What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-05-14 · 91 added, 132 removed, 69 unchanged (76% 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.

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.

The Company’s efforts are focused on commercializing its platform mass spectrometry technology through its wholly-owned subsidiaries:

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(“ATI”) owns and licenses 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 spectrometers 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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ATI owns and licenses the AMS Technology, the platform mass spectrometry technology originally developed by 1st Detect.

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

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

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

The intellectual property includes 24 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 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.

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

ATI has contracted with Sanmina Corporation (“Sanmina”), a leading contract manufacturer with a worldwide presence.

During the first quarter of fiscal year 2022, Sanmina completed production of the first batch of TRACER 1000 instruments.

Sanmina has already helped to reduce the cost of the TRACER 1000™ and we have leveraged their expertise to improve manufacturability and reliability of our systems.

1 st Detect Corporation

1 st Detect, an exclusive 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 to the TRACER 1000’s detection library does not degrade its 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.

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 the Transportation Security Administration (“TSA”) towards Air Cargo certification.

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

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

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

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

Certain other countries around the globe also accept ECAC certification.

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

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

that accept ECAC

certification.

We have deployed or received orders for the TRACER 1000 in approximately twenty locations in thirteen countries throughout Europe and Asia.

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 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 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.

AgLAB, an exclusive licensee of ATI for the agriculture market, has developed the AgLAB-1000™ series of mass spectrometers for process control and in the detection of trace levels of solvents and pesticides.

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.

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.

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

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 our core AMS Technology.

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

BreathTech Corporation

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

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

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

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

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

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

The extent of the impact of the COVID-19 pandemic on our business is uncertain and difficult to predict, as the 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.

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, with a reduction in air travel caused by the pandemic, we are seeing a reduction in near-term demand for ETDs at checkpoints.

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

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

cause further delay in regulatory certification testing of our instruments;

impact investment performance;

and cause other unpredictable events.

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

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, particularly the impact of the global semiconductor shortage, as a result of COVID-19.

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

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

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

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

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

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

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

Critical Accounting Policies

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Results of Operations

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)

Cost of revenue

Operating expenses:

Selling, general and administrative

Research and development

Total operating expenses

Loss from operations

Interest and other expense, net

Income tax benefit

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 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 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.

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.

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

Three months ended September 30, 2021, compared to three months ended September 30, 2020 :

Selected consolidated financial data for the quarters ended September 30, 2021, and 2020 is as follows:

Three Months Ended September 30,

(In thousands)

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Loss from operations

Interest and other income, net

Other income and (expense), net

Income tax benefit

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.

Revenue – Total revenue increased $47 thousand during the first quarter of fiscal 2022, compared to the first quarter of fiscal 2021.

All of the revenue generated in the first quarters of fiscal 2022 and 2021 was related to the sales of our TRACER 1000 to DHL (Deutsche Post AG).

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

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.

In the first quarters of fiscal 2022 and 2021, cost of revenue was comprised of labor, materials, shipping, warranty reserve, and overhead allocation related to the sale of TRACER 1000 units.

Cost of revenue increased $62 thousand during the first quarter of fiscal 2022, compared to the first quarter of fiscal 2021 due to the increase in revenue described above.

Gross margin decreased by 13% in the first quarter fiscal 2022, compared to the first quarter of fiscal 2021 due to addressing issues relating to the sales of our earliest, ultra-low volume production units.

We also incurred increased international shipping expenses caused by the current global shipping crisis.

Operating Expenses – Operating expenses decreased $14 thousand, or 1%, during the first quarter of fiscal 2022, compared to the first quarter of fiscal 2021.

Significant changes to operating expenses include the following:

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.

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 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.

Selling, general and administrative increased $500 thousand, or 54%, due to non-cash equity compensation for employees that incentivizes retention, payroll-related accruals, and legal expenses related to our derivative litigation.

Research and development increased $30 thousand, or 5%, during the first quarter of fiscal 2022, compared to the first quarter of fiscal 2021.

This increase is mainly due to expenses resulting from moving our R&D facility from Webster to Austin.

Disposal of long-lived assets decreased $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 in the prior period.

Income Taxes – Income tax benefit did not change during the first quarter of fiscal 2022, compared to the first quarter of fiscal 2021.

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.

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

Liquidity and Capital Resources

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

Nine Months Ended

Three Months Ended

September 30,

(In thousands)

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Net cash used in investing activities

Net cash provided by financing activities

Net cash used in financing activities

Net change in cash and cash equivalents

Cash and Cash Equivalents

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 September 30, 2021, we held cash and cash equivalents of $31.7 million, and our working capital was approximately $59.1 million.

As of June 30, 2021, we had cash and cash equivalents of $35.9 million, and our working capital was approximately $60.9 million.

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.

Cash and cash equivalents decreased $4.3 million as of September 30, 2021, compared to June 30, 2021, due to the partial repayment of the related party notes including accrued interest as well as continuing operating expenses.

Operating Activities

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.

Cash used in operating activities increased $0.7 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, due to an increase in accounts receivable from sales of the TRACER 1000, as well as increases in inventory and accounts payable as we continue to purchase raw materials to build the TRACER 1000.

Investing Activities

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.

Cash used in investing activities increased $81 thousand for the three months ended September 30, 2021, compared to the three months ended September 30, 2020, due to the addition of leasehold improvement assets related to our new R&D facility in Austin.

Financing Activities

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.

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.

Cash used in financing activities increased $2.0 million for the three months ended September 30, 2021, compared to the three months ended September 30, 2020 due to the partial repayment of the related party notes.

Historically, our primary uses of cash have been to fund research and development, inventory, and selling, general and administrative expenses.

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

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.

The Company accounts for income taxes under the asset and liability method.

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts.

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

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.

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.

However, our ability to successfully effectuate any such transactions depends on operating and economic conditions, some of which are beyond our control.

If additional capital is needed, we may not be able to obtain debt or equity financing on terms favorable to us, or at all.

Based on current expectations, we believe we have sufficient liquidity to meet our capital expenditure and cash flow needs during the fiscal year 2022 from our available financial resources.

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.

Our effective tax rate is 0% for income tax for the three months ended September 30, 2021 and we expect that our effective tax rate for the full fiscal year 2022 year will be 0%.

Based on the weight of available evidence, including net cumulative losses and expected future losses, we have determined that it is more likely than not that our 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.

In general, if we experience 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.

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.

We are not currently subject to any income tax examinations.

Dating back to June 2002, we have net operating loss carryovers, 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.

We recognize 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.

We currently have approximately $300 thousand of uncertain tax positions as of September 30, 2021, all of which are accounted as contra-deferred tax assets.

The Company does not expect any significant changes to its uncertain tax positions in the coming 12 months.

There is $0 provision for income taxes during the three months ended September 30, 2021.

Off-Balance Sheet Arrangements

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

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

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