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
Astrotech Corporation (Nasdaq: 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.
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").
? 1st Detect Corporation ("1st Detect") is a manufacturer of explosives trace
detectors capable of also detecting narcotics. It was 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 processes. 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 a bacterial or
viral infection. BreathTech holds an exclusive AMS Technology license from ATI
for breath analysis applications.
Our Business Units
Astrotech Technologies, Inc.
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 22 granted patents and one additional patent 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 on an exclusive basis, including to 1st
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 applications.
ATI has contracted with Sanmina Corporation ("Sanmina"), a leading contract
manufacturer with a worldwide presence, to manufacture our mass spectrometer
products. Leveraging their expertise, Sanmina has helped to improve the
manufacturability and reliability of our systems.
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1st Detect Corporation
1st 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. We believe that some ETD
customers are unsatisfied with the currently deployed ETD technology, which is
driven by ion mobility spectrometry ("IMS"). We further believe that some
IMS-based ETDs have issues 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 few 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
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, we obtained ECAC certification. We
are currently selling the TRACER 1000 to customers who accept ECAC
certification. As of September 30, 2022, we have deployed the TRACER 1000 in
approximately 20 locations in 11 countries throughout Europe and Asia.
In the United States, we are working with the U.S. 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 the 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 onset of the COVID-19 pandemic, all testing within the
TSA was put on hold; 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 delays
caused by COVID-19, TSA cargo detection testing is ongoing, but has
proceeded much more slowly than originally 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 as an
"approved" device. If approved, the TRACER 1000 will be approved for cargo sales
in the United States.
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
markets with initial focus on optimizing yields in the extraction and
distillation processes. 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 has
continued to conduct field trials to demonstrate that the AgLAB-1000-D2™ can be
used in the distillation process to significantly improve the processing yields
of tetrahydrocannabinol ("THC") and cannabidiol ("CBD") oil during
distillation. As part of our growth plan, we also 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.
During the first quarter of fiscal year 2023, we began our first production run
of the AgLAB-1000-D2 and sales efforts are currently underway.
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BreathTech Corporation
BreathTech, an exclusive licensee of ATI for use in breath analysis
applications, 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 a bacterial or viral infection. We believe that new tools to aid in the
battle against COVID-19 and other diseases remain of the utmost importance to
help more quickly identify that an infection may be present, and BreathTech, in
conjunction with Cleveland Clinic, is developing a quick and easy to use device
to help determine the presence of infections.
In June 2022, we expanded our existing study that initially focused on COVID-19
with Cleveland Clinic to use the BreathTest-1000 to screen for a variety of
diseases spanning the entire body. The project will focus on detecting
bloodstream infections, respiratory infections such as influenza types A and B
and respiratory syncytial virus ("RSV"), carriage of Staphylococcus aureus, and
Clostridioides difficile ("C. diff") infections.
BreathTech recently contracted with a clinical research firm to assist in
procuring breath samples collected from patients. These samples are being used
to further develop the library of the BreathTest-1000. Preliminary results have
shown that the BreathTest-1000 can discriminate between background breath and
the disease VOCs.
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.
Trends and Uncertainties - COVID-19
We are subject to risks and uncertainties as a result of the COVID-19
pandemic. 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 where
available, 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, including
those that may be related to additional COVID-19 variants and other
diseases, 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 Estimates
The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with United States Generally Accepted Accounting Principles ("U.S.
GAAP"). The preparation of these financial statements requires us to make
estimates and judgments that directly affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosure of contingent assets and
liabilities in the Company's consolidated financial statements and accompanying
notes. A critical accounting estimate is one that involves a significant level
of estimation uncertainty and have had or are reasonably likely to have a
material impact on our financial condition or results of operations. We base our
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Management continuously
evaluates its critical accounting policies and estimates, including those used
in evaluating the recoverability of long-lived assets, recognition of revenue,
valuation of inventory, and the recognition and measurement of loss
contingencies, if any. Actual results may differ from these estimates under
different assumptions or conditions.
There have been no material changes to our critical accounting policies and
estimates as set forth in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, included in our Annual Report on
Form 10-K for the year ended June 30, 2022.
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Results of Operations
Three months ended September 30, 2022, compared to three months ended September
30, 2021:
Selected consolidated financial data for the quarters ended September 30, 2022,
and 2021 is as follows:
Three Months Ended September 30,
(In thousands) 2022 2021
Revenue $ 38 $ 187
Cost of revenue 32 175
Gross profit 6 12
Gross margin 16 % 6 %
Operating expenses:
Selling, general and administrative 1,642 1,426
Research and development 1,129 639
Total operating expenses 2,771 2,065
Loss from operations (2,765 ) (2,053 )
Other income and (expense), net 235 24
Income tax benefit - -
Net loss $ (2,530 ) $ (2,029 )
Revenue - Total revenue decreased by $149 thousand during the first quarter of
fiscal 2023, compared to the first quarter of fiscal 2022. In the first quarter
of fiscal 2023, all revenue was comprised of consumables and maintenance
services for the TRACER 1000 and a short-term rental of a TRACER 1000 system. In
the first quarter of fiscal 2022, all revenue was related to the sales of
our TRACER 1000 to DHL (Deutsche Post AG). The decrease in revenue is primarily
the result of Astrotech shifting its sales efforts from the volatile ETD market
and concentrating on commercializing, marketing, and selling the AgLAB-1000-D2.
We believe that the AgLAB market should provide for a more profitable
opportunity versus the commoditized ETD market.
Cost of Revenue - Gross profit is comprised of revenue less cost of revenue. In
the first quarter of fiscal 2023 and 2022, 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 decreased $143 thousand during
the first quarter of fiscal 2023, compared to the first quarter of fiscal
2022 due to the decrease in revenue as described above. Gross margin increased
by 10% in the first quarter of fiscal 2023, compared to the first quarter of
fiscal 2022 due to our revenue being comprised of recurring services and
materials as opposed to mainly system sales.
Operating Expenses - Operating expenses increased $706 thousand, or 34.2%,
during the first quarter of fiscal 2023, compared to the first quarter of fiscal
2022. Significant changes to operating expenses include the following:
? Selling, general and administrative expenses increased $216 thousand, or
15.1%, during the first quarter of fiscal 2023, compared to the first quarter
of fiscal 2022, due to an increase in legal expenses related to our ongoing
derivative litigation, director fees for our lead independent director, and
payroll expenses related to customer support.
? Research and development expenses increased $490 thousand, or 76.7%, during
the first quarter of fiscal 2023, compared to the first quarter of fiscal
2022, largely driven by an increase in expenses related to our field trials
and further development and refinement of our AgLAB product as well
as contracting an additional clinical research firm to accelerate the
collection of samples for building the BreathTech library.
Income Taxes - Income tax benefit did not change during the first quarter of
fiscal 2023, compared to the first quarter of fiscal 2022. 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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Liquidity and Capital Resources
Cash Flows
The following is a summary of the change in our cash and cash equivalents:
Three Months Ended September 30,
(In thousands) 2022 2021 Change
Change in cash and cash equivalents:
Net cash used in operating activities $ (2,441 ) $ (2,186 ) $ (255 )
Net cash used in investing activities (5,201 )
(97 ) (5,104 )
Net cash used in financing activities (538 ) (2,003 ) 1,465
Net change in cash and cash equivalents $ (8,180 ) $ (4,286 ) $ (3,894 )
Cash and Cash Equivalents
As of September 30, 2022, we held cash and cash equivalents of $18.2 million,
and our working capital was approximately $49.4 million. As of June 30, 2022, we
had cash and cash equivalents of $26.4 million, and our working capital was
approximately $52.3 million. Cash and cash equivalents decreased $8.2 million as
of September 30, 2022, compared to June 30, 2022, due to the purchases of
short-term time deposit investments as well as continuing operating expenses.
Operating Activities
Cash used in operating activities increased $255 thousand for the three months
ended September 30, 2022, compared to the three months ended September 30, 2021,
due to a decrease in payroll-related accruals and an increase in operating
expenses, partially offset by an increase of accounts payable and a decrease in
accounts receivable.
Share Repurchase Program
On November 9, 2022, the Company's Board of Directors authorized a share
repurchase program that allows the Company to repurchase up to $1.0 million of
the Company's common stock beginning November 17, 2022, and continuing through
and including November 17, 2023. The shares may be repurchased from time to time
in open market or privately negotiated transactions or by other means in
accordance with applicable state and federal securities laws. The timing, as
well as the number and value of shares repurchased under the program, will be
determined by the Company at its discretion and will depend on a variety of
factors, including management's assessment of the intrinsic value of the
Company's common stock, the market price of the Company's common stock, general
market and economic conditions, available liquidity, compliance with the
Company's debt and other agreements, applicable legal requirements, and other
considerations. The exact number of shares to be repurchased by the Company is
not guaranteed, and the program may be suspended, modified, or discontinued at
any time without prior notice. The Company expects to fund the repurchases with
available working capital.
Investing Activities
Cash used in investing activities increased $5.1 million for the three months
ended September 30, 2022, compared to the three months ended September 30, 2021,
due to the purchases of short-term time deposit investments.
Financing Activities
Cash used in financing activities decreased $1.5 million for the three months
ended September 30, 2022, compared to the three months ended September 30, 2021,
due to a larger repayment of related party debt in the prior year. We did not
have any material off-balance sheet arrangements as of September 30, 2022.
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Liquidity
During the fiscal year 2021, we successfully completed several public offerings
of our common stock, raising net proceeds of approximately $67.6 million which
will be used to satisfy our short-term and long-term capital needs. There have
been no material updates to our expectations for our short- and long-term
liquidity and operating capital requirements since our Annual Report on Form
10-K for the year ended June 30, 2022.
Income Taxes
Provision for Income Tax
Our effective tax rate is 0% for income tax for the three months ended September
30, 2022, and we expect that our effective tax rate for the full fiscal year
2023 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 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. Such limitations may
result in expiration of a portion of the NOL carryforward before utilization.
We file U.S. federal and state income tax returns. 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
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 $400 thousand of
uncertain tax positions as of September 30, 2022, 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.
Income Taxes
There is $0 provision for income taxes during each of the three months ended
September 30, 2022 and 2021.
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