What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-09-21 compared with 2020-09-08 · 146 added, 144 removed, 193 unchanged (60% of the section changed)

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Astrotech Corporation (Nasdaq:

ASTC) (“Astrotech,” the “Company,” “we,” “us,” or “our”), a Delaware corporation organized in 1984, is a science and technology development and commercialization company that launches, manages, and builds scalable companies based on innovative technology in order to maximize shareholder value.

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

Astrotech Technology, Inc.

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:

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, secured facilities, and borders worldwide.

1 st Detect holds an exclusive AMS Technology license from ATI for airport security applications.

(“AgLAB”) is developing a series of mass spectrometers for use in the agriculture market for process control and the detection of trace amounts of solvents and pesticides.

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 spectrometer s for use in the hemp and cannabis market with initial focus on optimizing yields in the extraction and distillation process .

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

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Our Business Units

Astrotech Technology, Inc.

Astrotech Technologies, Inc.

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

The intellectual property includes 37 granted patents and five additional patents in process along with extensive trade secrets.

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.

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, 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 inbreath 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 inbreath analysis.

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 facilities, 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 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 unnecessary delays, frustration, and significant wasted security resources.

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 easily expandable threat library.

With terrorist threats becoming more numerous, sophisticated, and lethal, security professionals have been looking for better instrumentation, and specifically for mass spectrometry, to address the evolving threats, but mass spectrometry has long been too expensive, too cumbersome, and not practical for security applications until the launch of the TRACER 1000.

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.

After receiving ECAC certification for the TRACER 1000 on February 21, 2019, we are now marketing to and taking orders from airports and cargo facilities outside of the U.S.

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.

On June 26, 2019, the Company announced the official launch of the TRACER 1000, and on November 22, 2019, we announced our first commercial sale of TRACER 1000 units to a global shipping and logistics company.

In the United States, we are working with both TSA and TSA Air Cargo towards 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 Innovat ion Task Force (“ITF”) to conduct live screening at Miami International Airport.

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 both passenger checkpoint and cargo security continued with the TSA, but emphasis was placed on obtaining cargo security approval.

In the United States, the Company is working with the U.S Transportation Security Administration (“TSA”) towards air cargo certification.

On March 27, 2018, the Company announced that the TRACER 1000 was accepted into TSA’s Air Cargo Screening Technology Qualification Test (“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 non-detection testing resumed this summer and cargo detection testing is expected to resume this fall.

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

AgLAB is a licensee of ATI and has developed the AgLAB-1000™ series of mass spectrometers for use in the agriculture industry for both process control and in the detection of trace levels of solvents and pesticides.

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.

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.

The AgLAB product line is a derivative of the Company’s 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.

These attributes are valuable for agriculture applications in both processing facilities and in the field.

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.

Development of the BreathTest-1000 follows the Company’s positive results in pre-clinical trials for the BreathDetect-1000™, a rapid self-serve breathalyzer that detects bacterial infections in the respiratory tract, including 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 aid in the further spread of the disease.

Development of the BreathTest-1000 follows the Company’s 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.

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

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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 highly uncertain and difficult to predict, as 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 is possible that it could cause a prolonged global economic recession.

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 remain uncertain.

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, operational fees throughout Europe largely come from airline ticket fees, and with a reduction in air travel caused by the pandemic, we are seeing a reduction in demand for ETDs at checkpoints.

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 vaccine.

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

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and cause other unpredictable events.

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

Coronavirus Aid, Relief and Economic Security Act (“CARES”)

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

Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

On March 27, 2020, the United States government enacted the CARES Act.

The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effect of COVID-19.

While the CARES Act provides sweeping tax changes in response to the COVID-19 pandemic, some of the more significant provisions which are expected to impact the Company’s financial statements include removal of certain limitations on utilization of net operating losses and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

Due to the recent enactment of the CARES Act, the Company is unable to fully quantify the impact, if any, that the CARES Act will have on its financial position, results of operations or cash flows.

While the CARES Act provides sweeping tax changes in response to the COVID-19

pandemic, some of the more significant provisions which impacted the Company’s financial statements included removal of certain limitations on utilization of net operating losses and increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

The Company also qualified for certain relief measures such as the Paycheck Protection Program Promissory Note and Agreement (the “PPP Promissory Note”) , alternative minimum tax credit refunds, employee retention credit, and payroll tax deferral.

Critical Accounting Policies

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Revenue Recognition

Astrotech recognizes revenue employing the generally accepted revenue recognition methodologies described under the provisions of Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“Topic 606”), which was adopted by the Company in fiscal year 2019.

The methodology used is based on contract type and how products and services are provided.

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This necessitates deferral of all or a portion of revenue recognition until collection.

During the fiscal year ended June 30, 2020, the Company had one material revenue source that comprised substantially all of our $488 thousand of revenue.

During the fiscal year ended June 30, 2019, the Company recognized revenue from two customers for a total of $127 thousand.

Revenue was recognized at a point in time consistent with the guidelines in Topic 606 during both fiscal 2020 and 2019.

We disaggregate revenue by reporting segment (1st Detect, Astral, AgLAB) to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings.

Refer to Note 15 for additional details of revenues by reporting segment.

During the fiscal year ended June 30, 2021, we had two material revenue sources that comprised substantially all of our $334 thousand in revenue.

During the fiscal year ended June 30, 2020, we recognized revenue from one material customer for a total of $488 thousand.

We disaggregate revenue by reporting segment to depict the nature of revenue in a manner consistent with our business operations and to be consistent with other communications and public filings.

Refer to Note 15 to the consolidated financial statements for additional details of revenues by reporting segment.

Contract Assets and Liabilities.

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We record customer deposits as deferred revenue.

Additionally, we may receive payments, most typically for

service and warranty contracts, at the onset of the contract and before services have been performed.

Additionally, we may receive payments, most typically for service and warranty contracts, at the onset of the contract and before services have been performed.

In such instances, we record a deferred revenue liability.

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In cases where we are responsible for shipping after the customer has obtained control of the goods, we have elected to treat the shipping activities as fulfillment activities rather than as a separate performance obligation.

Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than one year.

Additionally, we have elected to capitalize the cost to obtain a contract only if the period of amortization would be longer than

We only give consideration to whether a customer agreement has a financing component if the period of time between transfer of goods and services and customer payment is greater than one year.

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We generally offer customers payment terms of less than one year.

We record shipping and handling fees that we charge to our customers as revenue and related costs as cost of goods sold.

We record shipping and handling fees that we charge to our customers as revenue and related costs as cost of revenue.

Multiple Performance Obligations.

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Our international operations are subject to certain opportunities and risks, including from foreign currency fluctuations and governmental actions.

During fiscal year 2020, we conducted business in seven countries.

During fiscal year 2021, we conducted business in ten countries.

We closely monitor our operations in each country in which we do business and seek to adopt appropriate strategies that are responsive to changing economic and political environments.

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Revenues, costs, and expenses are translated at the applicable rate on the date of the transaction.

Translation gains and losses, if any, are calculated on accounts receivable or accounts payable outstanding at the rate applicable the end of the period.

Translation gains and losses, if any, are calculated on accounts receivable or accounts payable outstanding at the rate applicable at the end of the period.

We include gains and losses resulting from foreign currency transactions in income, while we exclude those resulting from translation of financial statements from income and include them as a component of accumulated other comprehensive loss when applicable.

Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a loss of approximately $10 thousand and $0 thousand for the fiscal years ended June 30, 2020 and 2019, respectively.

Transaction gains and losses, which were included in our consolidated statement of operations, amounted to a gain of approximately $3 thousand for the fiscal year ended June 30, 2021 and a loss of approximately $10 thousand for the fiscal year ended June 30, 2020.

Warranty Provision

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These warranties typically provide for repairs and maintenance of the products if problems arise during a specified time period after original shipment.

Concurrent with the sale of products, the Company records a provision for estimated warranty expenses with a corresponding increase in cost of goods sold.

The Company periodically adjusts this provision based on historical experience and anticipated expenses.

The Company charges actual expenses of repairs under warranty, including parts and labor, to this provision when incurred.

Concurrent with the sale of products, we record a provision for estimated warranty expenses with a corresponding increase in cost of goods sold.

We periodically adjust this provision based on historical experience and anticipated expenses.

We charge actual expenses of repairs under warranty, including parts and labor, to this provision when incurred.

The current obligation for warranty provision is included in accrued expenses and other liabilities in the consolidated balance sheets, whose activity for each of the two fiscal years ended June 30, 2021 and 2020 is summarized in the following table:

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Research and development costs are expensed as incurred.

Research and development costs are used to improve system functionality, streamline and simplify the user experience, and extend our capabilities into customer-defined, application-specific opportunities.

Research and development expenses for the fiscal years ended June 30, 2021 and 2020 were $2.7 million and $3.4 million, respectively.

The reason for this decrease was reduced compensation and related expenses.

This decrease was primarily attributable to a reduction in compensation and related expenses.

Net Loss per Common Share

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Cash and Cash Equivalents

The Company considers short-term investments with original maturities of three months or less to be cash equivalents.

We consider short-term investments with original maturities of three months or less to be cash equivalents.

Cash equivalents are comprised primarily of operating cash accounts, money market investments, and certificates of deposit.

Accounts Receivable

The carrying value of the Company’s accounts receivable, net of an allowance for doubtful accounts, represents their estimated net realizable value.

The carrying value of our accounts receivable, net of an allowance for doubtful accounts, represents their estimated net realizable value.

Astrotech estimates an allowance for doubtful accounts based on type of customer, age of outstanding receivable, historical collection trends, and existing economic conditions.

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Receivable balances deemed uncollectible are written off against the allowance.

The Company anticipates collecting all unreserved receivables within one year.

We anticipate collecting all unreserved receivables within one year.

As of June 30, 2021 and 2020, there was no allowance for doubtful accounts deemed necessary.

The Company computes inventory cost on a first-in, first-out basis, and inventory is valued at the lower-of-cost or net realizable value.

The valuation of inventory also requires the Company to estimate obsolete and excess inventory as well as inventory that is not of saleable quality.

Property and Equipment.

Property and equipment are stated at cost.

We compute inventory cost on a first-in, first-out basis, and inventory is valued at the lower-of-cost or net realizable value.

The valuation of inventory also requires us to estimate obsolete and excess inventory as well as inventory that is not of saleable quality.

Property and Equipment, net

Property and equipment are stated at cost, net of depreciation and amortization.

All furniture, fixtures, and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which is generally five years.

Purchased software is typically

depreciated over three years.

Leasehold improvements are amortized over the shorter of the useful life of the impr ovement or the term of the lease.

Purchased software is typically depreciated over three years.

Leasehold improvements are amortized over the shorter of the useful life of the improvement or the term of the lease.

Repairs and maintenance are expensed when incurred.

Impairment of Long-Lived Assets

The Company continuously evaluates its long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable.

We continuously evaluate our long-lived assets for impairment to assess whether the carrying amount of an asset may not be recoverable.

Our evaluation is based on an assessment of potential indicators of impairment, such as an adverse change in the business climate that could affect the value of an asset, current or forecasted operating or cash flow losses that demonstrate continuing losses associated with the use of an asset, and a current expectation that, more likely than not, an asset will be disposed of before the end of its previously estimated useful life.

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Recoverability of long-lived assets is dependent on a number of conditions, including uncertainty about future events and demand for our services.

There was no impairment of long-lived assets recognized during the years ended June 30, 2020 or 2019.

Due to the termination of our corporate office lease in August 2021, we recorded an impairment of long-lived assets of $173 thousand for the fiscal year ended June 30, 2021, which is included in disposal of corporate lease in the accompanying consolidated statements of operations and comprehensive loss.

There was no impairment of long-lived assets recognized during the fiscal year ended June 30, 2020.

Fair Value of Financial Instruments

Astrotech’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities.

The Company’s management believes the carrying amounts of these assets and liabilities approximates their fair value.

For more information about the Company’s accounting policies surrounding fair value investments, see Note 6 to the consolidated financial statements.

Astrotech’s financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, accounts payable, and accrued liabilities.

Our management believes the carrying amounts of these assets and liabilities approximates their fair value.

For more information about our accounting policies surrounding fair value investments, see Note 6 to the consolidated financial statements.

Available-for-Sale Investments

Investments that are designated as available-for-sale are reported at fair value, with unrealized gains and losses recorded in accumulated other comprehensive loss.

We determine the cost of investments sold based on a first-in, first-out cost basis at the individual security level.

We also consider specific adverse conditions related to the financial health of, and the business outlook for, the investee, which may include industry and sector performance, changes in technology, operational and financing cash flow factors, and changes in the investee’s credit rating.

We record other than temporary impairments on marketable equity securities and marketable equity method investments in gains (losses) on equity investments, net of previously recorded gains (losses).

For more information on investments, see Note 3 to the consolidated financial statements.

Operating Leases

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Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.

Variable lease payments are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance costs for our facility lease;

and are expensed when incurred.

Variable lease payments are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance costs for our facility lease, and are expensed when incurred.

Financing leases, formerly referred to as capitalized leases, are treated similarly to operating leases except that the asset subject to the lease is included in the appropriate fixed asset category, rather than recorded as a right-of-use asset, and depreciated over its estimated useful life, or lease term, if shorter.

For more information on Leases, see Note 4 to the consolidated financial statements.

Stock-Based Compensation

The Company accounts for stock-based awards to employees based on the fair value of the award on the grant date.

The fair value of stock options is estimated using the expected dividend yields of the Company’s stock, the expected volatility of the stock, the expected length of time the options remain outstanding, and the risk-free interest rates.

Changes in one or more of

these factors may significantly affect the estimated fair value of the stock options.

The Company recognizes forfeitures as they occur.

The fair value of awards that a re likely to meet goals, if any, are recorded as an expense over the vesting period .

For more information on share-based compensation, s ee Note 10 to the consolidated financial statements.

The Company accounts for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income.

We account for stock-based awards to employees based on the fair value of the award on the grant date.

The fair value of stock options is estimated using the expected dividend yields of our stock, the expected volatility of the stock, the expected length of time the options remain outstanding, and the risk-free interest rates.

Changes in one or more of these factors may significantly affect the estimated fair value of the stock options.

We recognize forfeitures as they occur.

The fair value of awards that are likely to meet goals, if any, are recorded as an expense over the vesting period.

For more information on share-based compensation, see Note 9 to the consolidated financial statements.

We account for income taxes under the liability method, whereby deferred tax asset or liability account balances are determined based on the difference between the financial statement and the tax bases of assets and liabilities using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

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Preferred Stock

The Company has issued Series C and Series D convertible preferred stock.

Both Series C and Series D Preferred Shares are convertible to common stock on a one-to-one basis.

The Preferred C and Preferred D are not callable by the Company.

The holders of the preferred stock are entitled to receive, and the Company shall pay, dividends on shares equal to and in the same form as dividends actually paid on shares of the common stock when, and if, such dividends are paid on shares of common stock.

We have issued Series D convertible preferred stock.

Series D Preferred Shares are convertible to common stock on a one-to-one basis.

The Preferred D are not callable by the Company.

The holders of the preferred stock are entitled to receive, and we shall pay, dividends on shares equal to and in the same form as dividends actually paid on shares of the common stock when, and if, such dividends are paid on shares of common stock.

No other dividends are paid on the preferred shares.

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Upon liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary, the preferred shares have preference over common stock.

The holder of the Series C Preferred Shares converted said shares to common stock during the fourth quarter of fiscal year 2020.

The holder of Series D Preferred Shares has the option to convert said shares to common stock at the holder’s discretion.

The holders of the preferred stock have agreed with the Company that they will not convert the preferred stock until such time as the 2021 Certificate Amendment is accepted for filing with the state of Delaware.

Treasury Stock

The Company records treasury stock at the cost to acquire it and includes treasury stock as a component of stockholders’ equity.

During fiscal year 2021, we sold all treasury stock held by the Company.

Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019 - 12 , “ Simplifying the Accounting for Income Taxes ” (“ASU 2019-12”), which removes certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP.

2019-12 is effective for fiscal years beginning after December 15, 2020 (for Astrotech, the fiscal year ending June 30, 2022), and interim periods within those fiscal years.

ASU 2019-12 is not expected to have a material impact on our financial statements.

In May 2021, the FASB issued ASU 2021-04, "Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)" (“ASU 2021-04”), which provides authoritative guidance for the accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

ASU 2021-04 provides that for an entity that presents earnings per share in accordance with Topic 260, the effects of a modification or an exchange of a freestanding equity-classified written call option that is recognized as a dividend should be an adjustment to net income (or net loss) in the basic earnings per share calculation.

The amended guidance becomes mandatorily effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, and should be applied prospectively to modifications or exchanges occurring on or after the effective date.

While we do not expect the adoption of ASU 2021-04 to materially impact our consolidated financial statements and related disclosures because we do not currently anticipate modifications to our outstanding equity-classified written call options, the impact on our consolidated financial statements and disclosures will depend on the facts and circumstances of any specific future transactions.

Results of Operations for the Years Ended June 30, 2021 and 2020

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Research and development

Disposal of corporate lease

Total operating expenses

Interest and other (expense) income, net

Interest and other (expense), net

Gain from extinguishment of debt - PPP loan

Income tax benefit

Revenue – Total revenue increased by $361 thousand, or 284% , to $488 thousand for the fiscal year ended June 30, 2020, compared to $127 thousand for the fiscal year ended June 30, 2019.

Substantially all of the fiscal year 2020 revenue was from the sales of our TRACER 1000 units to a global shipping and logistics company.

Of the fiscal year 2019 revenue, $87 thousand was from a sale of our TRACER 1000 units to an international distributor of innovative technologies and $40 thousand was associated with the Company’s now-discontinued agreement with a former customer, ColorTime, a post-production house specializing in media content creation, restoration, and distribution .

Cost of Revenue and Gross Profit – Cost of revenue is comprised of labor, materials, depreciation, travel, shipping, and overhead.

Net unrealized losses, net of zero tax expense

Total comprehensive loss

Revenue – Total revenue decreased by $154 thousand, or 32% , to $334 thousand for the fiscal year ended June 30, 2021, compared to $488 thousand for the fiscal year ended June 30, 2020.

Substantially all of the fiscal year 2021 and 2020 revenue was from the sales of our TRACER 1000 units to DHL (Deutsche Post AG) .

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.

Even though production has resumed, we continue to see impacts to the supply chain from the microchip shortages.

Cost of Revenue and Gross Profit – Cost of revenue is comprised of labor, materials, shipping, warranty reserve, and overhead allocation.

Gross profit is comprised of revenue less cost of revenue.

Cost of revenue increased $359 thousand, or 399%,

for the fiscal year ended June 30, 2020 , compared to the year ended June 30, 2019 .

Gross profit increased $2 thousand and gross margin decrease d 21% during the fiscal year ended June 30, 2020 , compared to the year ended June 30, 2019 .

This decrease in margin was driven by the first-in-first-out (“FIFO”) inventory methodology where much of the inventory used to build the TRACER 1000 had R&D volume pricing.

As we receive more purchase orders for the TRACER 1000, we expect the cost of materials to decline as we recognize the benefits of scale.

Cost of revenue decreased $151 thousand, or 34%, for the fiscal year ended June 30, 2021, compared to the year ended June 30, 2020.

Gross profit decreased $3 thousand and gross margin increased 3% during the fiscal year ended June 30, 2021, compared to the year ended June 30, 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 – Our operating expenses decreased $207 thousand, or 3%, during the fiscal year ended June 30, 2021, compared to the fiscal year ended June 30, 2020.

Significant changes to operating expenses include the following:

Selling, General and Administrative Expenses – As a result of management’s ongoing commitment to optimizing our available resources, our selling, general and administrative expenses decreased $160 thousand, or 3%, for the year ended June 30, 2020, compared to the year ended June 30, 2019.

This reduction was driven by decreases in compensation and related expenses, consulting, travel, and audit fees, partially offset by increases in legal expenses as well as facilities expenses due to the adoption of Topic 842 and our lease renewal in April 2020.

Selling, General and Administrative Expenses – Our selling, general and administrative expenses were consistent for the year ended June 30, 2021, compared to the year ended June 30, 2020.

The increase in legal expenses related to our ongoing derivative litigation was partially 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.

Research and Development Expenses – Research and development expenses decreased $745 thousand , or 22% , for the year ended June 30, 2021 , compared to the year ended June 30, 2020 .

The reason for this decrease was reduced compensation and related expenses, partially offset by an increase in facilities expenses due to the adoption of Topic 842 and our lease renewal in April 2020.

Interest and other (expense) income, net – Interest expense for the year ended June 30, 2020 was $197 thousand, compared to interest income of $25 thousand for the year ended June 30, 2019.

This change was driven by interest expense accrued on our term notes and our PPP Promissory Note.

Interest income was also reduced because we liquidated our available-for-sale investments during fiscal year 2019 and had minimal interest income in fiscal year 2020.

Income Taxes – Our income tax benefit decreased $858 thousand for the year ended June 30, 2020, compared to the year ended June 30, 2019, due to the payment of an Alternative Minimum Tax (“AMT”) credit that became payable as part of the Tax Cuts and Jobs Act in the prior fiscal year.

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 s .

Disposal of long-lived assets increased $513 thousand due to the 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 over the remainder of the lease was estimated to be approximately $870 thousand.

Interest and other (expense), net – Interest expense for the year ended June 30, 2021 was $235 thousand, compared to interest expense of $197 thousand for the year ended June 30, 2020.

This change was driven by interest expense on a term note to the Company by our CEO executed in February 2020.

Gain from extinguishment of PPP loan – Gain from extinguishment of PPP loan was $542 thousand for the year ended June 30, 2021 due to receiving full forgiveness of our PPP Promissory Note from the Small Business Admission (“SBA”) in April 2021.

Income Taxes – Our income tax benefit did not change for the year ended June 30, 2021, compared to the year ended June 30, 2020.

FINANCIAL CONDITION, CAPITAL RESOURCES AND LIQUIDITY

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Total assets for the year ended June 30, 2021 were $65.6 million compared to total assets of $5.9 million as of the end of fiscal year 2020.

The following table sets forth the significant components of the consolidated balance sheet as of June 30, 2020, compared with 2019:

The following table sets forth the significant components of the consolidated balance sheet as of June 30, 2021, compared with June 30, 2020:

Years Ended June 30,

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Operating leases, right-of-use asset, net

Long-term income tax receivable

Other assets, net

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Current liabilities

Other long-term liabilities

Lease liabilities, non-current

Term note payable, net of current portion

Stockholders’ equity

Current assets – Current assets increased $2.0 million as of June 30, 2020 , compared to June 30, 2019 , as a result of cash raised through term notes issued, equity offerings, and the receipt of the PPP Promissory Note .

Current assets also increased as accounts receivable increased from our TRACER 1000 sales, which was partially offset by a decrease in prepaid expenses .

Property and equipment, net – Property and equipment decreased $370 thousand as of June 30, 2020, compared to June 30, 2019 due to continuing depreciation and classifying certain assets as held for disposal.

Operating leases, right-of-use asset – Operating leases, right-of-use asset increased $851 thousand in fiscal year 2020 due to the adoption of Topic 842.

Long-term tax receivable – Long-term tax receivable decreased $429 thousand in fiscal year 2020 due to collection of half of the AMT credit.

Current liabilities – Current liabilities increased $3.5 million as of June 30, 2020, compared to June 30, 2019, due to term notes issued in fiscal year 2020 as well as from the adoption of Topic 842.

Other long-term liabilities – Other long-term liabilities increased $477 thousand for the year ended June 30, 2020, compared to June 30, 2019 due to the adoption of the Topic 842 and the PPP Promissory Note.

Current assets – Current assets increased $60.4 million as of June 30, 2021, compared to June 30, 2020, as a result of cash raised through a series of equity offerings.

Current assets also increased due to purchases of inventory needed to build our TRACER 1000 systems.

Property and equipment, net – Property and equipment increased $164 thousand as of June 30, 2021, compared to June 30, 2020 due to leasehold improvement assets and equipment purchases associated with our new research and development facility in Austin.

Assets held for disposal, net – Assets held for disposal decreased $237 thousand during fiscal year 2021 as these were fixed assets that were disposed of in relation to the termination of our corporate office lease in Austin.

Operating leases, right-of-use asset – Operating leases, right-of-use asset decreased $602 thousand in fiscal year 2021 due to the termination of our lease in Austin and the expiration of our lease in Webster.

Current liabilities – Current liabilities decreased $139 thousand as of June 30, 2021, compared to June 30, 2020, as increases in accounts payable and accrued expenses were offset by decreases in term note payable related to our PPP Promissory Note forgiveness and lease liabilities related to the termination of our office leases in Austin and Webster.

Other long-term liabilities – Other long-term liabilities decreased $740 thousand for the year ended June 30, 2021, compared to June 30, 2020 due to the same decreases in term note payable and lease liabilities stated above.

Liquidity and Capital Resources

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Net cash used in operating activities

Net cash provided by investing activities

Net cash used in investing activities

Net cash provided by financing activities

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At June 30, 2020, we held cash and cash equivalents of $3.3 million and our net working capital was approximately $0.3 million.

Cash and cash equivalents increased by approximately $1.8 million during the year ended June 30, 2020 due to term notes issued, equity offerings, and receipt of the PPP Promissory Note.

Cash and cash equivalents increased by approximately $32.6 million during the year ended June 30, 2021 due to the series of equity offerings as mentioned above.

Operating Activities

Net cash used in operating activities was $7.4 million for the year ended June 30, 2021, compared to cash used in operating activities of $6.9 million for the year ended June 30, 2020.

The decrease in cash used in operating activities was primarily due to a reduction in our expenses as well as an increase in our accrued liabilities.

The increase in cash used in operating activities was primarily due to an increase in inventory as we purchased raw materials to ramp up production with our contract manufacturer Sanmina, partially to fulfill outstanding purchase orders for our TRACER 1000.

Investing Activities

Net cash provided by investing activities for the year ended June 30, 2020 decreased $3.6 million, compared to the year ended June 30, 2019.

The decrease in cash provided by investing activities was due to liquidating our available-for-sale investments in the first quarter of fiscal year 2019.

Net cash used in investing activities for the year ended June 30, 2021 increased $27.6 million, compared to the year ended June 30, 2020.

The increase in cash used in investing activities was due to purchasing short-term available-for-sale investments in the fourth quarter of fiscal year 2021.

Financing Activities

Cash provided by financing activities was $67.6 million for the year ended June 30, 2021, compared to cash provided by financing activities of $8.7 million for the year ended June 30, 2020.

The increase in cash provided by financing activities

was the result of the sale of common stock thro ugh equity offerings , term note s issued , and receipt of the PPP Promissory Note .

As of June 30, 2020, the Company held debt through term notes payable totaling $2.5 million as well as the PPP Promissory Note in the amount of $0.5 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.

The Company reported a net loss of $8.3 million for the fiscal year 2020 and a net loss of $7.5 million for the fiscal year 2019, along with net cash used in operating activities of $6.9 million for the fiscal year 2020 and net cash used in operating activities of $8.5 million for the fiscal year 2019.

These factors raise substantial doubt about the Company’s ability to continue as a going concern , but the Company remains resolute in identifying the optimal solution to the liquidity issue.

The Company is currently evaluating several potential sources for additional liquidity.

The Company remains resolute in identifying the optimal solution to its liquidity issue.

The Company is currently evaluating several potential sources for additional liquidity.

These include, but are not limited to, selling the Company or a portion thereof, licensing some of its technology, raising additional funds through capital markets, debt financing, equity financing, merging, or engaging in a strategic partnership.

On September 5, 2019, the Company entered into a private placement transaction with the Company’s Chairman of the Board and Chief Executive Officer, Thomas B.

Pickens III, for the issuance and sale of a secured promissory note to Mr.

Pickens with a principal amount of $1.5 million.

On February 13, 2020, the Company entered into a private placement transaction with Mr.

Pickens for the issuance and sale of a secured promissory note to Mr.

Pickens with a principal amount of $1.0 million.

On March 25, 2020, the Company entered into a securities purchase agreement with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 354,000 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $ 5.00 per share, resulting in net proceeds of approximately $1.6 million.

On March 27, 2020, the Company entered into a second securities purchase agreement with certain purchasers named therein, pursuant to which the Company agreed to issue and sell, in a registered direct offering, 873,335 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $ 3.75 per share, resulting in net proceeds of approximately $2.9 million.

T he Company received net proceeds of approximately $2.3 million through the sale of shares of common stock from November 9, 2018 through March 25, 2020 through an “at the market offering” program (the “ATM Offering”), which was terminated on March 25, 2020.

On April 14, 2020, the Company entered into a $542 thousand Paycheck Protection Program Promissory Note and Agreement (the “PPP Promissory Note”) from a commercial bank under the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S.

Small Business Administration.

The Company is currently evaluating potential offerings of any combination of common stock, preferred stock, debt securities, warrants to purchase common stock, preferred stock or debt securities, or any combination of the foregoing, either individually or as units comprised of one or more of the other securities.

However, additional funding may not be available when needed or on terms acceptable to us.

Recently, worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain difficult for the foreseeable future.

These developments will make it more difficult to obtain additional equity or credit financing, when needed.

To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution.

If we are unable to generate funding within a reasonable timeframe, we may have to delay, reduce or terminate our research and development programs, limit strategic opportunities, or curtail our business activities.

Astrotech’s consolidated financial statements as of June 30, 2020 do not include any adjustments that might result from the outcome of this uncertainty.

At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses.

The continued spread of COVID-19 could materially harm our business, results of operations, and financial condition.

Due to this uncertainty and plans outside of management’s control, we may not be able to achieve and implement such plans within one year after the date that the financial statements are issued to address the substantial doubt that exists.

The increase in cash provided by financing activities was the result of the sale of common stock through equity offerings.

As of June 30, 2021, the Company held debt through term notes payable totaling $2.5 million.

Our PPP Promissory Note of $542 thousand was forgiven by the SBA in April 2021.

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.

During the fiscal year 2021, we successfully completed several public offerings of our common stock, raising net proceeds of approximately $67.6 million.

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

We will continue to evaluate opportunities to further strengthen our liquidity, including selling the Company or a portion thereof, licensing some of our technology, raising additional funds through the capital markets, debt financing, equity financing, merging, or engaging in a strategic partnership.

Off-Balance Sheet Arrangements

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

Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting companies.

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 7. Management’s Discussion and Analysis