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 science and technology
development and commercialization company that launches, manages, and builds
scalable companies based on innovative technology in order to maximize
shareholder value.
The Company's efforts are focused on commercializing its platform mass
spectrometry technology through its 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 and
narcotics trace detectors developed for use at airports, secured facilities,
and borders worldwide. 1st Detect holds an exclusive AMS Technology license
from ATI for airport security applications.
• AgLAB, Inc. ("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. 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
Astrotech Technologies, Inc.
ATI owns and licenses the AMS Technology, the platform mass spectrometry
technology originally developed by 1st Detect. The intellectual property
includes 28 granted patents and two additional patents in process along with
extensive trade secrets. With a number of diverse market opportunities for the
core technology, ATI is structured to license the intellectual property for
different fields of use. ATI currently licenses the AMS Technology to three
wholly-owned subsidiaries of Astrotech, including to 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.
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.
1st Detect Corporation
1st 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. 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 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.
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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. 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 Inc.
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.
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. 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
In March 2020, the World Health Organization declared COVID-19 a global
pandemic.
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.
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.
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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.
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 United States generally accepted accounting
principles ("U.S. GAAP"). The preparation of these financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, expenses, and related disclosures. 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. Estimates and assumptions are reviewed
periodically. Actual results may differ from these estimates under different
assumptions or conditions.
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) 2021 2020
Revenue $ 54 $ 118
Cost of revenue 46 111
Gross profit 8 7
Gross margin 15 % 6 %
Operating expenses:
Selling, general and administrative 1,679 1,193
Research and development 669 814
Total operating expenses 2,348 2,007
Loss from operations (2,340 ) (2,000 )
Interest and other expense, net (63 ) (68 )
Income tax benefit - -
Net loss $ (2,403 ) $ (2,068 )
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
partially offset by a decrease in office rent and related expenses
associated with the former corporate office. In addition, due to
COVID-19, our expenses related to travel and conferences also declined.
• Research and development 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.
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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
March 31,
(In thousands) 2021 2020
Revenue $ 324 $ 324
Cost of revenue 287 307
Gross profit 37 17
Gross margin 11 % 5 %
Operating expenses:
Selling, general and administrative 3,408 3,505
Research and development 2,036 2,608
Disposal of corporate lease 544 -
Total operating expenses 5,988 6,113
Loss from operations (5,951 ) (6,096 )
Interest and other income, net (185 ) (123 )
Income tax benefit - -
Net loss $ (6,136 ) $ (6,219 )
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.
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. 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
partially 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. 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.
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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) 2021 2020 Change
Change in cash and cash equivalents:
Net cash used in operating activities $ (4,864 ) $ (4,956 ) $ 92
Net cash used in investing activities (24 ) - (24 )
Net cash provided by financing activities 33,555 8,150 25,405
Net change in cash and cash equivalents $ 28,667 $ 3,194 $ 25,473
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
June 30, 2020, we had cash and cash equivalents of $3.3 million, and our working
capital was approximately $0.3 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.
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.
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.
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.
Liquidity
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. 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.
Income Taxes
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.
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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. 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. 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.
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.
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.
Income Taxes
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.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2021, or June
30, 2020.
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