What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-14 compared with 2021-02-16 · 75 added, 53 removed, 126 unchanged (50% of the section changed)

19 unchanged sentences

ATI currently licenses the AMS Technology to three wholly-owned subsidiaries of Astrotech, 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.

On March 24, 2021, ATI signed a Letter of Agreement (the “LOA”) effective as of March 24, 2021 by and among ATI and Sanmina Corporation (“Sanmina”).

Under the LOA, 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.

1 st Detect Corporation

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With similar protocols as ECAC testing, we have 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.

Following ECAC certification and our 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;

h owever, cargo non-detection testing resumed this summer, and we 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 resumed this fall and continues to move forward.

however, cargo non-detection testing resumed 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.

TSA cargo detection testing resumed during the fall of 2020 and continues to move forward.

This is the next and final step to be listed on the Air Cargo Screening Technology List (“ACSTL”) as an “approved” device and, if approved, thereby approved for cargo sales in the United States.

Given the deterioration in air traffic caused by the pandemic, TSA certification testing for passenger checkpoint security has been put on indefinite hold.

Given the deterioration in air traffic caused by the pandemic, TSA certification testing for passenger checkpoint security was put on indefinite hold.

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.

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

On October 20, 2020, we announced a joint development agreement with the Cleveland Clinic Foundation to explore leveraging the BreathTest-1000 to rapidly screen for COVID-19 or related indicators.

On October 20, 2020, we announced a joint development agreement with the Cleveland Clinic Foundation (the “Cleveland Clinic”) to explore leveraging the BreathTest-1000 to rapidly screen for COVID-19 or related indicators.

The goal of the agreement 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 31, 2021, BreathTech signed an Investigator-Initiated Study Agreement (the “Study Agreement”) with the Cleveland Clinic.

Pursuant to the Study Agreement, the 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 study will be to analyze different volatile organic compounds from the breath to determine the correlation with different disease states.

Trends and Uncertainties - COVID-19

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Results of Operations

Three months ended December 31, 2020, compared to three months ended December 31, 2019 :

Selected consolidated financial data for the quarters ended December 31, 2020, and 2019 is as follows:

Three Months Ended December 31,

Three months ended March 31, 2021, compared to three months ended March 31, 2020 :

Selected consolidated financial data for the quarters ended March 31, 2021, and 2020 is as follows:

Three Months Ended March 31,

(In thousands)

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Income tax benefit

Revenue – Total revenue decreased $75 thousand during the second quarter of fiscal 2021, compared to the second quarter of fiscal 2020.

The decrease was due to the timing of orders.

All of the revenue generated in the second quarters of fiscal 2021 and 2020 was from the sales of our TRACER 1000 .

Revenue – Total revenue decreased $64 thousand during the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020.

All of the revenue generated in the third quarters of fiscal 2021 and 2020 was related to the sales of our TRACER 1000 .

The decrease in revenue was caused by pandemic-related delays in the delivery of certain microchips used in the production of our TRACER 1000 systems.

This supply chain issue has since been resolved.

Cost of Revenue – Gross profit is comprised of revenue less cost of revenue.

In the second quarters of fiscal 2021 and 2020, cost of revenue was comprised of labor, materials, shipping, warranty reserve, and overhead related to the sale of TRACER 1000 units.

Gross margin was in the single digits as we have low volume production and certain costs related to refining our product for the cargo environment.

Gross margin should improve as we increase production and benefit from associated volume discounts, and as we further enhance our technology for the cargo environment.

Gross margin remained consistent in the second quarter fiscal 2021, compared to the second quarter of fiscal 2020.

Operating Expenses – Operating expenses decreased $488 thousand, or 24%, during the second quarter of fiscal 2021 , compared to the second quarter of fiscal 2020.

In the third quarters of fiscal 2021 and 2020, cost of revenue was comprised of labor, materials, shipping, warranty reserve, and overhead related to the sale of TRACER 1000 units.

Gross margin increased to 15% in the third quarter fiscal 2021, compared to the third quarter of fiscal 2020.

We expect that gross margin will continue to improve as we increase production and benefit from associated volume discounts, and as we further refine our technology.

Operating Expenses – Operating expenses increased $341 thousand, or 17%, during the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020 .

Significant changes to operating expenses include the following:

Selling, general and administrative decreased $307 thousand, or 28%, due to a decrease in office rent and related expenses associated with the former corporate office.

Selling, general and administrative increased $486 thousand, or 41%, due to payroll related expenses.

The increase in operating expense was p artially offset by a decrease in office rent and related expenses associated with the former corporate office.

In addition, due to COVID-19, our expenses related to travel and conferences also declined.

Finally, we also had a decline in compensation and related expenses due to a reduction in headcount.

Research and development decreased $181 thousand, or 19%, during the second quarter of fiscal 2021 , compared to the second quarter of fiscal 2020.

This decrease is mainly due to decreases in compensation and related expenses as well as less materials purchased for R&D purposes as development of the core AMS Technology is largely complete.

Income Taxes – Income tax benefit did not change during the second quarter of fiscal 2021, compared to the second quarter of fiscal 2020.

Research and development decreased $145 thousand, or 18%, during the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020 .

This decrease is mainly due to a decrease in headcount as we continue to shift our focus from research and development and toward commercialization of our products.

Income Taxes – Income tax benefit did not change during the third quarter of fiscal 2021, compared to the third quarter of fiscal 2020.

The realization of tax benefits depends on the existence of future taxable income.

Pursuant to ASC 740 “Income Taxes”, a valuation allowance has been established on all of the Company’s deferred tax assets.

Six months ended December 31, 2020, compared to six months ended December 31, 2019 :

Selected consolidated financial data for the six months ended December 31, 2020, and 2019 is as follows:

Six Months Ended

Nine months ended March 31, 2021, compared to nine months ended March 31, 2020 :

Selected consolidated financial data for the nine months ended March 31, 2021, and 2020 is as follows:

Nine Months Ended

(In thousands)

8 unchanged sentences

Income tax benefit

Revenue – Total revenue increased $64 thousand during the six months ended December 31, 2020, compared to the six months ended December 31, 2019.

All of the material revenue generated during each of the six months ended December 31, 2020 and 2019 was from the sales of our TRACER 1000 units.

Revenue – Total revenue remained unchanged during the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020.

All of the material revenue generated during each of the nine months ended March 31, 2021 and 2020 was from the sales of our TRACER 1000 units.

Cost of Revenue – Gross profit is comprised of revenue less cost of revenue.

During each of the six months ended December 31, 2020 and 2019, cost of revenue was comprised of labor, materials, overhead, warranty reserve, and shipping related to the above sales.

Gross margin increased to 11% during the six months ended December 31, 2020, compared to the six months ended December 31, 2019, as the margin in the prior period was driven by the FIFO inventory methodology where much of the inventory used to build the TRACER 1000 had R&D volume pricing.

Operating Expenses – Operating expenses decreased $466 thousand, or 11%, during the six months ended December 31, 2020, compared to the six months ended December 31, 2019.

During each of the nine months ended March 31, 2021 and 2020, cost of revenue was comprised of labor, materials, overhead, warranty reserve, and shipping related to the above sales.

Gross margin increased to 11% during the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020, as the margin in the prior period was driven by the FIFO inventory methodology where much of the inventory used to build the TRACER 1000 had R&D volume pricing.

We expect that gross margin will continue to improve as we increase production and benefit from associated volume discounts, and as we further refine our technology.

Operating Expenses – Operating expenses decreased $125 thousand, or 2%, during the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020.

Significant changes to operating expenses include the following:

Selling, general and administrative decreased $583 thousand, or 25%, due to decreases in office rent and related expenses associated with the former corporate office.

Selling, general and administrative decreased $97 thousand, or 3%, due to a decrease in office rent and related expenses associated with the former corporate office.

In addition, due to COVID-19, our expenses related to travel and conferences also declined.

Finally, we also had a decrease in compensation and related expenses due to a reduction in headcount.

Research and development decreased $427 thousand, or 24%, mainly due to decreases in compensation and related expenses as well as less materials purchased for R&D purposes as development of the core AMS Technology is largely complete.

This decrease was p artially offset by an increase in payroll related expenses.

Research and development decreased $572 thousand, or 22%.

This decrease is mainly due to a decrease in headcount as we continue to shift our focus from research and development and toward commercialization of our product.

Disposal of long-lived assets increased $544 thousand due to our termination of our corporate office lease and the disposal of the leasehold improvement assets and right-of-use assets and lease liabilities associated with that lease.

As a result of this termination, our net cash savings will be approximately $870 thousand over the next three years.

Income Taxes – Income tax benefit did not change during the six months ended December 31, 2020, compared to the six months ended December 31, 2019.

As a result of this termination, our net cash savings over the remainder of the lease was estimated to be approximately $870 thousand.

Income Taxes – Income tax benefit did not change during the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020.

The realization of tax benefits depends on the existence of future taxable income.

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The following is a summary of the change in our cash and cash equivalents:

Six Months Ended

Nine Months Ended

(In thousands)

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Cash and Cash Equivalents

As of December 31, 2020, we held cash and cash equivalents and restricted cash of $22.7 million, and our working capital was approximately $18.8 million.

As of March 31, 2021, we held cash and cash equivalents and restricted cash of $32.0 million, and our working capital was approximately $28.3 million.

As of June 30, 2020, we had cash and cash equivalents of $3.3 million, and our working capital was approximately $0.3 million.

Cash and cash equivalents increased $19.3 million as of December 31, 2020, compared to June 30, 2020, due to public offerings of common stock with net proceeds of approximately $21.8 million, partially offset by funding our normal operating activities and research and development initiatives.

Cash and cash equivalents increased $28.7 million as of March 31, 2021, compared to June 30, 2020, due to public offerings of our common stock with net proceeds of approximately $33.5 million, partially offset by funding our normal operating activities and research and development initiatives.

Operating Activities

Cash used in operating activities decreased $0.9 million for the six months ended December 31, 2020, compared to the six months ended December 31, 2019, primarily due to a reduction in our expenses as well as a decrease in accounts receivable from receiving the remaining alternative minimum tax (“AMT”) credit.

Cash used in operating activities decreased $0.1 million for the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020, primarily due to a reduction in our expenses as well as a decrease in accounts receivable from receiving the remaining alternative minimum tax (“AMT”) credit, partially offset by an increase in accrued liabilities related to payroll expenses.

Investing Activities

Cash used in investing activities increased $16 thousand for the six months ended December 31, 2020, compared to the six months ended December 31, 2019, due to purchases of equipment.

Cash used in investing activities increased $24 thousand for the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020, due to purchases of equipment.

Financing Activities

Cash provided by financing activities increased $19.1 million for the six months ended December 31, 2020, compared to the six months ended December 31, 2019, due to the net proceeds from sale of common stock of $21.8 million in the current period, compared to a note payable from a related party as well as the sale of shares of common stock through an “at the market offering” program in the prior period .

Cash provided by financing activities increased $25.4 million for the nine months ended March 31, 2021, compared to the nine months ended March 31, 2020.

During the nine months ended March 31, 2021, we raised net proceeds from sale of common stock of approximately $33.5 million.

By comparison, during the nine months ended March 31, 2020, we raised funding through a note payable from a related party for net proceeds of $2.5 million, the sale of shares of common stock through an “at the market offering” program for net proceeds of approximately $1.2 million, and the sale of shares of common stock in two separate registered direct offerings for net proceeds of approximately $4.5 million .

Our annual report on Form 10-K for the fiscal year ended June 30, 2020 indicated substantial doubt as to our ability to continue as a going concern.

On October 23, 2020, we completed a public offering of our common stock, raising gross proceeds of $18.0 million, and on October 30, 2020, we also completed a registered direct offering of our common stock, raising gross proceeds of $6.2 million.

During the first three quarters of fiscal 2021, we have successfully completed several public offerings of our common stock, raising net proceeds of approximately $33.5 million.

We believe this solves our liquidity issue, and we no longer have substantial doubt about our ability to continue as a going concern.

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Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are more likely than not to be realized.

As of December 31, 2020, the Company established a valuation allowance against all of its net deferred tax assets.

For the three months ended December 31, 2020 and 2019, the Company incurred pre-tax losses in the amount of $1.6 million and $2.1 million, respectively.

For the six months ended December 31, 2020 and 2019, the Company incurred pre-tax losses in the amount of $3.7 million and $4.2 million, respectively.

The total effective tax rate was approximately 0% for the each of the three and six months ended December 31, 2020 and 2019.

For each of the six months ended December 31, 2020 and 2019, the Company’s effective tax rate differed from the federal statutory rate of 21%, primarily due to the valuation allowance placed against its net deferred tax assets.

As of March 31, 2021, the Company established a valuation allowance against all of its net deferred tax assets.

For the three months ended March 31, 2021 and 2020, the Company incurred pre-tax losses in the amount of $2.4 million and $2.1 million, respectively.

For the nine months ended March 31, 2021 and 2020, the Company incurred pre-tax losses in the amount of $6.1 million and $6.2 million, respectively.

The CARES Act was signed into law on March 27, 2020.

The CARES Act provided certain tax relief measures including the acceleration of the AMT credit previously paid.

The CARES Act allows for the acceleration of the refundable AMT credit up to

100 % of the AMT credit.

The CARES Act allows for the acceleration of the refundable AMT credit up to 100% of the AMT credit.

In response to the impact of the CARES Act, the Company received the remaining AMT credit of $429 thousand for AMT previously paid during the three months ended September 30, 2020.

FASB ASC 740, “Income Taxes” addresses the accounting for uncertainty in income tax recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken or expected to be taken on a tax return.

The Company had no unrecognized tax benefit for the three and six months ended December 31, 2020 or 2019.

Loss carryovers are generally subject to modification by tax authorities until three years after they have been utilized;

as such, the Company is subject to examination for the fiscal years ended 2001 through present for federal purposes and fiscal years ended 2006 through present for state purposes.

Provision for Income Tax

The Company’s effective tax rate is 0% for income tax for the nine months ended March 31, 2021 and the Company expects that its effective tax rate for the full fiscal year 2021 year will be 0%.

Based on the weight of available evidence, including cumulative losses since inception and expected future losses, the Company has determined that it is more likely than not that its U.S.

federal and state deferred tax assets will not be realized and therefore a full valuation allowance has been provided on the U.S.

federal and state net deferred tax assets.

In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change net operating loss (“NOL”) carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code.

Generally, U.S.

state laws have laws similar to Internal Revenue Code Section 382.

The annual limitation generally is determined by multiplying the value of the Company’s stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate.

Such limitations may result in expiration of a portion of the NOL carryforward before utilization.

The Company files U.S.

federal and state income tax returns.

The Company is not currently subject to any income tax examinations.

Since the Company’s inception, the Company had incurred losses from its U.S.

operations, which generally allows all tax years to remain open to income tax examinations for all years for which there are loss carryforwards.

Uncertain Tax Positions

The Company recognizes the financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination.

The Company currently has no unrecognized tax benefits and does not expect any material changes in the next 12 months in unrecognized tax benefits.

There is $0 provision for income taxes during the three and nine months ended March 31, 2021.

There was $0 provision for income taxes during the three and nine months ended March 31, 2020.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31, 2020, or June 30, 2020.

We did not have any off-balance sheet arrangements as of March 31, 2021, or June 30, 2020.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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-Q

Item 2. Management’s Discussion and Analysis