What changed in this filing

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Item 1. Business

2022-09-15 compared with 2021-09-21 · 216 added, 197 removed, 237 unchanged (64% of the section changed)

Astrotech Corporation (Nasdaq:

ASTC) (“Astrotech,” the “Company,” “we,” “us,” or “our”), a Delaware corporation organized in 1984, is a mass spectrometry company that launches, manages, and commercializes scalable companies based on its innovative core technology through its wholly-owned subsidiaries:

ASTC) (“Astrotech,”

the “Company,”

“we,”

“us,”

or “our”), a Delaware corporation organized in 1984, is a mass spectrometry company that launches, manages, and commercializes scalable companies based on its innovative core technology.

Our efforts are focused on commercializing our platform mass spectrometry technology through our wholly-owned subsidiaries:

Astrotech Technologies, Inc.

(“ATI”) owns and licenses the intellectual property related to the Astrotech Mass Spectrometer Technology™ (the “AMS Technology”) .

1 st Detect Corporation (“1 st Detect”) is a manufacturer of explosives and narcotics trace detectors developed for use at airports, cargo and other secured facilities, and borders worldwide.

1 st Detect holds an exclusive AMS Technology license from ATI for air passenger and cargo security applications.

(“AgLAB”) is developing a series of mass spectrometers for use in the hemp and cannabis market with initial focus on optimizing yields in the extraction and distillation process.

(“ATI”) owns and licenses the intellectual property related to the Astrotech Mass Spectrometer Technology™ (the “AMS Technology”).

1 st  Detect Corporation (“1 st  Detect”) is a manufacturer of explosives trace detectors capable of also detecting narcotics.

It was developed for use at airports, cargo and other secured facilities, and borders worldwide.

1 st  Detect holds an exclusive AMS Technology license from ATI for air passenger and cargo security applications.

(“AgLAB”) is developing a series of mass spectrometers for use in the hemp and cannabis market with initial focus on optimizing yields in the extraction and distillation processes.

AgLAB holds an exclusive AMS Technology license from ATI for agriculture applications.

BreathTech Corporation (“BreathTech”) is developing a breath analysis tool to screen for volatile organic compound (“VOC”) metabolites found in a person’s breath that could indicate they may have an infection, including COVID-19 or pneumonia.

BreathTech holds an exclusive AMS Technology license from ATI for breath analysis applications.

Business Developments

During fiscal year 2021, we raised net proceeds of approximately $67.6 million in a series of equity offerings.

These offerings included a public offering and a registered direct offering for aggregate net proceeds of $21.8 million in October 2020, sales of shares of our common stock through an at-the-market agreement and a second registered direct offering for aggregate net proceeds of $11.7 million in February 2021, and an underwritten, firm-commitment public offering for net proceeds of $34.0 million in April 2021.

On September 9, 2020, we announced that 1 st Detect’s TRACER 1000™ passed the U.S.

Transportation Security Administration’s (“TSA”) Air Cargo Screening Technology Qualification Test’s (“ACSQT”) non-detection testing.

On October 20, 2020, we announced that BreathTech had signed a joint development agreement (the “JDA”) with the Cleveland Clinic Foundation (“Cleveland Clinic”) to explore leveraging BreathTech’s BreathTest-1000™ mass spectrometer to rapidly screen for COVID-19 or related indicators.

The goal of the JDA is to develop a non-invasive device that will use breath samples to identify COVID-19 strains, with the potential to provide a low-cost, self-service screening option that could be deployed on a large-scale.

On March 30, 2021, we announced that ATI entered into an agreement with Sanmina Corporation (“Sanmina”) to manufacture its mass spectrometry products.

Sanmina is a leading integrated manufacturing solutions provider for the Electronics Manufacturing Services market.

As part of the relationship, Sanmina will procure and inspect components, parts, and raw materials and manufacture, assemble, test, inspect, configure, store, and ship the products for any of the licensees of ATI.

On March 31, 2021, BreathTech signed an Investigator-Initiated Study Agreement (the “ILSA”) with Cleveland Clinic.

Pursuant to the ILSA, Cleveland Clinic will use BreathTech’s BreathTest-1000 to compare exhaled breath from individuals who have tested positive on a COVID-19 polymerase chain reaction (“PCR”) test with that from subjects who have had a negative COVID-19 PCR test.

The goal of the pilot study will be to analyze different volatile organic compounds from the breath to evaluate the correlation with different disease states.

On April 19, 2021, we received full forgiveness of our Paycheck Protection Program Promissory Note in the amount of $542 thousand (the “PPP Promissory Note”) from the U.S.

Small Business Administration (the “SBA”).

On August 3, 2021, AgLAB announced that it has hired Joe Levinthal, a hemp and cannabis industry veteran and an expert in mass spectrometry, as its Chief Science Officer, to help lead AgLAB’s product development team.

Levinthal brings an extensive background in applying highly complex scientific instrumentation to develop products derived from hemp and cannabis, and he has worked with some of the leading companies in the industry.

On August 25, 2021, 1 st Detect announced that it has secured an important landmark purchase order for the TRACER 1000, representing the first units to be deployed at an airport security checkpoint.

As of the date of this filing, the TRACER 1000 is deployed in 14 locations across nine countries throughout Europe and Asia.

On August 25, 2021, 1 st Detect announced that it secured an important landmark purchase order for the TRACER 1000™, representing the first units to be deployed at an airport security checkpoint.

On November 17, 2021, we announced that we are actively pursuing strategic and accretive acquisition opportunities for Astrotech Corporation and its subsidiaries. Tom Wilkinson, as Lead Independent Director, is focusing on identifying acquisitions that will complement or improve our core technology, accelerate revenue growth, and/or reduce time to market, while being accretive to earnings and therefore shareholder value.

On February 2, 2022, BreathTech announced that it has hired Dr.

Karim Sirgi, MD, MBA and FCAP as its Chief Science Officer.

Sirgi is a pathologist, board certified in Anatomic, Clinical and Cytopathology, and has over 30 years of practice and leadership experience in private and academic pathology practices.

We expect Dr.

Sirgi will be key in the research and development and regulatory efforts at BreathTech and will help lead our partnership with Cleveland Clinic in the development of the BreathTest-1000™.

On June 23, 2022, BreathTech announced that it has amended its Joint Development and Option Agreement with Cleveland Clinic to include additional areas of focus.

Under the amended agreement, ongoing work towards development of a rapid breath test for COVID-19 will be expanded to utilize BreathTech’s core mass spectrometry technology to screen for a variety of diseases spanning the entire body.

The project will focus on detecting bloodstream infections, respiratory infections such as influenza types A and B and respiratory syncytial virus (“RSV”), carriage of Staphylococcus aureus, and Clostridioides difficile (“C.

diff”) infections.

As of the date of this filing, the TRACER 1000 is deployed in 20 locations across 11 countries throughout Europe and Asia.

Our Business Units

Astrotech Technologies, Inc.

ATI owns and licenses the AMS Technology, the platform mass spectrometry technology originally developed by 1st Detect.

Long recognized as the gold standard in chemical detection, mass spectrometry has historically been too costly, bulky, and cumbersome.

In contrast, the AMS Technology has been designed to be inexpensive, small, and easy to use.

Unlike other technologies, the AMS Technology works under ultra-high vacuum, which eliminates competing molecules, yielding higher resolution and fewer false alarms.

The intellectual property includes 28 granted patents and two additional patents in process along with extensive trade secrets.

ATI owns and licenses the AMS Technology, the platform mass spectrometry technology originally developed by 1 st  Detect.

Long recognized as the gold standard in chemical detection, mass spectrometry has historically been considered to be too costly, bulky, and cumbersome. In contrast, the AMS Technology has been designed to be comparatively inexpensive, small, and easy to use. Unlike other technologies, the AMS Technology works under ultra-high vacuum, which eliminates competing molecules, yielding higher resolution and fewer false alarms.

The intellectual property includes 23 granted patents and one additional patent in process along with extensive trade secrets.

With a number of diverse market opportunities for the core technology, ATI is structured to license the intellectual property for different fields of use.

ATI currently licenses the AMS Technology to three wholly-owned subsidiaries of Astrotech on an exclusive basis, including to 1st Detect for use in the security and detection market, to AgLAB for use in the agriculture market, and to BreathTech for use in breath analysis.

ATI currently licenses the AMS Technology to three wholly-owned subsidiaries of Astrotech on an exclusive basis, including to 1 st Detect for use in the security and detection market, to AgLAB for use in the agriculture market, and to BreathTech for use in breath analysis applications.

ATI has contracted with Sanmina Corporation (“Sanmina”), a leading contract manufacturer with a worldwide presence, to manufacture our mass spectrometer products.

Leveraging their expertise, Sanmina has helped to improve the manufacturability and reliability of our systems.

1 st Detect Corporation

1 st Detect, a licensee of ATI for the security and detection market, has developed the TRACER 1000, the world’s first mass spectrometer (“MS”) based explosives trace detector (“ETD”) certified by the European Civil Aviation Conference (“ECAC”), designed to replace the ETDs used at airports, cargo and other secured facilities, and borders worldwide.

The Company believes that ETD customers are unsatisfied with the currently deployed ETD technology, which is driven by ion mobility spectrometry (“IMS”).

The Company believes that IMS-based ETDs are fraught with false positives, as they often misidentify personal care products and other common household chemicals as explosives, causing facility shutdowns, unnecessary delays, frustration, and significant wasted security resources.

In addition, there are hundreds of different types of explosives, but IMS-based ETDs have a very limited threat detection library reserved only for those several explosives of largest concern.

Adding additional compounds to the detection library of an IMS-based ETD fundamentally reduces the instrument’s performance, further increasing the likelihood of false alarms.

In contrast, adding additional compounds does not degrade the TRACER 1000’s detection capabilities, as it has a virtually unlimited and expandable threat library.

In order to sell the TRACER 1000 to airport and cargo security customers in the European Union, ECAC certification is required.

Certain other countries also accept ECAC certification.

We received ECAC certification for the TRACER 1000 on February 21, 2019.

We are now taking orders from airports and cargo facilities outside of the U.S.

that accept ECAC certification.

In the United States, the Company is working with the TSA towards air cargo certification.

On March 27, 2018, the Company announced that the TRACER 1000 was accepted into TSA’s ACSQT and, on April 4, 2018, the Company announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports.

On November 14, 2019, the Company announced that the TRACER 1000 had been selected by the TSA’s Innovation Task Force to conduct live checkpoint screening at Miami International Airport.

With similar protocols as ECAC testing, the Company has received valuable feedback from all programs.

Following ECAC certification and the Company's early traction within the cargo market, testing for cargo security continued with the TSA.

With the COVID-19 pandemic, all testing within the TSA was put on hold;

however, cargo testing resumed during the summer of 2020, and the Company subsequently announced on September 9, 2020 that the TRACER 1000 passed the non-detection testing portion of the TSA’s ACSQT.

TSA cargo detection testing is ongoing and is the next and final

step to be listed on the Air Cargo Screening Technology List (“ACSTL”) as an “approved” device.

1 st  Detect, a licensee of ATI for the security and detection market, has developed the TRACER 1000, the world’s first mass spectrometer (“MS”) based explosives trace detector (“ETD”) certified by the European Civil Aviation Conference (“ECAC”), designed to replace the ETDs used at airports, cargo and other secured facilities, and borders worldwide. We believe that ETD customers are unsatisfied with the currently deployed ETD technology, which is driven by ion mobility spectrometry (“IMS”).

We further believe that IMS-based ETDs are fraught with false positives, as they often misidentify personal care products and other common household chemicals as explosives, causing facility shutdowns, unnecessary delays, frustration, and significant wasted security resources.

In addition, there are hundreds of different types of explosives, but IMS-based ETDs have a very limited threat detection library reserved only for those few explosives of largest concern.

Adding additional compounds to the detection library of an IMS-based ETD fundamentally reduces the instrument’s performance, further increasing the likelihood of false alarms.

In contrast, adding additional compounds to the TRACER 1000’s detection library does not degrade its detection capabilities, as it has a virtually unlimited and easily expandable threat library.

In order to sell the TRACER 1000 to airport and cargo security customers in the European Union and certain other countries, we obtained ECAC certification.

We are currently selling the TRACER 1000 to customers who accept ECAC certification.

We have deployed the TRACER 1000 in approximately 20 locations in 11 countries throughout Europe and Asia.

On August 25, 2021, 1 st Detect announced that it secured an important landmark purchase order from a distributor for the TRACER 1000, representing the first units to be deployed at an airport security checkpoint for passenger screening.

These systems were sold to the customer during the second quarter of fiscal year 2022.

In the United States, we are working with the U.S.

Transportation Security Administration (“TSA”) towards air cargo certification.

On March 27, 2018, we announced that the TRACER 1000 was accepted into TSA’s Air Cargo Screening Technology Qualification Test (“ACSQT”) and, on April 4, 2018, we announced that the TRACER 1000 was beginning testing with TSA for passenger screening at airports.

On November 14, 2019, we announced that the TRACER 1000 had been selected by the TSA’s Innovation Task Force to conduct live checkpoint screening at Miami International Airport.

With similar protocols as ECAC testing, we have received valuable feedback from all programs.

Following ECAC certification and our early traction within the cargo market, testing for cargo security continued with the TSA.

With the onset of the COVID-19 pandemic, all testing within the TSA was put on hold;

however, we resumed cargo testing during the summer of 2020, and we subsequently announced on September 9, 2020, that the TRACER 1000 passed the non-detection testing portion of the TSA’s ACSQT.

Due to delays caused by COVID-19, TSA cargo detection testing is ongoing, but has proceeded much more slowly than originally anticipated.

As a result, efforts are primarily focused on our other opportunities.

TSA cargo detection testing is the final step to be listed on the Air Cargo Screening Technology List (“ACSTL”) as an “approved”

If approved, the TRACER 1000 will be approved for cargo sales in the United States.

Finally, on October 28, 2020, the Company announced that it had surpassed $1.0 million in purchase orders for the TRACER 1000 and an additional $1.0 million in future service and support commitments, also announcing DHL (Deutsche Post AG) as its largest flagship customer.

AgLAB, an exclusive licensee of ATI for the agriculture market, has developed the AgLAB-1000™ series of mass spectrometers for use in the hemp and cannabis market with initial focus on optimizing yields in the extraction and distillation process.

AgLAB, an exclusive licensee of ATI for the agriculture market, has developed the AgLAB-1000™

series of mass spectrometers for use in the hemp and cannabis market with initial focus on optimizing yields in the extraction and distillation processes.

The AgLAB product line is a derivative of our core AMS Technology.

The AMS Technology provides a significant competitive advantage due to its small size, rugged design, quick analysis, ease of use, and affordability.

The AMS Technology provides a significant competitive advantage due to its small size, rugged design, quick analysis, and ease of use. AgLAB recently completed several successful field trials to demonstrate that the AgLAB-1000-D2™

can be used in the distillation process to significantly boost the potency and weight yields of tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”) oil manufacturing. We plan to launch a family of “process control”

instruments, methods, and solutions that we believe could be valuable additions to many nutraceutical extraction and distillation laboratories.

BreathTech Corporation

BreathTech is developing the BreathTest-1000, a breath analysis tool to screen for VOC metabolites found in a person’s breath that could indicate they may have an infection, including COVID-19 or pneumonia.

While vaccines have been deployed to prevent the transmission of COVID-19, only a small fraction of the world has been vaccinated and new variants continue to pose a significant and evolving threat.

New tools to aid in the battle against COVID-19 remain of the utmost importance to help defeat the disease, and BreathTech, in conjunction with the Cleveland Clinic, are at the forefront of developing a quick and easy device to help prevent the further spread of the disease.

Development of the BreathTest-1000 follows our results in pre-clinical trials for the BreathDetect-1000™, a rapid self-serve breathalyzer that was designed to detect bacterial infections in the respiratory tract, including pneumonia.

BreathTech, an exclusive licensee of ATI for use in breath analysis, is developing the BreathTest-1000, a breath analysis tool to screen for VOC metabolites found in a person’s breath that could indicate they may have a bacterial or viral infection.

While vaccines have been deployed to mitigate the most serious effects of COVID-19, many people remain unvaccinated and new variants continue to pose a significant and evolving threat.

New tools to aid in the battle against COVID-19 and other diseases remain of the utmost importance to help more quickly identify that an infection may be present, and BreathTech, in conjunction with Cleveland Clinic, is developing a quick and easy to use device to help determine the presence of infections.

In June 2022, we expanded our existing study that initially focused on COVID-19 with Cleveland Clinic to use the BreathTest-1000 to screen for a variety of diseases spanning the entire body.

The project will focus on detecting bloodstream infections, respiratory infections such as influenza types A and B and RSV, carriage of Staphylococcus aureus, and C.

diff infections.

The pre-clinical trials were conducted in collaboration with UT Health San Antonio in 2017.

Trends and Uncertainties - COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic.

We are subject to risks and uncertainties as a result of the COVID-19 pandemic.

The extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the disease and the responses that we, other businesses, and governments are taking continue to evolve.

Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it remains possible that it could cause a prolonged global economic recession.

Policymakers around the globe have responded with fiscal policy actions to support the economy as a whole.

The magnitude and overall effectiveness of these actions have been somewhat positive, but continuing actions remain uncertain and pose some degree of risk.

To date, we have seen delays with respect to the TSA certification process and parts of our supply chain as a result of COVID-19.

In addition, although passenger demand for air travel has recently rebounded to a certain extent, the overall recovery of the airline industry and ancillary services remains highly uncertain and is dependent upon, among other things, the number of cases declining around the globe, public health impacts of new COVID-19 variants, the continued administration of the vaccine to unvaccinated populations, and the duration of immunity granted by the current vaccines.

It is possible that the continued spread of COVID-19 could cause further disruption in our supply chain;

cause delay, or limit the ability of customers to perform, including in making timely payments to the Company;

cause further delay in regulatory certification testing of our instruments;

impact investment performance;

and cause other unpredictable events.

The extent to which the COVID-19 pandemic may in the future materially impact our financial condition, liquidity, or results of operations is uncertain.

We are subject to risks and uncertainties as a result of the COVID-19 pandemic. To date, we have seen delays with respect to the TSA certification process and parts of our supply chain, particularly the impact of the global semiconductor and electronics shortage, which has now resulted in product pricing inflation.

In addition, although passenger demand for air travel has rebounded, the overall recovery of the airline industry and ancillary services remains highly uncertain and is dependent upon, among other things, the number of cases declining around the globe, public health impacts of new COVID-19 variants, the continued administration of vaccines to unvaccinated populations, and the duration of immunity granted by vaccines.

We continue to manage production, to secure alternative supplies where available, and to take other proactive actions.

We believe that we will be able to pass the inflation caused by raw materials shortages and increased shipping costs to our customers by increasing the price of our instruments.

If supply chain shortages become more severe or longer term in nature, our business and results of operations could be adversely impacted;

however, we do not expect this issue to materially adversely affect our liquidity position.

The long-term impact of the COVID-19 pandemic on our business may not be fully reflected until future periods.

We continue to evaluate the current and potential impact of the pandemic on our business, results of operations, and consolidated financial statements.

We also continue to actively monitor developments and business conditions, including those that may be related to additional COVID-19 variants and other diseases, that may cause us to take further actions that alter business operations as may be required by applicable authorities or that we determine are in the best interests of our employees, customers, suppliers, and stockholders.

Business Strategy

1 st Detect Corporation

There are more than 30,000 IMS instruments deployed in the field today, with many nearing their end of life.

As the current generation of IMS technology is replaced, we are working to position the Company as the next-generation solution for the ETD market with the introduction of the world’s first ETD driven by a mass spectrometer.

Detect Corporation

There are tens of thousands IMS instruments deployed in the field today, with many nearing their end of life.

With mass spectrometry being the gold standard of chemical detection, an MS-ETD significantly improves detection capabilities, dramatically reduces the number of false positives, decreases delays and the associated costs, and allows for a much more expansive library of compounds of interest, yielding an instrument that we believe is far superior to the currently deployed IMS instruments, at a similar price point and a lower operating cost.

We currently market the TRACER 1000 to countries that accept ECAC certification.

If we obtain TSA certification and are listed on the ACSTL as an “approved”

device, we plan to also market and sell the TRACER 1000 to those countries that accept TSA certification.

Initial interest for the AgLAB-1000 series has come from the hemp and cannabis industry.

Many derivative hemp and cannabis products are being manufactured using cannabinoids present in the plant, primarily tetrahydrocannabinol (“THC”) for cannabis and cannabidiol (“CBD”) for hemp.

Extraction equipment is used to remove the cannabinoids from the raw plant matter to create an oil that is used in many manufactured products.

AgLAB has launched the first of several planned products, the AgLAB-1000-D2™, that has been designed to assist in the oil extraction and distillation process by maximizing the final product quality and yield.

Many derivative hemp and cannabis products are being manufactured using cannabinoids present in the plant, primarily THC for cannabis and CBD for hemp.

Extraction and distillation equipment is used to remove the cannabinoids from the raw plant matter to create an oil that is used in many manufactured products.

AgLAB has launched the first of several planned products that have been designed to assist in the oil extraction and distillation processes by maximizing the final product quality and yield.

Current efforts are focused on the U.S.

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BreathTech Corporation

The BreathTest-1000 product that is currently under development is being designed to provide an inexpensive, non-invasive, and self-serve screening device for COVID-19 and associated lung diseases that can offer results on-site in a very short period of time, which we believe could be as little as approximately 60 seconds.

We believe there remains a strong market need for a quick, frequent or daily, lung disease test for use in high density and critical locations, especially with additional variants of COVID-19 continuing to pose new threats.

Currently available tests either take too long or are invasive and painful.

The BreathTest-1000 product that is currently under development is being designed to provide an inexpensive, non-invasive screening device for a variety of diseases, including COVID-19, that can offer results on-site in a very short period of time.

We believe there remains a strong market need for a quick, frequent or daily screening test for use in high density and critical locations, especially with additional COVID-19 variants and other diseases continuing to pose new or reemerging threats.

Most currently available tests either take too long or are invasive and painful.

The market need for a quick and painless test is considered significant in the following target markets:

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Convention and conference centers

BreathTech is also working to expand the capabilities of the BreathTest-1000 to detect certain bloodstream and bacterial infections. 

Products and Services

1 st Detect Corporation

We believe 1 st Detect’s TRACER 1000 significantly outperforms currently deployed competitive trace detection solutions.

The TRACER 1000 has consistently outperformed IMS-ETDs in a number of side-by-side comparisons during field trials, specifically related to false alarm rate, probability of detection, and unit up-time.

Our initial sales have come from the cargo security industry where false alarms can cause expensive delays and facility shut downs as the false alarms are cleared, preventing the mission critical continuous flow of time sensitive packages.

Detect Corporation

The TRACER 1000 is the first MS-ETD certified by ECAC.

We believe the TRACER 1000 significantly outperforms currently deployed competitive trace detection solutions based on IMS technology, specifically related to false alarm rate, probability of detection, and unit up-time.

The majority of our sales to-date have come from the cargo security industry where false alarms can cause expensive delays and facility shutdowns as the false alarms are cleared, preventing the mission critical continuous flow of time sensitive packages.

We have also recently expanded into the airport passenger screening market with sales to a distributor who services a major international airport in Asia in the second quarter of fiscal year 2022.

Leveraging the platform AMS Technology, AgLAB is currently designing its product line to serve applications in the hemp and cannabis markets.

AgLAB has launched the AgLAB-1000-D2 that is designed to optimize yield during the extraction and distillation processes.

AgLAB has launched the AgLAB-1000-D2 which is designed to optimize yield during the distillation process.

With the AgLAB-1000-D2, a sample is manually introduced into the system for analysis.

Currently under development is the AgLAB-1000-D1.

When completed, this instrument will be an inline process control unit that will increase yields with additional possibilities in solvent and pesticide detection.

BreathTech Corporation

The BreathTest-1000 is being developed, in conjunction with the Cleveland Clinic, to provide an inexpensive, non-invasive, and self-serve screening device for COVID-19 and associated lung diseases.

The BreathTest-1000 is being designed to detect VOC metabolites in a person’s breath that could indicate they may have an infection, including COVID-19 or pneumonia, using a disposable collection tube.

Results of the test will be reported in what we believe could be as little as approximately 60 seconds.

The BreathTest-1000 is being developed, in conjunction with Cleveland Clinic, to provide an inexpensive, non-invasive screening device for a variety of diseases, including COVID-19 and its variants as well as associated lung diseases.

The BreathTest-1000 is being designed to detect VOC metabolites in a person’s breath that could indicate they may have an infection using a disposable collection tube.

Customers, Sales, and Marketing

1 st Detect Corporation

Marketing efforts at 1 st Detect are currently focused on foreign airports and commercial companies in aviation and cargo security.

Detect Corporation

Marketing efforts at 1 st  Detect are currently focused on foreign airports and commercial companies in aviation and cargo security.

We employ both direct sales and channel sales through distributors.

We now have units deployed in 14 locations in nine countries.

While we have had some degree of success with direct sales, much of the pipeline has seen delays caused by the COVID-19 pandemic.

Further, the worldwide microchip shortage has caused delays in sales and manufacturing, as certain components remain limited or on backorder.

We now have units deployed in 20 locations in 11 countries.

While we have had some degree of success with sales, much of the pipeline has seen delays caused by the COVID-19 pandemic.

Currently, AgLAB uses only direct sales.

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BreathTech Corporation

Marketing efforts are currently focused on organizations that are significantly impacted by COVID-19.

The goal is to have a qualified list of prospective customers in greatest need of our solution as we get closer to completing the development of and application for regulatory approval for the BreathTest-1000.

1 st Detect Corporation

Efforts are currently focused on the development of the BreathTest-1000.

We plan to increase marketing activities as the product approaches commercial viability.

Detect Corporation

Competition for the TRACER 1000 comes primarily from IMS-based ETDs.

There are several vendors that compete directly with 1 st Detect;

We have several competitors that sell IMS-based ETDs that are much larger than us, with well-established sales forces and offering a wider range of security products;

however, we believe the TRACER 1000 has a number of attributes that are superior to competing products.

1 st Detect’s TRACER 1000

• High false alarms

1 st  Detect’s TRACER 1000

False alarms caused by confusants

Near-zero false alarm rate

Lower probability of detection

Higher probability of detection

Numerous unscheduled bake-outs and calibrations

Near 100% up-time

Limited library of compounds of interest

Unlimited library of compounds of interest

Addition of new compounds may require hardware changes

Library updates that do not require hardware changes

Causes delays or shutdowns at security facilities/inspection checkpoints

• Low price chemical detector

• Near-zero false alarm rate

• Higher probability of detection

• Near 100% up-time

• Unlimited library of compounds of interest

• Instantaneous library updates

Improves throughput at security facilities and checkpoints

• Competitive price to IMS

Low price chemical detector

Competitive price to IMS in a throughput sensitive environment

These claims have been confirmed in numerous discussions with industry experts and verified in our many field trials.

We believe the AgLAB-1000-D2 is the only solution on the market that can provide crucially needed data collected during the extraction and distillation process to optimize the equipment settings to maximize potency and weight yields.

We believe that

any customer s using the A g LAB-1000 -D2 will be able to generate higher quality products with an increased yield, improving their revenue and thus justifying their investment in the instrument.

AgLAB Inc. 

The currently available technology that we believe to be the only direct competition to our MS-based system is high performance liquid chromatography (“HPLC”). We believe the AgLAB-1000 series of products offers a more customer-friendly interface, quicker results, and, once the AgLAB-1000-D1 is launched, the ability to provide closed loop process control, ensuring maximum yield and product quality.

BreathTech Corporation

The BreathTest-1000 product that is currently under development is being designed to screen for VOC metabolites found in a person’s breath that could indicate they may have an infection, including COVID-19 or pneumonia.

Given that breath samples are quick, inexpensive, and painless, we anticipate that the BreathTest-1000 will be in demand by hospitals, nursing homes, companies, airlines, hotels, cruise lines, military, sporting events, performing arts venues, convention and conference centers, schools, and likely anywhere that has high concentrations of people.

This product is not expected to compete with the currently available molecular tests like RT-PCR but is intended to only be a screening device that, upon a positive test, will suggest a visit to a doctor for a more thorough evaluation.

Other researchers are working on a breath screening solution for COVID-19, and to the best of our knowledge, they are still in the testing stages of their products.

The BreathTest-1000 product that is currently under development is being designed to screen for VOC metabolites found in a person’s breath that could indicate they may have a bacterial or viral infection.

Given that breath samples are quick, inexpensive, and painless, we anticipate that the BreathTest-1000 will be in demand by hospitals, nursing homes, airlines, hotels, cruise lines, military, sporting events, performing arts venues, convention and conference centers, schools, and likely anywhere that has high concentrations of people.

This product is not expected to compete with the currently available molecular tests like RT-PCR, but is intended to be a screening device that, upon a positive test, will suggest a more thorough evaluation.

Other researchers are working on a breath screening solution for COVID-19, and to the best of our knowledge, only one company in the U.S.

has gained Emergency Use Authorization (“EUA”) from the U.S.

Food and Drug Administration (“FDA”) for a breath analysis device; however, it remains unclear if this product is commercially available at this time.

Research and Development

1 st Detect Corporation

We invest considerable resources into our internal research and development functions.

Much of our research and development (“R&D”) investment is devoted to the cross-platform AMS Technology as the R&D team continually works to develop new derivative products, improve system functionality and reliability, optimize design, reduce cost, and streamline and simplify the software and user experience.

Each market, however, typically requires unique sample introduction technology, library development, and customized adjustments to the user interface.

While 1 st Detect’s TRACER 1000 is fully commercialized, we do continue to invest in cross-platform improvements.

Astrotech Technologies, Inc.

We invest considerable resources into our internal research and development (“R&D”) functions.

Much of our R&D investment is devoted to the cross-platform AMS Technology as the R&D team continually works to develop new derivative products, improve system functionality and reliability, optimize design, reduce cost, and streamline and simplify the software and user experience.

Each market, however, typically requires unique sample introduction technology, library development, and customized adjustments to the user interface. 

Detect Corporation

While 1 st Detect’s TRACER 1000 is fully commercialized, we continue to invest in cross-platform improvements that benefit all of our products, including those that improve system functionality and reliability, optimize design, reduce cost, and streamline and simplify the software and user experience.

The AgLAB-1000 series uses the core AMS Technology and is continuing its development of its cannabinoid library.

In addition, AgLAB plans to expand its product line to include other valuable products specific to the hemp and cannabis industry.

In addition, AgLAB continues to invest in and expand its product line to include other valuable products specific to the hemp and cannabis industry.

BreathTech Corporation

The BreathTest-1000 employs the core AMS Technology.

BreathTech R&D activities are being devoted to sample introduction and library development, which is needed to identify the specific compounds present in the breath that are indicative of the presence of lung infections.

We have been in correspondence with the U.S.

Food and Drug Administration (“FDA”) regarding how the FDA will classify the BreathTest-1000 and the classification has not yet been determined.

The classification will inform the required FDA premarket submission and review process that will follow.

If premarket notification (510(k) submission) is required, we intend to submit a pre-submission request to the FDA.

The pre-submission is a formal mechanism for requesting feedback from the FDA prior to submitting a medical device application.

We have been in correspondence with the FDA regarding how the FDA will classify the BreathTest-1000 and the classification has not yet been determined. The classification will inform the required FDA premarket submission and review process that will follow. If premarket notification (510(k) submission) is required, we intend to submit a pre-submission request to the FDA. The pre-submission is a formal mechanism for requesting feedback from the FDA prior to submitting a medical device application.

The timeframe for receiving feedback from a pre-submission request is approximately 70 calendar days but may be shorter or longer.

Simultaneously, we are exploring how to accelerate our time to market for the BreathTest-1000 by utilizing the Emergency Use Authorization (“EUA”) that was initially announced on March 24, 2020 related to COVID-19.

EUAs allow the FDA to authorize the use of unapproved and uncleared In-Vitro Diagnostic (“IVD”) tests that have not gone through the FDA’s review process in anticipation of a potential emergency or during an actual emergency involving a chemical, biological, radiological, or nuclear agent, or an emerging infectious disease.

Several other COVID-19 diagnostic tests have been authorized through the EUA process, and such authorization remains in effect until the Secretary of the Department of Health and Human Services (“HHS”) declares the public health emergency is terminated or the conditions of the EUA are not fulfilled.

Simultaneously, we are exploring how to potentially accelerate our time to market for the BreathTest-1000 via the EUA process, pursuant to the EUA declaration for in vitro diagnostic tests (“IVDs”) that became effective on February 4, 2020, in connection with the public health emergency related to COVID-19. In relevant part, an EUA declaration allows the FDA to temporarily authorize the use of unapproved and uncleared medical countermeasures, such as, IVD tests that have not gone through the FDA’s review process in anticipation of a potential emergency or during an actual emergency involving a chemical, biological, radiological, or nuclear agent, or an emerging infectious disease where the U.S.

Secretary of Health and Human Services (“HHS”) determines that circumstances exist to justify such authorization. Several COVID-19 diagnostic tests have been authorized through the EUA process, and such authorizations generally remain in effect until HHS declares the public health emergency is terminated or the conditions of the given EUA are not fulfilled.

We have not submitted a request for an EUA but are hopeful that we will be able to obtain authorization under the EUA to get the BreathTest-1000 to market as quickly as possible.

The timeframe for authorization of an EUA is highly variable and depends on, among other things, the complexity of the product, completeness of the submission, and technical requirements of the FDA.

Authorization, if granted, may take as little as one month or as long as a few months.

Authorization, if granted, may take as little as one month or as long as several months, and there is no guarantee that an EUA will be granted for the BreathTest-1000.

Certain Regulatory Matters

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Goods and services provided by us to U.S.

Government agencies are subject to Federal Acquisition Regulations (“FAR”).

These regulations provide rules and procedures for invoicing, documenting, and conducting business under contract with such entities.

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The Truth in Negotiations Act was enacted for the purpose of providing full and fair disclosure by contractors in the conduct of negotiations with the U.S.

The most significant provision included in the Truth in Negotiations Act is the requirement that contractors submit certified cost and pricing data for negotiated procurements above a defined threshold.

The most significant provision included in the Truth in Negotiations Act is the requirement that contractors submit certified cost and pricing data for negotiated procurements above a defined threshold.

Export Administration Act .

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Export Administration Regulations.

The Export Administration Regulations (“EAR”) govern whether a person or company may export goods from the U.S., re-export goods from a foreign country, or transfer goods from one person or company to another in a foreign country.

 The Export Administration Regulations govern whether a person or company may export goods from the U.S., re-export goods from a foreign country, or transfer goods from one person or company to another in a foreign country.

Medical Device Regulation

FDA Premarket Clearance and Approval Requirements.

Unless an exemption applies, each medical device commercially distributed in the U.S.

requires either FDA clearance of a 510(k) premarket notification submission, granting of a de novo request, or premarket application (“PMA”) approval.

Under the Federal Food Drug and Cosmetic Act, or FDCA, administered by the FDA, medical devices are classified into one of three classes, Class I, Class II, or Class III, depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness.

Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s general controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation (“QSR”), facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.

Unless an exemption applies, each medical device, to be lawfully commercially distributed in the U.S., requires either FDA clearance of a 510(k) premarket notification submission, granting of a de novo request, or premarket application (“PMA”) approval.

Under the Federal Food Drug and Cosmetic Act (“FDCA”), administered by the FDA, medical devices are classified into one of three classes, Class I, Class II, or Class III, depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory controls needed to ensure its safety and effectiveness.

Some Class I devices may require premarket notification to the FDA.

Class II devices are moderate risk devices and are subject to the FDA’s general controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device.

Class II devices are moderate risk devices and are subject to the FDA’s general controls, and certain special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device.

These special controls can include performance standards, post-market surveillance, patient registries, and FDA guidance documents.

While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device.

The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k)

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent” to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another commercially available device that was cleared to through the 510(k) or de novo process.

The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance.

Under the 510(k) process, the manufacturer must submit to the FDA a premarket notification demonstrating that the device is “substantially equivalent”

to either a device that was legally marketed prior to May 28, 1976, the date upon which the Medical Device Amendments of 1976 were enacted, or another commercially available device that was cleared to through the 510(k) or de novo process.

Devices deemed by the FDA to pose the greatest risks, such as life-sustaining, life-supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring approval of a PMA.

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510(k) Marketing Clearance.

To obtain 510(k) clearance, a premarket notification submission must be submitted to the FDA demonstrating that the proposed device is “substantially equivalent” to a predicate device.

To obtain 510(k) clearance, a premarket notification submission must be submitted to the FDA demonstrating that the proposed device is “substantially equivalent”

to a predicate device.

A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed prior to May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I (e.g., via the de novo classification process), or a device that was previously cleared through the 510(k) process.

The FDA’s 510(k) review process usually takes from three to six months, but may take longer.

The FDA’s 510(k) review process usually takes from three to six months but may take longer.

The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence.

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After a device receives 510(k) marketing clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) marketing clearance or, depending on the modification, a de novo request or PMA approval.

The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k), de novo or a PMA in the first instance, but the FDA can review that decision and disagree with a manufacturer’s determination.

If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until FDA has cleared or approved a 510(k), de novo or PMA for the change.

If the FDA disagrees with a manufacturer’s determination, the FDA may take a wide range of enforcement actions, including, but not limited to, issuing a warning letter, withdrawing existing 510(k) clearance(s), and/or requesting a recall of the modified device.

In addition, the manufacturer must cease marketing of the modified device until FDA has cleared or approved a new 510(k), de novo or PMA for the change, if ever.

Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.

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If a previously unclassified new medical device does not qualify for the 510(k) pre-market notification process because no predicate device to which it is substantially equivalent can be identified, the device is automatically classified into Class III.

The Food and Drug Administration Modernization Act of 1997 established a new route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure.

or the de novo classification procedure.

This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA.

Prior to the enactment of the Food and Drug Administration Safety and Innovation Act, or FDASIA, in July 2012, a medical device could only be eligible for de novo classification if the manufacturer first submitted a 510(k) pre-market notification and received a determination from the FDA that the device was not substantially equivalent.

Prior to the enactment of the Food and Drug Administration Safety and Innovation Act (“FDASIA”) in July 2012, a medical device could only be eligible for de novo classification if the manufacturer first submitted a 510(k) pre-market notification and received a determination from the FDA that the device was not substantially equivalent.

FDASIA streamlined the de novo classification pathway by permitting (under Section 513(f)(2) of the FDCA) manufacturers to request de novo classification directly without first submitting a 510(k) pre-market notification to the FDA and receiving a not substantially equivalent determination.

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The device can then be used as a predicate device for future 510(k) submissions by the manufacturer or a competitor.

In December 2018 FDA issued proposed regulations to govern the de novo classification process, which if finalized would further impact this path to market.

As an alternative to the de novo process, a company could also file a reclassification petition, or the FDA could initiate such a process, seeking to change the automatic Class III designation of a novel post amendment device under Section 513(f)(3) of the FDCA.

In October 2021, FDA enacted regulations implementing the above-referenced FDCA provisions governing the de novo reclassification process.

Premarket Approval Process.

Class III devices require submission through the Premarket Approval (PMA) process before they can be marketed.

Class III devices require submission through the PMA process before they can be marketed.

The PMA process is more demanding than the 510(k) premarket notification process.

In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials.

Under the PMA pathway, the manufacturer must demonstrate that the investigational device is safe and effective for the target indication(s) for use, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials conducted under a valid investigational device exemption (“IDE”).

The PMA must also contain, among other things, a full description of the device and its components, a full description of the methods, facilities and controls used for manufacturing, and proposed labeling.

Following receipt of a PMA submission, the FDA determines whether the application is sufficiently complete to permit a substantive review.

If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years.

An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device.

The FDA may or may not accept the panel’s recommendation.

In addition, the FDA will generally conduct a preapproval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR.

The FDA may or may not accept the panel’s recommendation.

In addition, the FDA will generally conduct a preapproval inspection of the applicant or its third-party manufacturers’

or suppliers’

manufacturing facility or facilities to ensure compliance with the QSR.

The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA application constitute valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s).

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Emergency Use Authorization .

The Commissioner of the FDA, under delegated authority from the Secretary of DHHS may, under certain circumstances, issue an EUA, that would permit the use of an unapproved medical device or unapproved use of an approved medical device.

Before an EUA may be issued, the Secretary must declare an emergency based on one of the following grounds:

a determination by the Secretary of the Department of Homeland Security that there is a domestic emergency, or a significant potential for a domestic emergency, involving a heightened risk of attack with a specified biological, chemical, radiological or nuclear agent or agents;

a determination by the Secretary of DoD that there is a military emergency, or a significant potential for a military emergency, involving a heightened risk to U.S.

military forces of attack with a specified biological, chemical, radiological, or nuclear agent or agents;

a determination by the Secretary of DHHS of a public health emergency that effects or has the significant potential to affect, national security, and that involves a specified biological, chemical, radiological, or nuclear agent or agents, or a specified disease or condition that may be attributable to such agent or agents.

In order to be the subject of an EUA, the FDA Commissioner must conclude that, based on the totality of scientific evidence available, it is reasonable to believe that the product may be effective in diagnosing, treating, or preventing a disease attributable to the agents described above, that the product’s potential benefits outweigh its potential risks and that there is no adequate, approved alternative to the product.

The Commissioner of the FDA, under delegated authority from HHS may, under certain circumstances, issue an EUA, that would temporarily permit the use of an unapproved medical device or unapproved use of an approved medical device.

Before an EUA may be issued, the HHS Secretary must declare that circumstances exist to justify the authorization (referred to as an “EUA declaration”) based on one of the following grounds:

a determination by the Secretary of the Department of Homeland Security (“DHS”) that there is a domestic emergency, or a significant potential for a domestic emergency, involving a heightened risk of attack with a specified biological, chemical, radiological or nuclear agent or agents;

a determination by the Secretary of Defense that there is a military emergency, or a significant potential for a military emergency, involving a heightened risk to U.S.

military forces of attack with a specified biological, chemical, radiological, or nuclear agent or agents; 

a determination by the Secretary of HHS of a public health emergency that affects or has the significant potential to affect, national security or the health and security of U.S.

citizens living abroad, and that involves a specified biological, chemical, radiological, or nuclear agent or agents, or a specified disease or condition that may be attributable to such agent or agents;

the identification of a material threat, by the DHS Secretary pursuant to section 319F-2 of the Public Health Service (“PHS”) Act, that is sufficient to affect national security or the health and security of U.S.

citizens living abroad.

In order for a medical countermeasure, such as an IVD (among others), to be the subject of an EUA, the FDA Commissioner must conclude that, based on the totality of scientific evidence available, it is reasonable to believe that the product may be effective in diagnosing, treating, or preventing a disease attributable to the agents described above, that the product’s potential benefits outweigh its potential risks and that there is no adequate, approved alternative to the product.

Clinical Trials.

Clinical trials are almost always required to support de novo or a PMA and are sometimes required to support a 510(k) submission.

All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s Investigational Device Exemption ("IDE") regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.

If the device presents a “significant risk” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.

All clinical investigations of investigational devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators.

If the device presents a “significant risk”

to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials.

A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject.

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In addition, clinical studies must be approved by, and conducted under the oversight of, an Institutional Review Board ("IRB") for each clinical site.

The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the trial.

The IRB is responsible for the initial and continuing review of the IDE and may pose additional requirements for the conduct of the trial.

If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA.

If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements.

An IDE supplement must be submitted to, and approved by the FDA before a sponsor or investigator may make a change to the investigational plan.

An IDE supplement must be submitted to and approved by the FDA before a sponsor or investigator may make a change to the investigational plan.

During a clinical trial, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping, and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them.

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After a device is cleared or approved for marketing, numerous and pervasive regulatory requirements continue to apply.

These include:

These include (among others):

establishment registration and device listing with the FDA;

state licensure requirements for the manufacturing and distribution of medical devices;

QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process;

labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced, provide adequate directions for use, and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling;

FDA guidance on off-label dissemination of information and responding to unsolicited requests for information;

clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices;

medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;

correction, removal, and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

complying with the new federal law and regulations requiring Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database;

the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations;

post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device;

the federal Physician Sunshine Act and various state and foreign laws on reporting remunerative relationships with health care customers;

FDA’s QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation, and other quality assurance procedures during all aspects of the design and manufacturing process;

FDA labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced, provide adequate directions for use, and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; 

FDA regulations and guidance pertaining to clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices, or approval of a supplement for certain modifications to PMA devices;

FDA’s medical device reporting ( “MDR”) regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur;

FDA’s correction, removal, and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health;

FDA regulations requiring Unique Device Identifiers on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database;

the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations;

FDA post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device;

the federal Physician Sunshine Act and various state and foreign laws on reporting remunerative relationships with health care professionals, teaching hospitals, and other applicable entities;

the federal Anti-Kickback Statute (and similar state laws) prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as Medicare or Medicaid.

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We may be subject to similar foreign laws that may include applicable post-marketing requirements such as safety surveillance.

Our manufacturing processes, or those of any contract manufacturer that we engage, are required to comply with the applicable portions of the QSR, which cover the methods and the facilities, controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation, and servicing of finished devices intended for human use.

With respect to any medical devices that we may commercialize in the U.S.

in the future, our manufacturing processes, or those of any contract manufacturer that we engage, will be required to comply with the applicable portions of the QSR, which cover the methods and the facilities, controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation, and servicing of finished devices intended for human use.

The QSR also requires, among other things, maintenance of a device master file, device history file, and complaint files.

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Regulation of Medical Devices in the EEA

Medical devices placed on the market in the European Economic Area, or EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices ("the Medical Devices Directive").

Medical devices placed on the market in the European Economic Area ("EEA") must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices ("the Medical Devices Directive").

The most fundamental essential requirement is that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others.

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Notified bodies are often separate entities and are authorized or licensed to perform such assessments by government authorities.

The notified body would typically audit and examine a product’s technical dossiers and the manufacturers’ quality system.

The notified body would typically audit and examine a product’s technical dossiers and the manufacturers’

quality system.

If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity.

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strengthen the rules on placing devices on the market and reinforce surveillance once they are available;

establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance, and safety of devices placed on the market;

establish explicit provisions on manufacturers’ responsibilities for the follow-up of the quality, performance, and safety of devices placed on the market;

improve the traceability of medical devices throughout the supply chain to the end-user or patient through a unique identification number;

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strengthened rules for the assessment of certain high-risk devices, such as implants, which may have to undergo an additional check by experts before they are placed on the market.

In the European Union, member states are responsible for enforcing the EU’s medical device rules and for ensuring that only compliant medical devices are placed on the market or put into service in their jurisdictions.

They have powers to suspend the marketing and use, or demand the recall, of unsafe or non-compliant devices.

They also have the power to bring enforcement action against companies or individuals for breaches of the device rules.

Non-compliance may also result in Notified Bodies revoking any certificate of conformity that they have issued for a device or the manufacturer’s quality system.

We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of:

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Federal, State, and Foreign Fraud and Abuse and Physician Payment Transparency Laws.

In addition to FDA restrictions on marketing and promotion of drugs and devices, other federal and state laws may restrict our business practices if our products will be reimbursable under federal healthcare programs.

These laws include, without limitation, foreign, federal, and state anti-kickback and false claims laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers.

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Civil penalties for such conduct can further be assessed under the federal False Claims Act.

Violations can also result in criminal penalties, including criminal fines of up to $100,000 and imprisonment of up to 10 years.

Violations can also result in criminal penalties, including criminal fines of up to $100,000 and/or imprisonment of up to 10 years.

Similarly, violations can result in exclusion from participation in government healthcare programs, including Medicare and Medicaid.

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The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government.

A claim includes “any request or demand” for money or property presented to the U.S.

A claim includes “any request or demand”

for money or property presented to the U.S.

The federal civil False Claims Act also applies to false submissions that cause the government to be paid less than the amount to which it is entitled, such as a rebate.

Intent to deceive is not required to establish liability under the federal civil False Claims Act.

In addition, private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit.

In addition, private parties may initiate “qui tam”

whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit.

Penalties for federal civil False Claim Act violations include fines for each false claim, plus up to three times the amount of damages sustained by the federal government and, most critically, may provide the basis for exclusion from the federally funded healthcare program The criminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false, fictitious or fraudulent and, unlike the federal civil False Claims Act, requires proof of intent to submit a false claim.

When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil fines and penalties ranging from $11,803 to $23,607 for each false claim, plus treble damages, and exclude the entity from participation in Medicare, Medicaid, and other federal healthcare programs.

The Civil Monetary Penalty Act of 1981 imposes penalties against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a federal healthcare program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent, or offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA") also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”) and including implementing regulations (collectively, “HIPAA”) also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

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In the future, we may also be subject to various federal, state, and foreign laws that protect personal information including certain patient health information, such as the E.U.

General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”), and restrict the use and disclosure of patient health information, such as HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), in the U.S.

HIPAA established uniform standards governing the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities, to comply with standards that include the privacy and security of Protected Health Information (“PHI”).

HIPAA also requires business associates, such as independent contractors or agents of covered entities that have

access to PHI in connection with providing a service to or on behalf of a covered entity, of covered entities to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

General Data Protection Regulation (“GDPR”) and the California Consumer Privacy Act (“CCPA”), and restrict the use and disclosure of patient health information, such as HIPAA, and analogous state laws, many of which apply more broadly than HIPAA, in the U.S.

HIPAA established uniform standards governing the conduct of certain electronic healthcare transactions and requires certain entities, called covered entities (as defined under HIPAA), to comply with standards that include the privacy and security of Protected Health Information (“PHI”).

HIPAA also requires business associates (as defined under HIPAA), that may include 

independent contractors or agents of covered entities that access, use or disclose PHI in connection with providing a service to or on behalf of a covered entity to enter into business associate agreements with the covered entity and to safeguard the covered entity’s PHI against improper use and disclosure.

The HIPAA privacy regulations cover the use and disclosure of PHI by covered entities as well as business associates, which are defined to include subcontractors that create, receive, maintain, or transmit PHI on behalf of a business associate.

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A covered entity must notify any individual whose PHI is breached according to the specifications set forth in the breach notification rule.

The HIPAA privacy and security regulations establish a uniform federal “floor” and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI or insofar as such state laws apply to personal information that is broader in scope than PHI as defined under HIPAA.

The HIPAA privacy and security regulations establish a uniform federal “floor”

and do not supersede state laws that are more stringent or provide individuals with greater rights with respect to the privacy or security of, and access to, their records containing PHI or insofar as such state laws apply to personal information that is broader in scope than PHI as defined under HIPAA.

HIPAA requires the notification of patients, and other compliance actions, in the event of a breach of unsecured PHI.

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In addition, if the PHI of 500 or more individuals is improperly used or disclosed, we would be required to report the improper use or disclosure to HHS which would post the violation on its website, and to the media.

Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties up to $58,490 per violation, not to exceed $1.75 million per calendar year for non-compliance of an identical provision, and, in certain circumstances, criminal penalties with fines up to $250,000 per violation and/or imprisonment.

Failure to comply with the HIPAA privacy and security standards can result in civil monetary penalties up to $63,973 per violation, not to exceed an aggregate of $1.92 million per calendar year, and, in certain circumstances, criminal penalties with fines up to $250,000 per violation and/or imprisonment.

HIPAA authorizes state attorneys general to file suit on behalf of their residents for violations.

Courts are able to award damages, costs and attorneys’ fees related to violations of HIPAA in such cases.

Courts are able to award damages, costs and attorneys’

fees related to violations of HIPAA in such cases.

While HIPAA does not create a private right of action allowing individuals to file suit against us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care cases in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

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The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach.

Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context.

Although the law includes limited exceptions, including for “protected health information”

maintained by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context.

In the EEA, we may become subject to laws which restrict our collection, control, processing, and other use of personal data (i.e., data relating to an identifiable living individual) including the GDPR (and any national laws implementing the GDPR).

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and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality or expanding access.

Current and future legislative proposals to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products.

The cost containment measures that payors and providers are instituting and the effect of any healthcare reform initiative implemented in the future could impact our revenue from the sale of our products.

Current and future legislative proposals, on both a national and state level, to further reform healthcare or reduce healthcare costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products.

We expect additional state and federal healthcare reform measures to be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our products or additional pricing pressure.

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Employees Update

As of June 30, 2021, we employed 12 employees, none of which were covered by any collective bargaining agreements.

As of June 30, 2022, we employed 14 employees, none of which were covered by any collective bargaining agreements.

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What changed 10-K

Item 1. Business