What changed in this filing

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Item 1A. Risk Factors

2025-09-26 compared with 2024-09-20 · 84 added, 46 removed, 472 unchanged (22% of the section changed)

An investment in our securities involves a high degree of risk.

This annual report will contain a discussion of the risks applicable to an investment in our securities.

Prior to making a decision about investing in our securities, you should carefully consider the specific factors discussed under the heading “Risk Factors” in this annual report.

The risks and uncertainties we have described are not the only ones we face.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations.

The occurrence of any of these known or unknown risks might cause you to lose all or part of your investment in the offered securities.

Summary Risk Factors

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The following is a summary of some of the principal risks we face:

Risks Related to Our Business and Industry

Legal and Regulatory Risks

Risks Related to Ownership of Our Common Stock

General Risks

We have incurred significant losses since inception and anticipate that we will incur continued losses for the foreseeable future.

Our business units are in the development stage.

They have earned limited revenues and it is uncertain whether they will earn any revenues in the future or whether any of them will ultimately be profitable.

We may need to raise additional capital to fund the operations of our business units and commercialize our products.

We may not be able to obtain patents, other intellectual property protection or licenses for the technologies contained in the products we develop.

Third parties have infringed on our intellectual property rights, and may claim in the future that we are infringing their intellectual property rights, and we could suffer significant litigation or licensing expenses or be prevented from selling products.

We may not be able to successfully develop the BreathTest-1000 or any other new products or services.

Our sales and operations in international markets expose us to operational, financial and regulatory risks.

Our business, financial condition and results of operations may be adversely impacted by the effects of inflation.

We generate substantial revenue from a limited number of customers and the loss of any such customer may harm our business, results of operations and financial results.

Our success depends significantly on the establishment and maintenance of successful relationships with our customers.

Third parties may claim we are infringing their intellectual property rights, and we could suffer significant litigation or licensing expenses or be prevented from selling products.

Our ongoing success is dependent upon the continued availability of certain key employees.

Our operating results may be adversely affected by increased competition.

Our facilities located in Austin are susceptible to damage caused by hurricanes or other natural disasters.

If we are unable to anticipate technological advances and customer requirements in the commercial and governmental markets, our business and financial condition may be adversely affected.

We incur substantial upfront, non-reimbursable costs in preparing proposals to bid on contracts or to receive research and development grants that we may not be awarded.

A failure of a key information technology system, process, or site could have a material adverse impact on our ability to conduct business.

Our manufacturing operations are mostly dependent upon third party suppliers, including single source suppliers, making us vulnerable to external factors such as supply shortages and price fluctuations, which could harm our business.

Repair or replacement costs due to warranties we provide on our products could have a material adverse effect on our business, financial condition and results of operations.

Our products and operations are subject to extensive governmental regulation, and failure to comply with applicable requirements could cause our business to suffer.

Failure to obtain clearance or authorization for the BreathTest-1000, or other delays in the development of the BreathTest-1000, would adversely affect our ability to grow our business.

We and our suppliers may not meet regulatory quality standards applicable to our device-manufacturing processes, which could have an adverse effect on our business, financial condition, and results of operations.

If the BreathTest-1000 or any other device candidates are cleared for commercialization in the United States via the 510(k) process, product modifications may require new 510(k) clearances, de novo submissions, or pre‑market approvals, or may require us to cease marketing or recall the modified products until clearances are obtained.

Once our BreathTest-1000 or any other device candidate we may develop in the future, if any, is cleared or approved by FDA for marketing in the United States, if ever, we may be liable if the FDA or other U.S.

enforcement agencies determine we have engaged in the off‑label promotion of such products or have disseminated false or misleading labeling or promotional materials.

Legislative or regulatory healthcare reforms may make it more difficult and costly for us to obtain reimbursement for our products or regulatory clearance or approval of our future products, if any, and to produce, market and distribute those products after clearance or approval is obtained.

Disruptions at FDA and other government agencies, such as those that may be caused by funding shortages, could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved, or commercialized in a timely manner or at all, which could negatively impact our business.

Our financial performance may be adversely affected by medical device tax provisions in healthcare reform laws.

Our AgLAB business’ growth is highly dependent on the U.S.

hemp and cannabis market.

New regulations causing licensing shortages and future regulations may create other limitations that decrease the demand for our products.

General regulations at state and federal in the future may adversely impact our business.

As the possession and use of marijuana is illegal under the CSA, it is possible that our manufacture and sale of equipment that is used to cultivate marijuana or marijuana products may be deemed to be aiding and abetting illegal activities.

We may become subject to FDA or ATF regulation with respect to our AgLab business.

The hemp and cannabis industry could face strong opposition from other industries.

Risks Related to Our Business and Industry

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our ability to achieve projected revenue growth;

the cost of expanding our operations, including production capacity;

the cost of expanding our operations, including manufacturing and production capacity;

our rate of progress in launching and commercializing new products, and the cost of the sales and marketing activities associated with increasing sales of our existing instruments and products;

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Such competition could adversely affect the prices for any products or the market share of any of our business units and could have a material adverse effect on its results of operations and financial condition.

Their parties may claim we are infringing their intellectual property rights, and we could suffer significant litigation or licensing expenses or be prevented from selling products.

Third parties have infringed on our intellectual property rights, and may claim in the future that we are infringing on their intellectual property rights, and we could suffer significant litigation or licensing expenses or be prevented from selling products.

As we introduce any new and potentially promising product or service or improve existing products or services with new features or components, companies possessing competing technologies, or other companies owning patents or other intellectual property rights may be motivated to assert infringement claims in order to generate royalty revenues, delay or diminish potential sales, and challenge our right to market such products or services.

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Under any of the circumstances, we may incur significant expenses.

Around October 2024 we became aware of two third party companies advertising the TRACER 1000 for sale on their respective websites.

Their websites used images of the TRACER 1000 that were copied from the 1st Detect website.

The offering price was far below the price that we would quote to a potential customer, and these companies were not authorized distributors of our products.

We are aware that these companies have confirmed to independent inquiries that they are authorized distributors or resellers of 1st Detect’s products.

We have not granted licenses to these companies to distribute 1st Detect's products.

We engaged legal counsel to investigate the companies.

One company subsequently responded to our investigation’s inquiries that they did not have the product in stock but would order it directly from the manufacturer.

However, the second company confirmed to an anonymous inquiry that they have the product in stock, which we believe is misleading to customers.

In February 2025 demand letters were sent to both companies informing them that they were infringing on the EU registered copyrights of 1st Detect and TRACER 1000 and must remove the misleading information from their websites immediately.

By July 10, 2025, all mentions of TRACER 1000 or 1st Detect and its products had been removed from both companies’ websites.

We have incurred costs with respect to such matters, including in the form of attorneys’ fees and costs.

Other costs incurred, as a result of infringement claims like the ones discussed above, could include damages, fines or other penalties, whether pursuant to a judgment or settlement, and diversion of our management’s attention, which could adversely affect our business, financial condition or operating results.

We may not be able to successfully develop the BreathTest-1000 or any other new products or services.

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the governmental approval process could be lengthy, time consuming and is inherently unpredictable, and we cannot guarantee that the required approvals for our products, including FDA approvals, will be granted on a timely basis or at all or that we will ever have a marketable product;

customers must be persuaded that using our products are effective alternatives to other existing detection methods available for COVID-19 and other infections in order for our products to be commercially successful;

if we fail to comply with applicable FDA regulations, our premarket submissions could be adversely affected, and we could face substantial enforcement actions, including civil and criminal penalties and our business, operations and financial condition could be adversely affected.

customers must be persuaded that using our products are effective alternatives to other existing detection methods available for infections in order for our products to be commercially successful;

Medical-device development involves a high degree of risk and uncertainty, and our potential products may not be successfully developed, achieve their intended benefits, receive full market authorization, or be commercially successful.

Moreover, as the COVID-19 pandemic persists and further information continues to develop, we are learning of increased risks and uncertainties in developing and commercializing new products and services in these unprecedented and evolving circumstances.

Moreover, as the FDA and other U.S.

regulatory agencies undergo changes in leadership and policy initiatives, there are higher than normal uncertainties in developing and commercializing new products and services.

Our sales and operations in international markets expose us to operational, financial and regulatory risks.

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We generate substantial revenue from a limited number of customers and the loss of any such customer may harm our business, results of operations and financial results.

We generate substantial revenue from two customers who are affiliates of each other and neither of which have a long-term contract with us.

We generated substantial revenue from four customers, none of which have a long-term contract with us.

Given such high concentration of revenue on our consolidated results, our revenue may fluctuate significantly year over year based upon sales to either customer.

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If our systems are damaged or cease to function properly due to any number of causes, ranging from the failures of third-party service providers, to catastrophic events, to power outages, to security breaches, and our business continuity plans do not effectively compensate on a timely basis, we may suffer interruptions in our ability to manage operations which may adversely impact our results of operations and/or financial condition.

Our manufacturing operations are dependent upon third party suppliers, including single source suppliers, making us vulnerable to external factors such as supply shortages and price fluctuations, which could harm our business.

We are subject to the risks inherent in the manufacturing of our products, including industrial accidents, environmental events, strikes and other labor disputes, capacity constraints, as well as global shortages, disruptions in supply chain and loss or impairment of key suppliers, as well as natural disasters and other external factors over which we have no control.

Our products contain several critical components, including certain electrical components such as specialized cables and specialized pumps.

Our products contain several critical components, including certain electrical components such as specialized cables and specialized pumps, which are primarily manufactured by third parties.

Some of the suppliers of critical components or materials are single source suppliers.

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We do not have supply agreements with certain suppliers of these critical components and materials beyond purchase orders and, although we maintain a safety stock inventory for certain critical components, forecasted amounts may be inaccurate and we may experience shortages as a result of serious supply problems with these suppliers.

There can be no assurance that our supply of components will not be limited, interrupted, or of satisfactory quality or continue to be available at acceptable prices.

While we also manufacture some of our products in-house to maintain greater control over quality and timeliness of those products, there can be no assurance that our supply of these other components will not be limited, interrupted, or of satisfactory quality or continue to be available at acceptable prices.

In addition, loss of any critical component provided by a single source supplier could require us to change the design of our manufacturing process based on the functions, limitations, features and specifications of the replacement components.

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The process of obtaining a PMA is much costlier, rigorous, and difficult than the 510(k) clearance process and generally takes from one to three years, or longer, from the time the application is submitted to the FDA until an approval is obtained.

The process of obtaining regulatory clearances, approvals, and emergency use authorization to market a medical device can be costly and time‑consuming, and we may not be able to obtain these clearances, approvals, or authorizations on a timely basis, or at all for our proposed products.

The process of obtaining regulatory clearances or approvals to market a medical device can be costly and time‑consuming, and we may not be able to obtain these clearances, approvals, or authorizations on a timely basis, or at all for our proposed products.

Our BreathTest-1000 product candidate may undergo FDA premarket review via the 510(k) process.

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Such government‑adopted reform measures may adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from third‑party payors.

The ability of FDA to review and approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect FDA’s ability to perform routine functions.

Average review times at the agency have fluctuated in recent years as a result.

Disruptions at FDA and other agencies may also increase the time necessary to meet with and provide feedback to entities developing drug products, review and/or approve our submissions, conduct inspections, issue regulatory guidance, or otherwise authorize our actions requiring regulatory approval, which would adversely affect our business.

In addition, government funding of FDA and other government agencies on which our operations may rely, including those that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.

For example, the executive branch recently established the Department of Government Efficiency (“DOGE”), which implemented a federal government hiring freeze and large scale layoffs of current federal employees and also announced additional efforts to reduce federal government employee headcount and the size of the federal government.

It is unclear how these executive actions or other potential actions by the executive branch will impact the regulatory authorities that oversee our business.

These budgetary pressures may reduce FDA’s ability to perform its responsibilities.

If a significant reduction in FDA’s workforce occurs, FDA’s budget is significantly reduced, or there are other disruptions at FDA and other agencies, more time may be necessary for biological products, or biologics, or modifications to approved biologics to be reviewed and/or approved by necessary government agencies, which could increase our costs and would adversely affect our business.

Our financial performance may be adversely affected by medical device tax provisions in healthcare reform laws.

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Changes in U.S.

trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us.

The change in U.S.

presidential administrations may alter the U.S.’s approach to international trade, which may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us and our export compliance as it relates to our international customers.

The recent changes in the U.S.’s approach to international trade may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries.

has imposed tariffs on certain foreign goods and may increase tariffs or impose new ones, and certain foreign governments have retaliated and may continue to do so.

For example, the President of the United States signed executive orders directing the U.S.

to impose tariffs on goods originating from Canada, Mexico and China.

In response, some of these countries threatened or announced tariffs on imports from the U.S.

To date, Canada and the U.S.

agreed to delay the imposition of certain tariffs on imported goods but the situation remains temporary and uncertain.

Furthermore, on July 28, 2025, the U.S.

announced that they have reached a preliminary trade deal with the European Union, which among other things, sets a 15% percent tariff on most European Union goods.

These developments are ongoing and are subject to change, including the imposition of additional tariffs and retaliatory measures by these and other countries.

We derive a significant portion of our revenues from international sales, which makes us especially vulnerable to increased tariffs.

Additionally, the implementation of these or other tariffs may lead to increased costs for our product components, which could impact our ability to maintain competitive pricing in the market.

Changes in U.S.

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Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.

Since early February 2025, The Bureau of Industry and Security (BIS), a part of the U.S.

Commerce Department, has paused the processing of new export license applications, citing a "hold without action" order for applications filed after February 5, 2025.

This pause, reportedly due to an internal policy review and ongoing turmoil at the agency, has left exporters with no clear guidance and is expected to significantly lengthen already long application review times.

No formal statement or explanation has been issued by BIS or the Commerce Department to the public or industry stakeholders.

Such policies and actions could effect our ability to export our products and could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.

Risks Related to Ownership of Our Common Stock

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Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future.

On November 9, 2023, the intra-day sales price of our common stock fluctuated between a reported low sale price of $7.86 and a reported high sales price of $9.16.

On September 9, 2024, the intra-day sales price of our common stock fluctuated between a reported low sale price of $8.01 and a reported high sales price of $10.69.

Throughout the fiscal year 2025, the closing sales price of our common stock has fluctuated between a reported low sales price of $5.50 and a reported high sales price of $11.51.

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General Risk Factors

We face various risks related to health epidemics, pandemics and similar outbreaks, which may have material adverse effects on our business, financial position, results of operations, and/or cash flows.

We face various risks related to health epidemics, pandemics, and similar outbreaks, including the global outbreak of COVID-19 and its multiple variants.

The COVID-19 pandemic had numerous negative consequences for our business, including a reduction in demand for certain of our security screening products and services caused by a significant reduction in airline passenger traffic.

To slow and limit the transmission of COVID-19, governments across the world imposed air travel restrictions and businesses and individuals canceled air travel plans.

These restrictions and cancelations reduced demand for security screening products and related services at airport checkpoints globally as the number of airline passengers requiring screening fell.

The pandemic also hampered our ability to meet with our customers and prospective customers and created supply chain challenges as certain components had longer lead times.

The continued spread of COVID-19 and COVID variants also led to disruption and volatility in the global capital markets, which increased the cost of capital and adversely impacted access to capital.

While such negative impacts to our business have subsided to some degree, there is risk that new strains of COVID-19 may become more prevalent and cause an extension of or additional negative consequences.

In addition, if significant portions of our workforce are unable to work effectively, including because of illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic, our operations will likely be impacted.

We may be unable to perform fully on our contracts and our costs may increase as a result of the COVID-19 outbreak.

These costs may not be recoverable or adequately covered by insurance.

It is possible that the continued spread of COVID-19 and COVID variants could also further cause delay, or limit the ability of customers to perform, including in making timely payments to us;

cause delay in regulatory certification testing of our instruments;

and cause other unpredictable events.

If any of our supply chain phases were interrupted or terminated, we could experience delays in our product development including the availability of products for clinical testing.

The occurrence of one or more of these items could have a material adverse effect on our business, liquidity, financial condition, and/or results of operations.

The effects of the COVID-19 pandemic may negatively impact productivity, disrupt our business and delay our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course.

These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition.

In addition, any future clinical trials may be affected by the COVID-19 pandemic.

Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic.

Also, some patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services.

Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations.

Increased cybersecurity requirements, vulnerabilities, threats, and more sophisticated and targeted computer crime could pose a risk to our systems, networks, products, services, and data.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors