The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Report.
Business Overview
Our efforts are focused on commercializing our platform mass spectrometry technology through our wholly-owned subsidiaries:
?Astrotech Technologies, Inc. ("ATI") owns and licenses intellectual property related to the Astrotech Mass Spectrometer Technology™ (the "AMS Technology"). ? 1stDetect Corporation ("1st Detect") is a manufacturer of explosives and narcotics trace detectors developed for use at airports, cargo and other secured facilities, and borders worldwide. 1st Detect holds an exclusive AMS Technology license from ATI for air passenger and cargo security applications. ?AgLAB, Inc. ("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. ?BreathTech Corporation ("BreathTech") is developing a breath analysis tool to screen for volatile organic compound ("VOC") metabolites found in a person's breath that could indicate they may have an infection, including COVID-19 or pneumonia. BreathTech holds an exclusive AMS Technology license from ATI for breath analysis applications. Our Business Units
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
ATI has contracted with Sanmina Corporation ("Sanmina"), a leading contract manufacturer with a worldwide presence. 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.
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Table of Contents 1stDetect Corporation
1st 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
In order to sell the TRACER 1000 to airport and cargo security customers in the
In
On
AgLAB Inc.
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. AgLAB recently completed several successful field trials to demonstrate that the AgLAB-1000-D2™ can be used in the distillation process to significantly boost the potency and weight yields of THC and CBD oil manufacturing. We plan to launch a family of "process control" instruments, methods, and solutions that we believe could be valuable additions to many nutraceutical extraction and distillation laboratories.
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Table of ContentsBreathTech Corporation
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, many people remain unvaccinated 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
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
Trends and Uncertainties - COVID-19
In
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 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 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
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; 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
The discussion and analysis of our financial condition and results of operations
are based upon our condensed consolidated financial statements, which have been
prepared in accordance with
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Table of Contents Results of Operations
Three months ended
Selected consolidated financial data for the quarters endedMarch 31, 2022 , and 2021 is as follows: Three Months Ended March 31, (In thousands) 2022 2021 Revenue $ 97 $ 54 Cost of revenue 46 46 Gross profit 51 8 Gross margin 53 % 15 % Operating expenses: Selling, general and administrative 1,476 1,679 Research and development 722 669 Total operating expenses 2,198 2,348 Loss from operations (2,147 ) (2,340 ) Other income and (expense), net 47 (63 ) Income tax benefit - - Net loss$ (2,100 ) $ (2,403 )
Revenue - Total revenue increased by
Cost of Revenue - Gross profit is comprised of revenue less cost of revenue. In the third 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 remained the same during the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021. Gross margin increased by 38% in the third quarter fiscal 2022, compared to the third 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 decreased
? Selling, general and administrative decreased$203 thousand , or 12.1%, during the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021, due to a decrease in payroll-related expenses, partially offset by an increase in directors' fees. ? Research and development increased$53 thousand , or 7.9%, during the third quarter of fiscal 2022, compared to the third quarter of fiscal 2021, largely driven by an increase in expenses related to contractors and consultants and equipment for development of our BreathTech and AgLAB products.
Income Taxes - Income tax benefit did not change during the third quarter of fiscal 2022, compared to the third 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.
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Nine months ended
Selected consolidated financial data for the nine months endedMarch 31, 2022 and 2021 is as follows: Nine Months Ended March 31, (In thousands) 2022 2021 Revenue $ 845 $ 324 Cost of revenue 662 287 Gross profit 183 37 Gross margin 22 % 11 % Operating expenses: Selling, general and administrative 4,630 3,408 Research and development 2,013 2,036 Disposal of corporate lease - 544 Total operating expenses 6,643 5,988 Loss from operations (6,460 ) (5,951 ) Other income and (expense), net 151 (185 ) Income tax benefit - - Net loss$ (6,309 ) $ (6,136 )
Revenue - Total revenue significantly increased by
Cost of Revenue - Gross profit is comprised of revenue less cost of revenue. In
the each of the nine months ended
Operating Expenses - Operating expenses increased
? Selling, general and administrative increased$1.2 million , or 35.9%, due to increases in non-cash equity incentive compensation for employees, legal expenses related to our derivative litigation, and directors' fees for our lead independent director. ? Research and development decreased$23 thousand , or 1.1% during the nine months endedMarch 31, 2022 , compared to the nine months endedMarch 31, 2021 , largely driven by less materials purchased for R&D purposes. ? 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. 25
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Income Taxes - Income tax benefit did not change during the nine months ended
Liquidity and Capital Resources
The following is a summary of the change in our cash and cash equivalents:
Nine Months Ended March 31, (In thousands) 2022 2021 Change
Change in cash and cash equivalents:
Net cash used in operating activities
(370 ) (24 ) (346 ) Net cash (used in) provided by financing activities (2,056 ) 33,546 (35,602 )
Net change in cash and cash equivalents
Cash and Cash Equivalents
As of
Operating Activities
Cash used in operating activities increased
Investing Activities
Cash used in investing activities increased
Financing Activities
Cash used in financing activities was
Liquidity
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
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Table of Contents Income Taxes Provision for Income Tax
Our effective tax rate is 0% for income tax for the nine months ended
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,
We file
Uncertain Tax Positions
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
Income Taxes
There is
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
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