What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-02-14 compared with 2021-11-12 · 86 added, 54 removed, 106 unchanged (57% of the section changed)

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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:

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

Astrotech Technologies, Inc.

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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, 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.

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

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

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

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

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

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

We are currently selling the TRACER 1000 to customers who 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.

In the United States, we are 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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

We continue to work with the market to refine our library and instrumentation.

BreathTech Corporation

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

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

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

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

While vaccines have been deployed to prevent the transmission of COVID-19, only a 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 Cleveland Clinic, are 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 February 1, 2022, BreathTech announced that it has hired Dr.

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

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

We expect Dr.

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

Trends and Uncertainties - COVID-19

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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.

To date, we have seen delays with respect to the TSA certification process and parts of our supply chain, particularly the impact of the global semiconductor and electronics shortage, which has now resulted in product pricing inflation.

In addition, although passenger demand for air travel has rebounded, the overall recovery of the airline industry and ancillary services remains highly uncertain and is dependent upon, among other things, the number of cases declining around the globe, public health impacts of

new COVID-19 variants, the continued administration of vaccines to unvaccinated populations, and the duration of immunity granted by vaccines.

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

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

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

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Results of Operations

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,

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

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

Three Months Ended December 31,

(In thousands)

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Research and development

Total operating expenses

Loss from operations

Other income and (expense), net

Income tax benefit

Revenue – Total revenue significantly increased by $431 thousand during the second quarter of fiscal 2022, compared to the second quarter of fiscal 2021.

In the second quarter of fiscal 2022 , revenue was comprised of sales related to our TRACER 1000 to an airport security checkpoint customer as well as to DHL (Deutsche Post AG).

All of the revenue generated in the second quarter of fiscal 2021 was related to TRACER 1000 sales to DHL (Deutsche Post AG).

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

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

Cost of revenue increased $313 thousand during the second quarter of fiscal 2022, compared to the second quarter of fiscal 2021, due to the increase in revenue described above.

Gross margin increased by 19% in the second quarter fiscal 2022, compared to the second quarter of fiscal 2021, as we have increased production and benefited from associated volume discounts.

Further, we have benefited from implementing specific enhancements to our technology.

Operating Expenses – Operating expenses increased $819 thousand, or 52%, during the second quarter of fiscal 2022, compared to the second quarter of fiscal 2021.

Significant changes to operating expenses include the following:

Selling, general and administrative increased $925 thousand, or 115%, during the second quarter of fiscal 2022, compared to the second quarter of fiscal 2021, due to non-cash equity incentive compensation for employees, payroll-related accruals, and legal expenses related to our derivative litigation.

Research and development decreased $106 thousand, or 14%, during the second quarter of fiscal 2022, compared to the second quarter of fiscal 2021, largely driven by a decrease in purchases of R&D materials and equipment as we continue to shift our focus from R&D toward the commercialization of our products.

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

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

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

Six months ended December 31, 2021, compared to six months ended December 31, 2020 :

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

Six Months Ended

(In thousands)

Cost of revenue

Operating expenses:

Selling, general and administrative

Research and development

Disposal of corporate lease

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Income tax benefit

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).

Revenue – Total revenue increased $478 thousand during the fiscal year 2022, compared fiscal year 2021.

I n fiscal year 2022, revenue was comprised of sales related to our TRACER 1000 to an airport security checkpoint customer as well as to DHL (Deutsche Post AG).

In fiscal year 2021, all of our revenue was related to the sales of the TRACER 1000 to DHL (Deutsche Post AG).

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

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.

In the six months ended December 31, 2021 and December 31, 2020, 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 $375 thousand during fiscal year 2022, compared to fiscal year 2021, due to the increase in revenue described above.

Gross margin increased by 7% in the fiscal year 2022, compared to the fiscal year 2021, as we have increased production and benefited from associated volume discounts.

Further, we have benefited from implementing specific enhancements to our technology.

Operating Expenses – Operating expenses increased $805 thousand, or 22% during the six months ended December 31, 2021, compared to six months ended December 31, 2020.

Significant changes to operating expenses include the following:

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.

Selling, general and administrative increased $1.4 million, or 82%, due to non-cash equity incentive compensation for employees, payroll-related accruals, and legal expenses related to our derivative litigation.

Research and development decreased $76 thousand, or 6%, during the six months ended December 31, 2021, compared to the six months ended December 31, 2020, largely driven by less materials purchased for R&D purposes as we continue to shift our focus from R&D toward the commercialization of our products.

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.

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

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

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

Three Months Ended

September 30,

Six Months Ended

(In thousands)

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Net cash used in investing activities

Net cash used in financing activities

Net cash (used in) provided by financing activities

Net change in cash and cash equivalents

Cash and Cash Equivalents

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 December 31, 2021, we held cash and cash equivalents of $30.2 million, and our working capital was approximately $56.9 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 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.

Cash and cash equivalents decreased $5.8 million as of December 31, 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 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.

Cash used in operating activities increased $1.0 million for the six months ended December 31, 2021, compared to the six months ended December 31, 2020, due to an increase in accounts receivable from sales of the TRACER 1000, receipt of an alternative minimum tax credit in the prior period, and a decrease in accounts payable.

Investing Activities

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.

Cash used in investing activities increased $248 thousand for the six months ended December 31, 2021, compared to the six months ended December 31, 2020, due to the addition of leasehold improvement assets related to our new R&D facility in Austin.

Financing Activities

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.

Cash used in financing activities was $2.0 million for the six months ended December 31, 2021, compared to cash provided by financing activities of $21.8 million for the six months ended December 31, 2020.

This change was due to the partial repayment of the related party notes during the current period, compared to the net proceeds from sale of common stock of $21.8 million in the prior period.

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

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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.

Based on current expectations, we believe we have sufficient liquidity to meet our cash flow needs during this fiscal year 2022 and the immediate future.

Provision for Income Tax

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%.

Our effective tax rate is 0% for income tax for the six months ended December 31, 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.

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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.

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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.

We currently have approximately $300 thousand of uncertain tax positions as of December 31, 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.

There is $0 provision for income taxes during each of the three and six months ended December 31, 2021 and 2020.

Off-Balance Sheet Arrangements

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

We did not have any off-balance sheet arrangements as of December 31, 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