Quarterly Report for Quarter Ending December 31, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 encompasses the advancement of both mass spectrometry and gas chromatography, two powerful analytical techniques that together enable precise detection and identification of chemical compounds across a wide range of high-demand environments. We aim to expand access to mass spectrometry 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 are introducing our new line of products that are ultra-portable, on-site, rugged environmental testing instruments, featuring our proprietary ATi Gas Chromatography Column ("GC") and ATi Mass Spectrometer Technology ("MS") to achieve our mission through simplifying the user interface, ruggedizing the critical components to endure MS/GC field work, and enabling multiple configurations for sample intake options.The Astrotech Mass Spectrometer Technology™ and ATi GC platforms achieve our mission through simplifying the user interface, automating the complicated calibration process, ruggedizing the critical components to endure MS/GC 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.

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 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 16 patents granted along with extensive trade secrets. With a number of 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 four wholly-owned subsidiaries on an exclusive basis.

1st Detect Corporation

1st Detect Corporation ("1^st 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 U.S. Transportation Security Administration ("TSA") for air cargo. The TRACER 1000 was designed to outperform the ETDs currently 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 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 December 31, 2025, we have the TRACER 1000 in approximately 35 locations in 16 countries throughout the United States of America, Europe and Asia.

In June 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 NTD which are listed in the United States 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 United States 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 United States Department of Homeland Security ("DHS") to research, develop and mature the TRACER 1000 for DHS next generation explosives trace detection.

On March 10, 2025, we announced the launch of the enhanced TRACER 1000 Narcotic Trace Detector ("TRACER 1000 NTD"). This innovative mobilized mass spectrometer is specifically configured to screen for the full range of synthetic opiates and novel psychoactive substances ("NPS") delivering accuracy and speed to counter the global drug crisis.

In April 2025, we received a $429,000 purchase order for TRACER 1000™ explosive trace detectors ("ETDs") from Intuitive Research and Technology, a TSA approved contractor. In April 2025, we fulfilled the purchase order and sold six TRACER 1000 explosive detectors to Intuitive Research and Technology Corporation. This is the first TSA-approved sale of our TRACER 1000 ETD, which utilizes mass spectrometry technology, known for its accuracy and low false alarm rate.

On June 12, 2025, we sold the first sale and deployment of the TRACER 1000 Narcotic Trace Detector in Vietnam, by way of its subsidiary 1st Detect. This milestone marked a significant step in expanding the 1st Detect footprint across Southeast Asia and reinforces its commitment to enhancing narcotics trace detection inspection capabilities.

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, an exclusive licensee of ATI for use in breath analysis applications, has developed the BreathTest-1000™, a breath analysis tool to screen for VOC metabolites found in a person's breath that could indicate they may have compromised condition. We believe that new tools to quickly identify the presence of a VOC metabolite could play an important role in detecting and containing airborne diseases.

In conjunction with the CCF JDA, BreathTech entered into an Investigator-Initiated Study Agreement ("CCF IISA") with The Cleveland Clinic Foundation ("Cleveland Clinic"), 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 currently have no active or anticipated studies with Cleveland Clinic under the CCF JDA. In addition, we have satisfied all payment obligations under the CCF JDA. We believe additional studies would be required to continue exploration of technologies which may provide non-invasive methods of monitoring and studying lung and systematic diseases.

We believe commercialization of this application with the AMS Technology would require many years and significant investment due to regulatory requirements. As such, we 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.

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. 

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.

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 our 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 December 31, 2025, compared to three months ended December 31, 2024:

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

		Three Months Ended December 31,
(In thousands)		2025				2024
Revenue		$	148			$	261
Cost of revenue			140				106
Gross profit			8				155
Gross margin			5	%			59	%
Operating expenses:
Selling, general and administrative			2,077				2,039
Research and development			1,832				2,437
Total operating expenses			3,909				4,476
Loss from operations			(3,901	)			(4,321	)
Other income and expense, net			(26	)			312
Net loss		$	(3,927	)		$	(4,009	)

Revenue - Total revenue decreased by $113 thousand during the three months ended December 31, 2025, compared to the same period in 2024. This decrease was primarily due to lower instrument and grant revenue recognized during the quarter. Consumables revenue increased meaningfully compared to the prior period; however, this increase was not sufficient to offset the decline across other products categories. Revenue during the three months ended December 31, 2025, continued to be concentrated among one or two customers, consistent with prior periods. In the three months ended December 31, 2025, there was also the addition of a new customer, which may help mitigate revenue volatility associated with customer concentration.

Cost of Revenue - Gross profit is comprised of revenue less cost of revenue. Our cost of revenue increased by $34 thousand during the three months ended December 31, 2025, compared to the same period in 2024. The increase was driven by higher warranty-related costs and expenses incurred to support service and maintenance activities during the three months ended December 31, 2025. As a result, gross margin decreased by 54% during the three months ended December 31, 2025, compared to the same period in 2024.

Operating Expenses - Operating expenses decreased by $567 thousand, or 12.7%, during the three months ended December 31, 2025, compared to the same period in 2024. Significant changes to operating expenses include the following:

●

Selling, general and administrative expenses increased $38 thousand or 1.9% during the three months ended December 31, 2025, compared to the same period in 2024 primarily due to higher legal costs, investor relations, moving costs, and depreciation associated with leasehold improvements placed in service in October 2025 for the new location. These increases were partially offset by reduced spending on sales and marketing activities and lower consulting expenses.

●

Research and development expenses decreased $605 thousand, or 24.8%, during the three months ended December 31, 2025, compared to the same period in 2024. The decrease was primarily driven by lower consulting costs and reduced spending on materials and equipment. These reductions were partially offset by higher facilities related expenses associated with the move to the new location. In addition, the hiring of a new employee during the three months ended December 31, 2025, resulted in higher payroll and related expenses.

Other Income and Expense, net - Other income and expense, net decreased by $338 thousand during the three months ended December 31, 2025, compared to the same period in 2024, primarily due to lower dividend income and a realized loss on securities, partially offset by higher interest income.

Six months ended December 31, 2025, compared to six months ended December 31, 2024:

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

		Six Months Ended December 31,
(In thousands)		2025				2024
Revenue		$	445			$	295
Cost of revenue			249				131
Gross profit			196				164
Gross margin			44	%			56	%
Operating expenses:
Selling, general and administrative			3,857				3,727
Research and development			3,776				4,386
Total operating expenses			7,633				8,113
Loss from operations			(7,437	)			(7,949	)
Other income and expense, net			45				662
Net loss		$	(7,392	)		$	(7,287	)

Revenue - Total revenue increased by $150 thousand for the six months ended December 31, 2025, compared to the same period in 2024.The year- over year-increase was primarily attributable to a $220 thousand increase in grant revenue and a $50 thousand increase in consumables. These increases were partially offset by lower product revenue and warranty revenue of $120 thousand and $20 respectively.

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 $118 thousand during the six months ended December 31, 2025, compared to the same period in 2024. This increase reflects costs associated with fulfilling grant related milestones and warranty expenses. Gross margin declined primarily because cost of revenue increased at a rate that was nearly proportional to the increase in revenue, driven by higher labor and increased warranty-related expenses.

Operating Expenses - Operating expenses decreased $480 thousand, or 5.9% during the six months ended December 31, 2025 compared to the same period in 2024.

●

Selling, general and administrative expenses increased by $130 thousand during the six months ended December 31, 2025, compared to the prior year period. The increase was primarily driven by moving related costs, higher depreciation associated with leasehold improvements for the Braker lease, and increased legal fees, partially offset by lower consulting fees.

●

Research and development expenses decreased by approximately $610 thousand, or 13.9%, compared to the second period in 2024. The decrease was primarily driven by reductions in contractor and consulting spending and lower materials and equipment costs, partially offset by higher labor and fringe expenses and increased facilities costs associated with the new location.

Other Income and Expense, net - Other income and expense, net decreased by $617 thousand for the six months ended December 31, 2025, compared to the same prior year period, due to lower dividend income and higher realized loss on securities

Liquidity and Capital Resources

Cash Flows

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

		Six Months Ended December 31,
(In thousands)		2025				2024				Change
Change in cash and cash equivalents:
Net cash used in operating activities		$	(7,479	)		$	(6,730	)		$	(749	)
Net cash provided by investing activities			7,528				(472	)			8,000
Net cash used in financing activities			(54	)			(79	)			25
Net change in cash and cash equivalents		$	(5	)		$	(7,281	)		$	7,276

Cash and Cash Equivalents

As of December 31, 2025, cash and cash equivalents remained approximately $3.1 million and working capital was $12.5 million, compared to cash and cash equivalents of $3.2 million, and working capital of approximately $25.5 million as of December 30, 2024. Cash decreased by approximately $5 thousand during the six months ended December 31, 2025, as operating cash outflows were largely offset by proceeds from short-term investment.

Operating Activities

Cash used in operating activities increased by approximately $0.7 million for the six months ended December 31, 2025, compared to the same period in 2024, due to higher operating losses and increased working capital requirements.

Investing Activities

Cash provided by investing activities increased by approximately $8 million driven primarily by $8.4 million of proceeds from short investments, partially offset by $0.9 million of capital expenditures, including leasehold improvements.

Financing Activities

Cash used in financing activities decreased by $25 thousand for the six months ended December 31, 2025 compared to the same period in 2024, primarily due to lower payments on finance lease obligations.

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

Liquidity

The Company's unaudited consolidated financial statements have been prepared in accordance with US GAAP, which assumes that the Company's management will evaluate whether it will be able to meet its obligations and continue its operations in the normal course of business. At December 31, 2025, the Company had cash of approximately $3,095,000, short-term investments of approximately $7,037,000, and has positive working capital of $12,450,000.

Management believes that its current available resources, along with potential funds to be received from potential equity offerings, will be sufficient to fund the Company's planned expenditures over the next 12 months. However, management recognizes that it may be required to obtain additional resources to successfully execute its business plans. No assurances can be given that management will be successful in raising additional capital, if needed, or on acceptable terms. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company determine, it shall be unable to continue as a going concern.

Income Taxes

Provision for Income Tax

The Company's effective tax rate is 0% for income tax for the three and six months ended December 31, 2025 and the Company expects that its effective tax rate for the full fiscal year 2026 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 it 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 $763 thousand of uncertain tax positions as of December 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 was no income tax expense for the three and six months ended December 31, 2025. There was $1 thousand provision for income taxes during both the three and six months ended December 31, 2024.