BIOMERICA INC 10-K

ITEM 1A. RISK FACTORS Investing in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with the other information in this Annual Report, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our securities. The occurrence of one or more of the events or circumstances described in these risk factors, alone or in combination with other events or circumstances, may have a material adverse effect on our business, reputation, revenue, financial condition, results of operations, and future prospects, in which event the market price of our Common Stock could decline, and you could lose part or all of your investment. The risks and uncertainties summarized above and described below are not intended to be exhaustive and are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. This Annual Report also contains forward-looking statements that involve risks and uncertainties, refer to “Cautionary Note Regarding Forward-Looking Statements.” Our actual results could differ materially and adversely from our anticipated results as a result of a number of factors, including the risks described below. RISKS RELATED TO OUR BUSINESS We have a history of operating losses. We have a history of operating losses, and there is no guarantee that we will achieve profitability in the future. Our ability to generate net profits and maintain positive cash flows is uncertain. Failure to achieve or sustain profitability could result in a decline in the value of our common stock and may necessitate seeking additional funding under potentially unfavorable conditions. Although our financial statements have been prepared on a going concern basis, our current level of cash and cash equivalents available to us is not sufficient to meet our operating plans for the next 12 months, raising substantial doubt regarding our ability to continue as a going concern. Our financial statements as of May 31, 2025, have been prepared under the assumption that we will continue as a going concern for the next twelve months from the date of issuance. However, our independent registered public accounting firm has issued a report that includes an explanatory paragraph highlighting our operational losses and expressing substantial doubt about our ability to continue as a going concern for a period of at least the next twelve months from the date this report is filed. Our ability to continue as a going concern depends on obtaining additional financing, achieving further operating efficiencies, increasing sales, reducing costs, and ultimately generating profitable operations. There is no assurance that we will be able to secure the necessary capital on favorable terms, achieve sufficient revenue growth, or implement adequate cost reductions. Our financial statements do not reflect any adjustments that might result from the resolution of this uncertainty. Our operating results may fluctuate adversely as a result of many factors that are outside our control, which may negatively impact our stock price. Our operating results are subject to fluctuations due to factors outside our control, which may adversely affect our business, financial condition, and stock price. Key factors include: ● Regulatory Clearances: Delays or issues with obtaining regulatory approvals in the U.S., Europe, and other markets. ● Regulatory Compliance: Challenges in meeting compliance requirements in various jurisdictions. ● Competition: Introduction of superior or lower-priced products by competitors could impact our market share. ● Reimbursement Changes: Alterations in reimbursement systems or amounts could affect product usage decisions. ● Economic Conditions: Economic downturns, changes in healthcare spending, reduced consumer demand, inflation, and currency fluctuations. ● Legal and Regulatory Changes: New or amended laws and regulations affecting our business operations. ● Market Penetration: Lower than expected adoption of new or recently introduced products. ● Distributor Dynamics: Variability in distributor inventory levels, buying patterns, and overall performance. ● Government Mandates: Risks from shelter-in-place orders, lockdowns, or other crisis-related directives. ● Tariffs: Potential of order holds or sales delays or reductions due to Tariffs ● Healthcare Market Changes: Consolidation in our customer base or shifts in the healthcare market landscape. 9 Fluctuations in our operating results, for any reason, could cause operating losses as a result of significant fixed expenses. We base the scope of our operations and related expenses on our estimates of future revenues. A significant portion of our operating expenses are fixed, and we may not be able to rapidly adjust our expenses if our revenues fall short of our expectations. Our revenue estimates for future periods are based, among other factors, on estimated end-user demand for our products. If end-user consumption is less than estimated, revenues from our distribution partners and other distribution channels would be expected to fall short of expectations, and because such a significant portion of our costs are fixed, could result in operating losses. To remain competitive, we must continue to develop, obtain, and protect our proprietary technology rights; otherwise, we may lose market share or need to reduce prices as a result of competitors selling technologically superior products that compete with our products, or selling products at lower prices. Our ability to compete successfully in the diagnostic market depends on continued development and introduction of new products, technology, and the improvement of existing technology. If we cannot continue to improve upon or develop, obtain, and protect our technology, our operating results could be adversely affected. To remain competitive, we must expend considerable resources to research new technologies and products and develop new markets, and there is no assurance our efforts to develop new technologies, products, or markets will be successful or such technologies, products, or markets will be commercially viable. We devote a significant amount of financial and other resources to researching and developing new technologies, new products, and new markets. The development, manufacture and sale of diagnostic products require a significant investment of resources. The development of new products and markets also requires a substantial investment of resources, such as new employees, offices and manufacturing facilities, consultants, and clinical trials. No assurances can be given that our efforts to develop new technologies or products will be successful, that such technologies and products will be commercially viable, or our expansion into new markets will be profitable. There is also no guarantee that our new products, including our inFoods ® IBS product and hp+detect ™ , will be well accepted into the marketplace. Our operations will be adversely affected if our operating results do not correspondingly increase with our increased expenditures or if our technology, product, and market development efforts are unsuccessful or delayed. Furthermore, our failure to successfully introduce new technologies or products and develop new markets could have a material adverse effect on our business and prospects. The Company is required to obtain government or regulatory certification in many countries and the European community to sell its products in those countries or regions. There is no assurance that the Company will be able to retain its certification in the future. This includes the possibility and risk that the Company’s products do not meet the new EU IVDR testing and documentation requirements in the future as described in the above “Research and Development” section of this document. Significant government regulation exists in countries in which we conduct business. A large part of the Company’s sales is to distributors in Europe, China, and other countries, which require us to maintain certain certifications to sell our products. Failure to comply with current governmental regulations and quality assurance guidelines could cause the loss of these certifications, which could materially adversely affect the results of the Company. Loss of certifications could lead to temporary manufacturing shutdowns, product recalls, product shortages, or delays in product manufacturing and a decline in sales. Also, evolving EU IVDR requirements may increase compliance costs and extend certification timelines, which could limit our ability to sell certain IVDD products in the EU. The Company maintains a manufacturing plant in Mexico which presents risks to the Company including risks associated with doing business outside the United States. We operate a significant manufacturing facility in Mexico through our subsidiary, Biomerica de Mexico. This international presence introduces a range of risks, including exposure to local economic and political conditions. Factors such as social unrest, potential terrorism, export and import restrictions, and fluctuations in currency exchange rates could impact our operations. Additionally, there is a risk of labor shortages, which could affect our manufacturing capabilities. These factors could lead to unforeseen costs and disruptions, materially impacting our business, financial results, and operational stability. 10 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. Our research and production processes involve the use of hazardous materials, which presents inherent risks. Despite rigorous safety protocols, the possibility of accidental contamination or injury cannot be entirely eliminated. In the event of an accident, we could face significant liability for harm or damages, potentially exceeding our financial resources. Compliance with environmental regulations also entails substantial costs. If government authorities introduce new environmental regulations or change the interpretation of existing regulations, our operations could be further impacted. Such changes may impose additional costs, restrictions, or compliance requirements, which could hinder our research, development, or production efforts. Noncompliance with these regulations may result in significant fines, penalties, or damages, and could necessitate costly remediation efforts. Furthermore, severe environmental or safety violations could lead to partial or total shutdowns of our research and manufacturing facilities, adversely affecting our business. The risk of contamination or injury from hazardous materials may also expose individuals to potential health hazards, resulting in fines or penalties that might not be covered by insurance, thereby impacting our financial stability and operational continuity. We rely on a limited number of key distributors that account for a substantial majority of our total revenue. The loss of any key distributor or an unsuccessful effort by us to directly distribute our products could lead to reduced sales. Our net sales were approximately $5,311,000 for fiscal year ended May 31, 2025, compared to $5,415,000 for fiscal year eneded May 31, 2024. For the fiscal years ended May 31, 2025 and 2024, the Company had one distributor each year that accounted for 31% and 33% of our net sales, respectively. Total gross receivables as of May 31, 2025, and 2024 were approximately $757,000 and $966,000, respectively. As of May 31, 2025 and 2024, the Company had four distributors, respectively, that accounted for a total of 69% and 64% of gross accounts receivable, respectively. Of the 69% as of May 31, 2025, 27% was owed by a distributor in North America. Any adverse changes in our relationships with key distributors, or adverse issues related to their financial condition, performance, or purchasing patterns, could have a significant impact on our sales and overall financial results. The loss of a key distributor, or the failure of our direct distribution efforts, could further exacerbate these challenges and adversely affect our business. 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. We face risks relating to our international sales, including economic, political, and regulatory challenges, which could impact our financial performance, disrupt our business operations, and hinder our growth strategy. A significant amount of our products are sold internationally, with substantial sales to distributors in Asia and Europe. We rely on distributor organizations and sales agents to market and sell our products abroad, which exposes us to various foreign risks, including: ● Compliance Challenges: We must adhere to diverse and evolving registration requirements, which can be controlled by distributors, complicating transitions and limiting our ability to benefit from product registrations. ● Regulatory Risks: We must comply with complex foreign and U.S. laws and regulations, such as import/export limitations, the Foreign Corrupt Practices Act, and local laws in each market. ● Tariffs and Trade Barriers: As we expand into new countries and regions, we face changing tariffs and trade barriers, particularly in China which accounts for a large percentage of our sales, and where tariff policies are troublesome. ● Currency Exchange Fluctuations: Our international sales are subject to currency risks, as changes in the values of foreign currencies relative to the U.S. dollar can make our products more expensive and negatively impact sales. ● Payment and Pricing Challenges: We encounter longer payment cycles, generally lower average selling prices, and greater difficulty in collecting accounts receivable. ● Legal Enforceability: We may lack the ability to enforce receivables collections contracts in foreign legal systems. ● Intellectual Property Risks: There is often reduced protection for, and enforcement of, intellectual property rights in foreign markets. ● Political and Economic Instability: We are exposed to political and economic instability in regions where we currently sell or plan to expand our product sales. ● Tax Consequences: We face complex and potentially adverse tax implications in different jurisdictions. ● Product Diversion: Products sold internationally at lower prices may be diverted back to the United States, affecting our domestic sales. 11 Most of our international sales are negotiated and paid in U.S. dollars. However, currency risks remain, as fluctuations in foreign exchange rates can make our products comparatively more expensive. These exchange rate changes, along with general economic conditions in international markets, could negatively impact our sales. To maintain competitive pricing, we may need to offer discounts or reduce prices, leading to lower margins on international sales. Continued changes in the values of the Euro, the Mexican peso, and other foreign currencies could adversely affect our business, financial condition, and results of operations. We also have supply agreements with foreign vendors that involve sharing foreign currency exchange fluctuation risks. We may enter into similar arrangements in the future. A significant portion of our revenues comes from sales to our distribution partner in China. Political tensions between the U.S. and China could disrupt or reduce our sales in the Chinese market, posing a substantial risk to our business. Tariffs and trade dynamics may affect order timing. In certain markets, tariff changes and related trade uncertainties contributed to extended lead times and rescheduled shipments, which affected the timing of revenue recognition for certain international orders. Our results of operations and financial conditions may be adversely affected by the financial soundness of our customers, distributors, and suppliers. Our operational results and financial condition are closely linked to the financial health of our customers, distributors, and suppliers. If any of these parties experience a deterioration in their financial performance or encounter difficulties with scheduled payments or credit, it could have several adverse effects on our business. For instance, if our customers are unable to pay or delay payment on accounts receivable, this would negatively impact our cash flow. Similarly, if our suppliers face financial challenges, they may restrict credit, impose more stringent payment terms, reduce or cease production of essential components, or even stop operations entirely. Such disruptions could directly affect our ability to procure necessary materials and maintain consistent product supply. Moreover, reductions in reimbursements or purchase volumes from state and federal government programs, or private payers, could also occur due to budget constraints or expenditure cuts. These reductions could adversely impact our revenues and cash flow, further straining our financial performance. The combined effect of these potential challenges could significantly influence our operating results and financial stability. We extend credit to customers outside the United States which can be difficult to collect. We extend credit to many of our customers, including those located outside the United States. Collecting receivables, particularly from international customers, can be challenging due to difficulties in obtaining reliable credit information and the complexities of enforcing collections through foreign legal systems. If we are unable to effectively manage and collect on these receivables, especially from international customers, it could have a detrimental impact on our financial performance and liquidity. If we are not able to manage our growth strategy our operating results may be adversely affected. Our business strategy contemplates further growth, including scaling up our operational systems and entering new geographical markets, including those outside the United States. This growth strategy could place additional demands on our limited employee and executive staff, potentially diverting their focus from core business activities. Furthermore, managing growth may strain our operational, financial, and management information systems. Expanding into new markets or undertaking acquisitions introduces several risks, such as higher costs, unfamiliar market conditions, and integration challenges. Any difficulties in managing this growth or expanding effectively could adversely affect our operating results and financial performance. The strain on management resources and potential inefficiencies in our systems could lead to operational and financial setbacks. 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. The diagnostic products industry and market segments in which we operate are highly competitive. Our diagnostic tests face competition from similar products produced by numerous multinational and regional competitors who are heavily investing in competing technologies. Additionally, some of our distributors have developed, or may develop, their own products to compete directly with ours. 12 Many of our competitors have substantial competitive advantages over us, including significantly greater financial, technical, and research resources. They also possess larger, more established marketing, sales, distribution, and service networks; stronger relationships with healthcare professionals; and extensive experience in research and development, manufacturing, clinical trials, and regulatory approvals. Furthermore, some competitors offer a broader range of products and enjoy greater brand recognition. If our competitors’ products prove to be more effective or capture market share through superior marketing or competitive pricing, our sales and margins could suffer. This intense competition could materially and adversely affect our operating results. Additionally, there has been a noticeable trend towards industry consolidation in recent years, with companies merging to strengthen or maintain their market positions. This trend is expected to continue as companies strive to adapt to the evolving industry landscape. Competing successfully in a consolidated industry may become increasingly challenging, and failure to do so could adversely impact our market position and financial performance. Intellectual property risks and third-party claims of infringement, misappropriation of proprietary rights, or other claims against us could adversely affect our ability to market our products, require us to redesign our products or attempt to seek licenses from third parties, result in significant costs, and materially adversely affect our operating results. Companies in or related to our industry often aggressively protect and pursue their intellectual property rights. There are often intellectual property risks associated with developing and producing new products and entering new markets, and we may not be able to obtain, at reasonable cost or upon commercially reasonable terms, if at all, licenses to intellectual property of others that is alleged to be part of such new or existing products. We rely on IP for the current products we sell and for the new products in research, development, and in clinical trials. While the Company tries to protect its IP with confidentiality agreements and internal policies, we still face risks that our IP will be stolen or otherwise misappropriated, by parties inside or outside of the United States. Further, we have filed many patents around the world on much of the research and development done by the Company, and the proposed products to come from this research. The majority of these filed patents are still under review and have not yet been allowed or issued. We may not be able to attain patent claims that adequately protect the company from competitors developing similar products or copying our products. Finally, there is a great number of issued patents owned by others that pertain to the product categories in which we operate. While we do not know of any patents with claims that we are violating by manufacturing or selling our current products, there is a risk that certain third-party patents will come to our attention that prohibit us from selling our products or that require us to pay royalty payments. Such third-party claims could have a material negative impact on the Company. Any of these IP-related risks could cause material damage to future revenues and to the long-term enterprise values of the Company. We have hired and will continue to hire individuals or contractors who have experience in medical diagnostics and these individuals or contractors may have confidential trade secret or proprietary information of third parties. We cannot assure that these individuals or contractors will not use this third-party information in connection with performing services for us or otherwise reveal this third-party information to us. Thus, we could be sued for misappropriation of proprietary information and trade secrets. Such claims are expensive to defend and could divert our attention and result in substantial damage awards and injunctions that could have a material adverse effect on our business, financial condition, or results of operations. In addition, to the extent that individuals or contractors apply technical or scientific information independently developed by them to our projects, disputes may arise as to the proprietary rights to such data and may result in litigation. The defense and prosecution of patent and trade secret claims are both costly and time consuming. We or our customers may be sued by other parties that claim that our products have infringed their patents or misappropriated their proprietary rights or that may seek to invalidate one or more of our patents. An adverse determination in any of these types of disputes could prevent us from manufacturing or selling some of our products, limit or restrict the type of work that employees involved with such products may perform for us, increase our costs, and expose us to significant liability. In addition, the defense of such claims could result in significant costs and divert the attention of our management and other key employees. In addition to the foregoing, we may also be required to indemnify some customers, distributors, and strategic partners under our agreements with such parties if a third party alleges or if a court finds that our products or activities have infringed upon, misappropriated, or misused another person’s proprietary rights. Further, our products may contain technology provided to us by other parties such as contractors, suppliers, or customers. We may have little or no ability to determine in advance whether such technology infringes the intellectual property rights of a third party. Our contractors, suppliers, and licensors may not be required or financially able to indemnify us in the event that a claim of infringement is asserted against us, or they may be required to indemnify us only up to a maximum amount, above which we would be responsible for any further costs or damages. 13 Some of the products that we manufacture, sell, or use may be covered by claims in issued patents held by other persons or entities, and as such, upon notice from such persons or entity, we may be required to pay a license fee or may be required to cease all manufacture, sale or use of such products, which could negatively impact our financial results or operations. We cannot guarantee that such claims will not be made in the future. We need to continue to raise additional funds to finance our future capital or operating needs, which could have adverse consequences on our operations and the interests of our stockholders. Although we currently generate revenue, our company is operating at a loss due to significant commercialization of newly developed products and from a slow launch in revenues from our new products and some investments in research and development and. To sustain and advance our business strategy, we must continue to raise additional funds to meet our capital and operating needs. This often involves seeking public or private debt or issuing equity. Raising funds through equity can dilute the interests of our existing stockholders. The availability of capital, whether through debt or equity, is subject to fluctuations based on our financial condition and general market or industry conditions. There may be periods when private capital markets or public debt and equity markets lack liquidity, or when we are unable to sell our securities at favorable prices. In such scenarios, accessing capital on favorable terms may become challenging. Failure to secure adequate funding could force us to delay, reduce, or even eliminate certain development programs or commercialization efforts. The costs associated with development projects and regulatory approvals can be unpredictable and may exceed our initial estimates. As our current operations are insufficient to cover these unexpected costs, this could adversely impact our ability to execute our business strategy and achieve our long-term goals. Our business and products are highly regulated by various governmental agencies. Our results of operations would be negatively affected by failures or delays in the receipt of regulatory approvals or clearances, the loss of previously received approvals, or other changes to the existing laws and regulations that adversely impact our ability to manufacture and market our products. The testing, 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. Our future performance depends on, among other matters, if, when, and at what cost we will receive regulatory approval for new products, and if we can continue to comply with the many regulatory requirements that enable us to manufacture and sell medical related products and tests. Regulatory review can be a lengthy, expensive, and uncertain process, making the timing and costs of clearances and approvals difficult to predict. Meeting all regulatory requirements, laws and mandates, and maintaining compliance with such in order to manufacture and sell medical products can be difficult and expensive. Our results of operations would be negatively affected by failures or delays in the receipt of regulatory approvals or clearances, the loss of previously received approvals or clearances, the placement of limits on the marketing and use of our products, and restrictions on our ability to manufacture our products. Changes in government policy could adversely affect our business and potential profitability. Changes in government policy could have a significant impact on our business by increasing the cost of doing business, affecting our ability to sell our products and negatively impacting our profitability. Such changes could include tariffs, embargos, trade wars, 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. It is unclear whether and to what extent, if at all, other anticipated developments, including changes due to new presidential administration priorities, or changes resulting from healthcare reform, such as a change in the number of people with health insurance, may impact us. We are subject to numerous government regulations in addition to FDA regulations, and compliance with laws, including changed or new laws, could increase our costs and adversely affect our operations. There is also the risk that our facilities could fail to get the proper licensing at our next inspection or renewal. In addition to FDA and other regulations referred to above, numerous laws relating to such matters as safe working conditions, manufacturing practices, data privacy, environmental protection, fire hazard control, and disposal of hazardous or potentially hazardous substances impact our business operations. If these laws or their interpretation change or new laws regulating any of our businesses are adopted, the costs of compliance with these laws could substantially increase our overall costs. Failure to comply with any laws, including laws regulating the manufacture and marketing of our products, could result in substantial costs and loss of sales or customers. Because of the number and extent of the laws and regulations affecting our industry, and the number of governmental agencies whose actions could affect our operations, it is impossible to reliably predict the full nature and impact of future legislation or regulatory developments relating to our industry and our products. To the extent the costs and procedures associated with meeting new or changing requirements are substantial, our business, results of operations and financial condition could be adversely affected. 14 Our total revenue could be affected by third-party reimbursement policies and potential cost constraints. The end-users of our products are physicians, labs, other healthcare providers and direct consumers. In the United States, healthcare providers such as hospitals and physicians who purchase diagnostic products generally rely on third-party payers, principally private health insurance plans, federal Medicare, and state Medicaid, to reimburse all or part of the cost of the procedure. The growth needed in the sales of our products would be adversely impacted if physicians and other healthcare providers do not receive adequate reimbursement for the cost of our products by their patients’ third-party payers both in the United States and in foreign markets. Our total revenue could also be adversely affected by changes or trends in reimbursement policies of governmental or private healthcare payers. We believe that the overall escalating cost of medical products and services has led to, and will continue to lead to, increased pressures on the healthcare industry, both foreign and domestic, to reduce the cost of products and services. Given the efforts to control and reduce healthcare costs in recent years, currently available levels of reimbursement may not continue to be available in the future for our existing products or products under development. Third-party reimbursement and coverage may not be available or adequate in either the 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. Finally, we are in the process of applying for Government payer reimbursement for our inFoods IBS® product in the US market. If we are unsuccessful in attaining reimbursement for this product, we will likely fall well short of our future revenue projections. Unexpected increases in, or inability to meet, demand for our products could require us to spend considerable resources to meet the demand or harm our reputation and customer relationships if we are unable to meet demand. Our inability to meet customer demand for our products, whether as a result of manufacturing problems or supply shortfalls, could harm our customer relationships and impair our reputation within the industry. In addition, our product manufacturing of certain product lines is concentrated in our two manufacturing sites. Weather, natural disasters (including pandemics), fires, terrorism, political change, governmental restrictions or stay-at-home orders in response to natural disasters (including pandemics), failure to follow specific internal protocols and procedures, equipment malfunction, environmental factors, or damage to one or more of our facilities could adversely affect our ability to manufacture our products. This, in turn, could have a material adverse effect on our business. If we experience unexpected increases in the demand for our products, we may be required to expend additional capital resources or engage third-party manufacturers to meet these demands. These capital resources could involve the cost of new machinery or even the cost of new manufacturing facilities. In addition, engaging third-party manufacturers would increase manufacturing costs and reduce margins. This would increase our capital costs or third-party expenses, which could adversely affect our earnings and cash resources. If we are unable to develop or obtain necessary manufacturing capabilities in a timely manner or to engage third-party manufacturers to meet demand, our total revenue could be adversely affected. Failure to cost-effectively increase production volumes, if required, or lower than anticipated yields or production problems, including those encountered as a result of changes that we may make in our manufacturing processes to meet increased demand or changes in applicable laws and regulations, could result in shipment delays as well as increased manufacturing costs, which could also have a material adverse effect on our business, operating results and financial condition. Unexpected increases in demand for our products could also require us to obtain additional raw materials in order to manufacture products to meet the demand. Some raw materials require significant ordering lead time and we may not be able to timely access sufficient raw materials in the event of an unexpected increase in demand, particularly those obtained from a sole supplier or a limited group of suppliers. If one or more of our products is claimed to be defective or does not meet the performance criteria we claim in our marketing materials, we could be subject to product recalls, claims of liability, harm to patients or users of our products, or harm to our reputation that could adversely affect our business. A claim of a defect in the design or manufacture of our products could have a material adverse effect on our reputation in the industry and subject us to claims of liability for injuries and otherwise. Further, a claim that one of our products is defective or does not actually meet the performance criteria we claim in our marketing materials, could require a product recall or otherwise have a substantial impact on our revenues and financial performance. Any substantial underinsured loss resulting from such a claim or defect would have a material adverse effect on our operating results and financial conditions and the damage to our reputation or product lines in the industry could have a material adverse effect on our business. 15 We are exposed to business risks which, if not covered by insurance, could have an adverse effect on our results of operations. We face potential product liability exposure, and, if claims brought against us are successful, we could incur substantial liabilities. We face a number of business risks, including exposure to product liability claims, employment law claims, claims that the Company or its officers, directors or employees have engaged in illegal or wrongful acts, claims of violation of environmental laws, and many other possible claims. Although we maintain insurance for a number of these risks, we may face claims for types of damages, or for amounts of damages, that are not covered by our insurance. For example, although we currently carry product liability insurance for liability losses, there is a risk that product liability or other claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of our policy. Also, our existing insurance may not be renewed at the same cost and level of coverage as currently in effect or may not be renewed at all. Further, we do not currently have insurance against many environmental risks we confront in our business. If we are held liable for a claim against which we are not insured or for damages exceeding the limits of our insurance coverage, that claim could have a material adverse effect on our results of operations. Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of studies and trials may not be predictive of future trial results. Clinical trials are expensive, time consuming, and difficult to design and implement. Regulatory agencies may analyze or interpret the results differently than we do. Even if the results of our clinical trials are favorable, the clinical trials for a number of our product candidates may take a significant amount of time to complete. Regulatory authorities, including state and local authorities, may suspend, delay or terminate our clinical trials at any time, require us to conduct additional clinical trials, require a particular clinical trial to continue for a longer duration than originally planned, or require a change to our development plans such that we conduct clinical trials for a product candidate in a different order. There is no assurance that the results of the clinical trials will be positive. A negative clinical trial could affect our ability to obtain regulatory clearances and/or potential licensing partners. There is also no assurance that our clinical trials will not be delayed or will be completed. Any of the foregoing could have a material adverse effect on our business, results of operations and financial condition. We may rely on third parties to conduct or be part of our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidates. We rely on third-party contract research organizations (“CROs”), universities or/clinical sites collectively, (“Clinical Research Partners”), to coordinate, monitor and conduct of our clinical trials and to manage, analyze, and interpret data for our clinical programs. We, and our Clinical Research Partners, are required to comply with current Good Clinical Practices (“GCPs”), regulations, and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor the activities conducted by our Clinical Research Partners and at our clinical sites to confirm compliance with these requirements. In the future, if we, our Clinical Research Partnersor our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. If our Clinical Research Partners do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed. Failures in our information technology and storage systems or data security breaches could significantly disrupt our business or force us to expend excessive costs. Failures in our information technology and storage systems, many of which are outsourced to third parties, could significantly disrupt our business and incur excessive costs. We rely on complex information technology systems, many of which are outsourced to third-party providers, to support our business operations and store critical information. Our dependence on these third parties means that we are reliant on their performance, security measures, and ability to meet our business needs. Any failures or disruptions in the services provided by these third-party vendors could result in excessive costs or significant disruptions to our business operations. 16 Specifically, any disruptions, delays, or deficiencies caused by our enterprise resource planning system or other outsourced systems could negatively impact our ability to process orders, ship products, provide services and customer support, send invoices, track payments, fulfill contractual obligations, and maintain overall business operations. Despite our and our Clinical Research Partners’ implementation of security measures, information technology systems remain vulnerable to damage from various sources, including computer viruses, unauthorized access, telecommunications or network failures, malicious human acts, terrorism, and natural disasters. Moreover, despite network security and backup measures, some of our servers and those of our Clinical Research Partners may still be susceptible to physical or electronic break-ins, computer viruses, and similar disruptive issues. Cybersecurity risks are escalating and pose significant threats to our operations. Cyber-attacks could result in the loss of vital company documentation and data, or confidential third-party documents held by the company, essential for our operations. Despite precautionary measures to prevent unforeseen problems, sustained or repeated system failures that interrupt our ability to generate and maintain data could materially disrupt our operations and lead to significant financial costs. Furthermore, any disruption or security breach resulting in data loss or damage, or inappropriate disclosure of confidential or proprietary information, could result in regulatory actions, litigation, fines or penalties, adverse publicity, increased cybersecurity protection costs, and lost revenue. There is also a risk that our measures and those of our third-party vendors to protect our systems from cyber-attacks may not be sufficient to prevent attacks by new sources and methods. Our business could be negatively affected by the loss of or the inability to hire key personnel. Our future success is heavily dependent on our ability to retain key technical, sales, marketing, and executive personnel, as well as our capacity to identify and recruit additional qualified individuals. The competition for talent is intense, both within our industry and in the regions where we operate. As we anticipate growth in our operations, our need for additional management and other key personnel is expected to increase. Failure to retain our existing key personnel or to promptly identify and hire qualified replacements or additional staff to support our growth could have a detrimental impact on our business. Additionally, the loss of any key personnel, particularly in research and development, could significantly harm our business, hinder our prospects, and obstruct the achievement of our research, operational, or strategic objectives. In response to the need to reduce ongoing operating costs, we have implemented a substantial reduction in our workforce. This reduction places an increased workload on the remaining employees and may create concerns about job security. These factors could lead to the loss of key employees, who are critical to our future success, and may make it difficult to attract and retain new talent in these roles. Sales of our common stock in the public market could lower the market price for our common stock and adversely impact the trading price of our securities. Future sales by the Company of a substantial number of shares of our common stock in the public market to raise needed capital, or the perception that such sales may occur, could adversely affect the then prevailing market price of our common stock and could make it more difficult for us to raise funds in the future through a public offering of our securities. 17 On September 28, 2023, we filed a “shelf” registration statement on Form S-3 with the SEC, allowing the Company to issue up to $20,000,000 in common shares. Under this registration statement, shares of our common stock may be sold from time to time for up to three years from the filing date. On May 10, 2024, we filed a prospectus supplement with the SEC, as part of the registration statement filed on September 28, 2023, which was declared effective on September 29, 2023. This supplement was intended to facilitate the sale of up to $5,500,000 in common stock through an At The Market (ATM) offerings, as defined in Rule 415 under the Securities Act. The issuance of additional shares of our common stock, or other securities, could dilute our existing stockholders’ ownership interests, potentially depress the market price of our common stock, and impair our ability to raise capital through future equity sales. The size and impact of future issuances on the market price of our common stock cannot be predicted. We also have a number of stockholders who own large blocks of our common stock. If one or more of these stockholders were to sell large portions of their holdings in a relatively short time, for liquidity or other reasons, the prevailing market price of shares of our common stock could be negatively affected. In order to attain needed capital to operate the Company, we may need to issue preferred stock, warrants, convertible debt or other financial instruments that could have liquidation priority, requirements for interest or dividend payments, or other rights and that could be detrimental to existing shareholders’ return on their investment in the Company. The price of our stock may fluctuate unpredictably in response to factors unrelated to our operating performance. The stock market can experience significant price and volume fluctuations that are unrelated to the operating performance of individual companies. These broad market fluctuations may cause the market price of our common stock to drop. In particular, our common stock has historically been volatile and may continue to be unpredictable in the future. Factors that could cause fluctuations in our stock price include, but are not limited to: ● Announcements by us or our competitors concerning technological innovations or new product introductions. ● Regulatory actions or changes, including those by the FDA, SEC, or international regulatory bodies. ● Developments or disputes related to patents or proprietary rights. ● Failure to meet the expectations of stock market analysts and investors. ● Reporting material weaknesses in our internal controls. ● Changes in stock market analyst recommendations or financial estimates regarding our common stock. ● Shifts in healthcare policy in the United States or other countries. ● Lawsuits or liability claims from shareholders or other parties. ● Legal disputes related to intellectual property or other significant litigation. ● Possible recalls of our products or reports of false positive/negative results. ● Sales of our common stock or other securities by us or our stockholders. ● Changes in trading volume of our common stock. ● Variations in quarterly operating results, whether actual or anticipated. ● Publication of research reports about us or our industry, or changes in securities analysts’ recommendations. ● Effects of natural or man-made catastrophic events, including widespread health epidemics. ● General stock market conditions and other factors unrelated to our operating performance. ● Volatility and disruptions in capital and credit markets due to economic conditions such as rising inflation and interest rates. ● Geopolitical events, such as wars or political unrest, that impact the markets in which we operate. ● Changes in the macroeconomic environment that affect market conditions. Additionally, due to the limited trading volume of our common stock, substantial sales of our stock could adversely impact its market price. While our common stock has been traded on the Nasdaq Capital Market since August 26, 2016, liquidity may be limited, and it could be challenging to liquidate large positions without adversely affecting the stock price. Our ability to use our net operating loss carry forwards in the future may be subject to limitation. Although we have Federal income tax net operating loss carryforwards of approximately $28,378,000 and California state income tax net operating loss carryforwards of approximately $26,921,000, as of May 31, 2025, use of these loss carryforwards will depend on future income in relationship to expirations dates of these carryforwards.