# ASTROTECH Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [ASTROTECH Corp](/companies/astc.md) (CIK 1001907)
- Form: 10-Q
- Filed: 2023-11-13
- Accepted by EDGAR: Nov 13, 2023, 21:42 ET
- Period: 2023-09-30
- Accession: 0001437749-23-031659
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1001907/000143774923031659/astc20230930_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1001907/000143774923031659/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $425.0k | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $242.0k | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $183.0k | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $1.9m | us-gaap:ResearchAndDevelopmentExpense |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $1.6m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$3.3m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$2.9m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$1.79 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | −$3.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $24.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Current assets | at 2023-09-30 | $41.8m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $44.6m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $2.2m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $2.5m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | $42.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 19,821 characters.

*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 that is 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 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, smaller, and easier to use when compared to traditional mass spectrometers. 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 18 granted patents 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.

### 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 ETD customers are unsatisfied with the currently deployed ETD technology, which is driven by ion mobility spectrometry (“IMS”). We further 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 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, 2023, we have deployed the TRACER 1000 in approximately 29 locations in 14 countries throughout Europe and Asia. On May 8, 2023, the Company announced that it has accepted a purchase order from a Romania-based company focused on research and innovation in the security and telecommunications space. The Company is required to deliver 17 TRACER 1000 explosive trace detectors over the remainder of calendar year 2023.

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 ("ACSTL") 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 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 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. The AgLAB 1000-D2 uses the Maximum Value Process solution (“MVP”) to analyze samples in real-time and help the equipment operator to determine the ideal settings required to maximize yields. As part of our growth plan, we also plan to launch a family of “process control” methods and solutions that we believe could be valuable additions to many nutraceutical and pharmaceutical distillation processing plants.

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. On May 9, 2023, we announced the results from ongoing field trials of the AgLAB MVP solution, which we believe demonstrate that it can be a valuable tool for cannabis and hemp oil processors worldwide. During our field trials, we were able to improve ending-weights yields by an average of 30%.

### 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 compromised condition including but not limited to a bacterial or viral infection. The Company believes 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.

In June 2022, the Company expanded its 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.

### 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. We believe that the following accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

### Results of Operations

**Three months ended September 30, 2023, compared to three months ended September 30, 2022:**

Selected consolidated financial data for the quarters ended September 30, 2023, and 2022 is as follows:

*(In thousands)*

|  | Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | $425 | $38 |
| Cost of revenue | 242 | 32 |
| **Gross profit** | **183** | **6** |
| **Gross margin** | **43%** | **16%** |
| Operating expenses: |  |  |
| Selling, general and administrative | 1,646 | 1,642 |
| Research and development | 1,872 | 1,129 |
| **Total operating expenses** | **3,518** | **2,771** |
| **Loss from operations** | **(3,335)** | **(2,765)** |
| Other income and expense, net | 423 | 235 |
| Income tax benefit | — | — |
| **Net loss** | $(2,912) | $(2,530) |

***Revenue –*** Total revenue increased by $387 thousand during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023. In the first quarter of fiscal year 2024, revenue was related to the sales of our TRACER 1000 along with ongoing consumable and recurring maintenance services of the TRACER 1000. In the first quarter of fiscal year 2023, revenue was related to ongoing sales of consumables and recurring maintenance services. The increase in revenue is primarily the result of fulfilling part of the purchase order for 17 TRACER 1000 units by a Romania-based company focused on research and innovation in the security and telecommunications space, as previously announced on May 8, 2023.

***Cost of Revenue –*** Gross profit is comprised of revenue less cost of revenue. In the first quarter of fiscal year 2024 and 2023, cost of revenue was comprised of labor, materials, shipping, and warranty reserve related to the sale of TRACER 1000 units. Cost of revenue increased by $210 thousand during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023 due to the increase in revenue as described above. Gross margin increased by 27% in the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023 due to sales mix.

***Operating Expenses –*** Operating expenses increased $747 thousand, or 27.0%, during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023. Significant changes to operating expenses include the following:

- Selling, general and administrative expenses remained consistent during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023.
- Research and development expenses increased $743 thousand, or 65.8%, during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023, largely driven by increases in headcount to support the development of our mass spectrometry offering, expenses related to cross-platform improvements to our technology, and continuing expenses that support additional Aglab, BreathTech, and 1st Detect method developments.

***Other income and expense, net –*** Other income and expense, net increased by $188 thousand during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023, due to more income earned on short-term, capital-preservation, investments as interest rates have increased.

***Income Taxes –*** Income tax benefit did not change during the first quarter of fiscal year 2024, compared to the first quarter of fiscal year 2023. 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 our deferred tax assets.

### Liquidity and Capital Resources

### Cash Flows

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

*(In thousands)*

| Change in cash and cash equivalents: | Three Months Ended September 30, 2023 | 2022 | Change |
| --- | ---: | ---: | ---: |
| Net cash used in operating activities | $(3,050) | $(2,441) | $(609) |
| Net cash used in investing activities | 1,977 | (5,201) | 7,178 |
| Net cash used in financing activities | (45) | (538) | 493 |
| **Net change in cash and cash equivalents** | $(1,118) | $(8,180) | $7,062 |

### Cash and Cash Equivalents

As of September 30, 2023, we held cash and cash equivalents of $13.1 million, and our working capital was approximately $39.6 million. As of June 30, 2023, we had cash and cash equivalents of $14.2 million, and our working capital was approximately $42.1 million. Cash and cash equivalents decreased $1.1 million as of September 30, 2023, compared to June 30, 2023, due to funding our continuing operating expenses, partially offset by the proceeds of short-term investments.

### Operating Activities

Cash used in operating activities increased $609 thousand for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to operating expenses, an increase in inventory and receivables.

### Investing Activities

Cash used in investing activities decreased $7.2 million for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to not purchasing and the maturing of the short-term time deposit investments.

### Financing Activities

Cash used in financing activities decreased $493 thousand for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, due to a repayment of related-party debt in the prior year.

We did not have any material off-balance sheet arrangements as of September 30, 2023.

### 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. As previously disclosed, on June 16, 2023, the Company terminated its existing share repurchase program, effective immediately, in order to comply with Regulation M under the Exchange Act. The shares could have been repurchased from time to time in the 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, could have been determined by the Company at its discretion and would have depended 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.

### Liquidity

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, 2023.

### Income Taxes

### Provision for Income Tax

Our effective tax rate is 0% for income tax for the three months ended September 30, 2023, and we expect that our effective tax rate for the full fiscal year 2024 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.

The Company files U.S. federal and state income tax returns. The Company is not currently subject to any income tax examinations. The Company has net operating loss carryovers dating back to the June 2002 year, 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 approximately $486 thousand of uncertain tax positions as of September 30, 2023, 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 a $2 thousand provision for income taxes during the three months ended September 30, 2023. There was $0 provision for income taxes during the three months ended September 30, 2022.

## Controls and procedures

As filed, 1,781 characters.

### Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply its judgment in evaluating and implementing possible controls and procedures. Management, including our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2023 at the reasonable assurance level.

### Changes in Internal Controls over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during our last fiscal quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 515 characters.

Our business, financial condition, results of operations, and cash flows may be impacted by a number of factors, many of which are beyond our control, including those set forth in our Form 10-K and our Form 10-Qs, the occurrence of any one of which could have a material adverse effect on our actual results.

There have been no material changes to the risk factors and other cautionary statements described under the heading “Item 1A Risk Factors” included in our Form 10-K for the fiscal year ended June 30, 2023.

Filed Nov 13, 2023.
Source: SEC EDGAR, the filing index for accession 0001437749-23-031659. Last ingested by Listed: Oct 24, 2026, 15:01 ET. No prices; not investment advice.