us with broad protections from other companies making or selling competing products in this highly disruptive new field of medicine. In addition to the use of our own patents, we have acquired from third parties the rights to manufacture and sell certain products that are protected by patents or intellectual property owned by these third parties. In some cases, royalties are paid on the sales of these products. We anticipate that we will license or purchase the rights to other products or technologies in the future. We also engage in contract research and development and contract manufacturing for third party companies. The technologies that relate to this contract R&D and manufacturing are protected by patents and other intellectual property. In these situations, this intellectual property is typically licensed to us under a limited license agreement enabling us to perform the services being contracted. We have recently launched the inFoods ® IBS product. Our business model for this product includes the potential out-licensing of the product and related patents to a large international life sciences or technology company that could commercialize it or support us in its commercialization. Additionally, we may explore out-licensing opportunities for the patents or intellectual property associated with other products, including our H. pylori product. EMPLOYEES As of May 31, 2024 and 2023, we employed a total of 64 and 62 employees, respectively, in the United States, Mexico, UK and Germany, of which 63 and 62 were full-time employees, respectively. Various employees listed in the production department also perform research and development duties as a routine function of their job. We occasionally employ temporary employees when needed. The following is a breakdown of employees by departments: May 31, 2024 2023 Administrative 6 5 Research & Development 7 9 Sales & Marketing 13 7 Production & Operations 38 41 Total 64 62 We do engage in a range of external experts, including Ph.D.’s, M.D.’s, and other industry specialists, as well as medical institutions, to support various aspects of our operations. These services include technical support, regulatory guidance, marketing and public relations, financial advisory, and contract product development and manufacturing. To safeguard the Company, we implement confidentiality agreements, intellectual property ownership clauses, and indemnification provisions with these external parties. Despite these measures, we cannot guarantee complete protection against third-party claims or potential intellectual property theft. 10