ASTROTECH Corp: Form 10-Q for the period ended Mar 31, 2025

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

The terms “Astrotech”, “the Company”, “we”, “us”, or “our” refer to Astrotech Corporation (Nasdaq: ASTC), a Delaware corporation organized in 1984. Our use of “products” and “devices” refer to the TRACER 1000™, BreathTest-1000™, AGLAB 1000™, TRACER 1000™ NTD, and Pro-Control 1000™ along with related accessories and consumables.

Our mission is to expand access to mass spectrometry (“MS”) and its use through the deployment of devices designed specifically for the appropriate levels of precision required in high-volume, real-time testing environments such as airports, border checkpoints, cargo hubs, infrastructure security, correctional facilities, military bases, law enforcement centers, and industrial locations. We achieve our mission through simplifying the user interface, automating the complicated calibration process, ruggedizing the critical components to endure MS field work, and enabling multiple configurations for sample intake options.

We are commercializing the Astrotech Mass Spectrometer Technology™ platform (“AMS Technology”) through application specific, wholly owned subsidiaries.

Astrotech Technologies, Inc.

ATI owns and licenses the AMS Technology, the platform MS technology originally developed by 1st Detect. The AMS Technology has been designed to be less expensive, 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 16 patents granted along with extensive trade secrets. With several diverse market opportunities for our core technology, ATI is structured to license our intellectual property for different fields of use. ATI currently licenses the AMS Technology to our wholly-owned subsidiaries on an exclusive basis, including to 1st Detect for use in security and detection applications, to AgLAB for use in the agriculture application, to BreathTech for use in breath analysis applications to Pro-Control for use in production applications and EN-SCAN, Inc. for use for on-site, real-time air, water and soil analysis.

1st Detect Corporation

1st Detect Corporation (“1st Detect”), a licensee of ATI for security and detection applications, has developed the TRACER 1000™, the world’s first MS based explosives trace detector (“ETD”) certified by the European Civil Aviation Conference (“ECAC”) and approved by the Transportation Security Administration (“TSA”) for air cargo. The TRACER 1000 was designed to outperform the ETDs currently used at airports, cargo, other secured facilities, and borders worldwide. We believe that ETD customers are unsatisfied with currently deployed ETD technology, which is driven by ion mobility spectrometry (“IMS”). We further believes 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 an extensive and easily expandable threat library.

We obtained ECAC certification in 2019 which allows us to sell the TRACER 1000 to airport and cargo security customers in the European Union and certain other countries. We currently sell the TRACER 1000 to customers who accept ECAC certification. As of March 31, 2025, we have the TRACER 1000 in approximately 32 locations in 15 countries throughout the United States of America, Europe and Asia.

In June of 2024, the TSA approved 1st Detect’s TRACER 1000 for the Air Cargo Security Technology List, which advanced the TRACER 1000 to Stage II testing, and permits air cargo companies in the United States to use our equipment in their operations. During Stage II testing, we are conducting field trials with the TSA. If field trials are successful, the TRACER 1000 will be added to the “qualified” list.

We have also started the process to pass TSA checkpoint testing. This process involves Developmental Test and Evaluation in which the Transportation Security Laboratory (“TSL”) will test the TRACER 1000 and work with 1st Detect to ensure its readiness to enter certification testing. The certification test is then completed by the Independent Test & Evaluation department of TSL. For the fiscal year 2023, the U.S. federal government had a budget of over 6,000 ETD units at checkpoint and baggage screening points for which we believe that the TSA would benefit from utilizing our AMS Technology.

We are currently accepting orders for the TRACER 1000 ETD and narcotics trace detector (“NTD”) which are listed in the U.S. General Services Administration (“GSA”) IT Schedule 70 under Contract No. GS-35F-250GA with SRI Group LLC, Special Item Number 334290. The TRACER 1000 ETD and NTD are high-performance laboratory instruments capable of rapid detection of trace levels of explosive and narcotic compounds in seconds. The TRACER 1000 ETD and NTD both provide a ruggedized platform that can be applied across various markets including airports, border security, checkpoint, cargo, and infrastructure security, correctional facilities, military, and law enforcement.

IT Schedule 70 is a long-term contract issued by the GSA to commercial technology vendors that allows sales to the U.S. federal government, one of the largest buyers of goods and services in the world.

On January 14, 2025, our wholly owned subsidiary, 1st Detect Corporation, announced that it has been awarded research and development contract 70RSAT24CB0000015 with the U.S. Department of Homeland Security (“DHS”) to research, develop and mature the TRACER 1000 for DHS next generation explosives trace detection.

On January 23, 2025, we announced that 1st Detect received a purchase order for its TRACER 1000™ ETDs from Intuitive Research and Technology Corporation a TSA contractor. The purchase order was valued at $429 thousand and was recognized as revenue during the three months ended March 31, 2025.

On March 10, 2025, we announced the TRACER 1000 NTD has been configured to screen for a range of synthetic opiates and novel psychoactive substances delivering accuracy and speed to counter the global drug crisis.

We continue to showcase the TRACER 1000 NTD and ETD at trade events in the U.S.

AgLAB Inc.

AgLAB Inc. (“AgLAB”), an exclusive licensee of ATI for the use in the agriculture industry to analyze complex chemical compounds found in organic plant material and extracts, has developed the AgLAB 1000™ series of mass spectrometers for use in the hemp and cannabis markets with the initial focus on optimizing yields in the distillation process. The AgLAB product line is a derivative of our core AMS Technology. AgLAB continues to conduct field trials demonstrating that the AgLAB 1000-D2™ can be used in the distillation process to significantly improve the 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 assist the equipment operator determining the ideal settings required to maximize yields.

Production and processing of hemp and cannabis is a large, worldwide industry. We believe growth in the U.S. and in the worldwide market is likely fed in part by the growing acceptance of medicinal cannabis products and anticipated legislative changes in various jurisdictions worldwide. We also believe this growth is due in part to the passage of the 2018 Farm Bill, which legalized hemp production in the U.S.

As the CBD and hemp market continues to grow, there has been an influx of new companies entering the CBD and THC supply chains, ranging from large corporations to small startups. These companies comprise AgLAB’s target market. The competition within the supply chain is fierce, with companies investing heavily in research and development to create innovative products and differentiate themselves from their competitors. However, the market remains highly fragmented, with many products of varying quality and efficacy, making it challenging for consumers to navigate. Overall, the CBD and hemp market in the U.S. is a rapidly growing industry with significant potential for continued expansion. As more research is conducted and regulations are established, we believe it is likely that the market will become more standardized and regulated, leading to increased consumer confidence and demand. Stakeholders in the industry are likely to face challenges as it matures, including increased competition and potential regulatory hurdles.

Management believes the AgLAB 1000-D2™ will deliver a compelling combination of cost and time savings while enhancing product quality and quantity for distillation processors of hemp and cannabis. The use of the AgLAB 1000-D2™ should reduce waste from current distillation practices and result in a significantly improved product. Due in large part to the Company’s proprietary technology, we believe it is the only provider of a mass spectrometry system that gives it a distinct advantage in the industry. Sales efforts for the AgLAB 1000-D2 are currently underway.

AgLAB announced the presentation of the AgLAB Maximum Value Processing at MJBizCon. The AgLAB MVP is an innovative process control system proven to increase the potency of ending-weight yields and increase revenue. The AgLAB MVP process provides real-time data, allowing distillers to adjust parameters to optimize the quality and quantity of each batch of oil. During our field trials of the AgLAB MVP, we were able to improve ending-weights yields by approximately 15% to 30% depending on application. We believe these ongoing field trials demonstrate the solution can be a valuable tool for cannabis and hemp oil processors worldwide.

On June 13, 2024, AgLAB and SC Laboratories (“SC Labs”) entered into a master lease agreement providing for the joint marketing of the AgLAB 1000-D2™ mass spectrometer and the AgLAB Maximum Value Process™ testing method to SC Labs’ clients.

BreathTech Corporation

BreathTech Corporation (“BreathTech”) is an exclusive licensee of ATI for use in breath analysis applications. In October 2020, we entered into a Joint Development Agreement with The Cleveland Clinic Foundation (“CCF JDA”) to develop a rapid breath test for coronavirus infection or related indicators using BreathTech’s license for the AMS Technology and collection of data through a clinical study. The CCF JDA expired on April 30, 2025.

In conjunction with the CCF JDA, BreathTech entered into an Investigator-Initiated Study Agreement with The Cleveland Clinic Foundation (“CCF IISA”), effective March 31, 2021, to expand the application of breath analysis by collecting and studying the gaseous portion of exhaled breath for markers of lung and systemic diseases. The pilot study concluded and the CCF IISA terminated in accordance with its terms on February 7, 2025. We believe additional studies will be required to continue exploration of technologies which may provide non-invasive methods of monitoring and studying lung and systemic diseases.

We believe commercialization of this application with the AMS Technology will require many years and significant investment due to regulatory requirements and have determined to deploy capital instead to our other subsidiaries. We are also exploring how the advancements and knowledge derived from our research on the BreathTech use case can be applied in our other existing and potential new business units.

EN-SCAN, Inc.

On February 28, 2025, we announced the formation of our new wholly owned subsidiary, EN-SCAN, to manufacture and sell a new line of instruments built for environmental testing using its proprietary ATi Gas Chromatograph ("GC") and AMS Technology for outdoor field work for on-site, real-time air, water, and soil analysis providing instant feedback for accurate contamination source location and migration. With a focus on real-time monitoring, EN-SCAN is expected to enable organizations to make data-driven decisions while reducing testing costs and time delays. The EN-SCAN lineup includes EN-SCAN Rugged Lab GC-MS, EN-SCAN Fenceline Monitor, and EN-SCAN Handheld GC. Each of these three testing solutions are designed for specific applications.

Pro-Control, Inc.

On December 12, 2023, we announced the formation of our new wholly owned subsidiary, Pro-Control, and ATI’s entry into an exclusive license with Pro-Control to utilize our AMS Technology for industrial process control applications involving chemical distillation outside of the agriculture industry. Pro-Control uses advanced mass spectrometer instrumentation to monitor and control the production and operations of manufacturing processes using real-time, in-process samples. Pro-Control provides the vital spectral qualitative and quantitative data needed to control the production parameters (temperatures, flow, speed, and pressure) while significantly improving efficiency.

Pro-Control has introduced its proprietary Pro-Control Maximum Value Processing and the Pro-Control 1000-D2™ mass spectrometer, which in combination are designed to test, measure and increase reaction intermediates, purity and percent yields in industrial processes.

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. 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 March 31, 2025, compared to three months ended March 31, 2024:

Selected consolidated financial data for the three months ended March 31, 2025, and 2024 is as follows:

(In thousands)

Revenue – Total revenue increased by $484 thousand during the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024. In the third quarter of fiscal year 2025, revenue was primarily derived from sales of our TRACER 1000, a government grant and ongoing consumable and recurring maintenance services of the TRACER 1000. In the third quarter of fiscal year 2024, revenue was primarily derived from ongoing consumables and recurring maintenance services of the TRACER 1000. The increase in revenue is the result of selling more devices during the third quarter of fiscal year 2025 than were sold in the third quarter of fiscal year 2024.

Cost of Revenue – Gross profit is comprised of revenue less cost of revenue. Our costs of revenue include materials, overhead, warranty expenses, shipping, and labor. Cost of revenue increased by $255 thousand during the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024, primarily due to the increase in device sales. Gross margin increased by 28% in the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024. The device sales in fiscal year 2025 had a higher margin compared to the device sales in fiscal year 2024 which resulted in an increase in gross margin.

Operating Expenses – Operating expenses increased $563 thousand, or 15.9%, during the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024. Significant changes to operating expenses include the following:

• Selling, general and administrative expenses increased $282 thousand or 15.4% during the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024 due to an increase in sales consulting and the hiring of additional employees.
• Research and development expenses increased $281 thousand, or 16.5%, during the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024, largely driven by increased spending on contractors and employees to support the development of our mass spectrometry offering and expenses related to cross-platform improvements to our technology.

Other Income and Expense, net – Other income and expense, net decreased $145 thousand during the third quarter of fiscal year 2025, compared to the third quarter of fiscal year 2024, due to less investments earning interest income.

Nine months ended March 31, 2025, compared to nine months ended March 31, 2024:

Selected consolidated financial data for the nine months ended March 31, 2025, and 2024 is as follows:

(In thousands)

Revenue – Total revenue decreased by $761 thousand during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024. In the nine months ended March 31, 2025, revenue was primarily derived from sales of our TRACER 1000, a government grant and ongoing consumable and recurring maintenance services of the TRACER 1000. In the nine months ended March 31, 2024, revenue was primarily derived from sales of our TRACER 1000 along with ongoing consumable and recurring maintenance services of the TRACER 1000. The decrease in revenue is the result of selling fewer devices during fiscal year 2025 compared to fiscal year 2024.

Cost of Revenue – Gross profit is comprised of revenue less cost of revenue. Our costs of revenue include materials, overhead, warranty expenses, shipping, and labor. Cost of revenue decreased by $439 thousand during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024, primarily due to a decrease in device sales. Gross margin increased by 3% during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024. This increase was primarily due to the device sales in fiscal year 2025 having a higher margin compared to the device sales in fiscal year 2024. In addition, grant revenue had a minimal cost of revenue and lower costs of revenue due to a sales mix. These factors resulted in an increase in gross margin.

Operating Expenses – Operating expenses increased $1.6 million, or 14.6%, during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024. Significant changes to operating expenses include the following:

• Selling, general and administrative expenses increased $341 thousand, or 6.2% during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024, due to an increase in sales consulting and the hire of additional employees.
• Research and development expenses increased $1.2 million, or 23.6%, during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024, largely driven by increases in contractors personnel count to support the development of our mass spectrometry offering and expenses related to cross-platform improvements to our technology.

Other Income and Expense, net – Other income and expense, net decreased $333 thousand during the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024, due to less investments earning interest income.

Liquidity and Capital Resources

Cash Flows

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

(In thousands)

Cash and Cash Equivalents

As of March 31, 2025, we held cash and cash equivalents of $2.8 million, and our working capital was approximately $22.1 million. As of June 30, 2024, we had cash and cash equivalents of $10.4 million, and our working capital was approximately $32.2 million. Cash and cash equivalents decreased $7.6 million as of March 31, 2025, compared to June 30, 2024, due to funding our operating losses.

Operating Activities

Cash used in operating activities increased $3.4 million for the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024, due to increased use of cash to fund operating losses and working capital.

Investing Activities

Cash provided by investing activities increased $1.5 million for the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024, due primarily to selling short-term time deposit investments.

Financing Activities

Cash used in financing activities was slightly lower for the nine months ended March 31, 2025, compared to the nine months ended March 31, 2024.

We did not have any material off-balance sheet arrangements as of March 31, 2025.

Liquidity

There have been no material updates to our expectations for our short- and long-term liquidity and operating capital requirements since our 2024 Form 10-K.

Income Taxes

Provision for Income Tax

The Company’s effective tax rate is 0% for income tax for the nine months ended March 31, 2025, and the Company expects that its effective tax rate for the full fiscal year 2025 will be 0%. Based on the weight of available evidence, including net cumulative losses 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. 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 $593 thousand of uncertain tax positions as of March 31, 2025, 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 $1 thousand provision for state minimum tax expense during the nine months ended March 31, 2025. There was $2 thousand provision for income taxes during the nine months ended March 31, 2025.

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 March 31, 2025, 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 March 31, 2025, that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Our business, financial condition, results of operations, and cash flows may be impacted by several factors, many of which are beyond our control, including those set forth in our 2024 Form 10-K and our subsequently filed Form 10-Qs, the occurrence of any one of which could have a material adverse effect on our actual results.

Except as set forth below, 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 2024 Form 10-K.

Our manufacturing operations are dependent upon third party suppliers, including single source suppliers, making us vulnerable to external factors such as trade restrictions, supply shortages and price fluctuations, which could harm our business.

We are subject to the risks inherent in the manufacturing of our products, including industrial accidents, environmental events, strikes and other labor disputes, capacity constraints, as well as tariffs and other trade restrictions, global shortages, disruptions in supply chain and loss or impairment of key suppliers, as well as natural disasters and other external factors over which we have no control. Our products contain several critical components, including certain electrical components such as specialized cables and specialized pumps. Some of the suppliers of critical components or materials are single source suppliers. Although we believe there are suitable alternative suppliers for these components, the replacement of existing suppliers or the identification and qualification of suitable second sources may require significant time, effort and expense, and could result in delays in production, which could negatively impact our business operations and revenue. We do not have supply agreements with certain suppliers of these critical components and materials beyond purchase orders and, although we maintain a safety stock inventory for certain critical components, forecasted amounts may be inaccurate and we may experience shortages because of serious supply problems with these suppliers. Additionally, the U.S. has recently enacted and proposed to enact significant new tariffs on certain goods or countries and may have new or retaliatory tariffs imposed on the U.S., which could increase the cost of raw materials and components we purchase. There can be no assurance that our supply of components will not be limited, interrupted, or of satisfactory quality or continue to be available at acceptable prices. In addition, loss of any critical component provided by a single source supplier could require us to change the design of our manufacturing process based on the functions, limitations, features and specifications of the replacement components.

In addition, several other non-critical components and materials that comprise our products are currently manufactured by a single supplier or a limited number of suppliers. In certain of these cases, we have not yet qualified alternate suppliers. A supply interruption or an increase in demand beyond our current suppliers’ capabilities could harm our ability to manufacture our products unless and until new sources of supply are identified and qualified. Our reliance on these suppliers subjects us to several risks that could harm our business, including:

• interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
• trade disputes or other political conditions or economic conditions;
• delays in the manufacturing operations of our suppliers, or in the delivery of parts and components to support such manufacturing operations, due to the impact of public health issues, endemics or pandemics, such as COVID-19;
• delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component;
• a lack of long-term supply arrangements for key components with our suppliers;
• inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;

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• difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner;
• a modification or change in a manufacturing process or part that unknowingly or unintentionally negatively impacts the operation of our platform;
• production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;
• delay in delivery due to our suppliers prioritizing other customer orders over ours;
• damage to our brand reputation caused by defective components produced by our suppliers;
• increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers; and
• fluctuation in delivery by our suppliers due to changes in demand from us or their other customers.

Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could result in increased costs and impair our ability to meet the demand of our customers, any of which would have an adverse effect on our business, financial condition, results of operations and prospects.

Changes in U.S. trade policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have a material adverse effect on us.

The recent change in the U.S.’s approach to international trade may impact existing bilateral or multi-lateral trade agreements and treaties with foreign countries. The U.S. has imposed tariffs on certain foreign goods and may increase tariffs or impose new ones, and certain foreign governments have retaliated and may continue to do so. We derive a significant portion of our revenues from international sales, which makes us especially vulnerable to increased tariffs. Additionally, the implementation of these or other tariffs may lead to increased costs for our product components, which could impact our ability to maintain competitive pricing in the market. Changes in U.S. trade policy have created ongoing turmoil in international trade relations, and it is unclear what future actions the U.S. government or foreign governments will or will not take with respect to tariffs or other international trade agreements and policies. Current trade negotiations may fail, which may exacerbate these risks. Ongoing or new trade wars or other governmental action related to tariffs or international trade agreements or policies could reduce demand for our products and services, increase our costs, reduce our profitability, adversely impact our supply chain or otherwise have a material adverse effect on our business and results of operations.