Filed pursuant
to Rule 424(b)(4)
Registration No. 333-239705 and 333-249582
PROSPECTUS

ASTROTECH CORPORATION
$18,000,000
consisting of 7,826,086 Shares of Common Stock
And Placement Agent Warrants to Purchase up to 469,565 Shares of
Common Stock
We are offering in a best-efforts offering 7,826,086 shares of our
common stock, par value $0.001 per share, at a purchase price of
$2.30 per share of common stock.
There is no minimum number of securities or minimum aggregate
amount of proceeds for this offering to close. The offering of the
securities will terminate on the first date that we enter into
securities purchase agreements to sell the securities offered
hereby.
Our common stock is listed on The Nasdaq Capital Market under the
symbol “ASTC”. On October 20, 2020, the closing price as reported
on The Nasdaq Capital Market was $1.66 per share. There is no established public trading market for
placement agent’s warrants and we do not expect a market to
develop. Without an active trading market, the liquidity of the
warrants will be limited. In addition, we do not intend to list the
placement agent’s warrants on The Nasdaq Capital Market, any other national securities
exchange or any other trading system.
Investing in our common stock involves a high degree of risk. See
“Risk Factors” beginning on page 8 of this prospectus.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Public Offering price
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$
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2.300
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$
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18,000,000
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Placement agent fees (1)
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$
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0.161
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$
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1,260,000
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Proceeds to us, before expenses (2)
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$
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2.139
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$
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16,740,000
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1.
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We have agreed to reimburse H.C. Wainwright & Co., LLC (the
“Placement Agent”) for certain of its offering-related expenses,
including a management fee of 0.6% of the gross proceeds. In
addition, we have agreed to issue to the Placement Agent warrants
to purchase up to a number of shares of our common stock equal to
6.0% of the number of shares of common stock being offered at an
exercise price equal to 125% of the public offering price of the
shares common stock. See “Plan of Distribution” for additional
information and a description of the compensation payable to the
Placement Agent.
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2.
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We estimate the total expenses of this offering payable by us,
excluding the placement agent fee, will be approximately
$194,700.
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We anticipate that delivery of the securities against payment will
be made on or about October 23, 2020.
1
H.C. WAINWRIGHT & CO.
Prospectus dated October 21, 2020
2
TABLE OF CONTENTS
We and the placement agent have not authorized anyone to provide
any information or to make any representations other than those
contained in or incorporated by reference in this prospectus or in
any free writing prospectuses prepared by or on behalf of us or to
which we have referred you. We take no responsibility for, and can
provide no assurance as to the reliability of, any other
information that others may give you. This prospectus is an offer
to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in or incorporated by reference in this
prospectus is accurate only as of its date regardless of the time
of delivery of this prospectus or of any sale of common
stock.
To the extent there is a conflict between the information contained
in this prospectus, on the one hand, and the information contained
in any document incorporated by reference filed with the U.S.
Securities and Exchange Commission (the “SEC”) before the date of
this prospectus, on the other hand, you should rely on the
information in this prospectus. If any statement in a document
incorporated by reference is inconsistent with a statement in
another document incorporated by reference having a later date, the
statement in the document having the later date modifies or
supersedes the earlier statement.
Neither we nor the placement
agent have done anything that would permit this offering or
possession or distribution of this prospectus in any jurisdiction
where action for that purpose is required, other than in the United
States. Persons who come into possession of this prospectus and any
free writing prospectus in jurisdictions outside the United States
are required to inform themselves about and to observe any
restrictions as to this offering and the distribution of this
prospectus and any free writing prospectus applicable to that
jurisdiction.
3
This
prospectus and the documents incorporated by reference in this
prospectus contain market data and industry statistics and
forecasts that are based on independent industry
publications
and other publicly available information. Although we believe that
these sources are reliable, we do not guarantee the accuracy or
completeness of this information and we have not independently
verified this information. Although we are not aware of any
misstatements
regarding the market and industry data presented or incorporated by
reference in this prospectus, these estimates involve risks and
uncertainties and are subject to change based on various factors,
including those discussed under the heading “Risk
Factors” and any related free writing prospectus. Accordingly,
investors should not place undue reliance on this
information.
4
PROSPECTUS
SUMMARY
This summary highlights certain information about us, this offering
and selected information contained elsewhere in this prospectus and
in the documents incorporated by reference. This summary is not
complete and does not contain all of the information that you
should consider before deciding whether to invest in our
securities. For a more complete understanding of our company and
this offering, we encourage you to read and consider carefully the
more detailed information contained in or incorporated by reference
in this prospectus, including the information contained under the
heading “Risk Factors” beginning on page 8 of this prospectus, and
the information included in any free writing prospectus that we
have authorized for use in connection with this offering.
Throughout this prospectus, the terms “we,” “us,” “our,” and “our
company” refer to Astrotech Corporation, a Delaware corporation,
and its consolidated subsidiaries unless the context requires
otherwise.
Company Overview
Astrotech Corporation, organized in 1984 as a Washington
corporation, 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. In 2017, we reincorporated as a
Delaware corporation.
Our Business Units
Astrotech Technology, Inc.
Astrotech Technology, Inc. (“ATI”) owns and licenses the
Astrotech Mass Spectrometer
Technology™ (the “AMS Technology™”), the platform mass
spectrometry technology originally developed by 1st Detect
Corporation (“1st
Detect”). The intellectual property includes 37 granted
patents and five additional patents in process. With a
number of diverse market opportunities for the core technology, ATI
licenses the intellectual property for different fields of use. ATI
currently licenses the intellectual property to 1st Detect
for use in the security and detection market, to AgLAB Inc.
(“AgLAB”) for use in the agriculture market, and to BreathTech
Corporation (“BreathTech”) for use in breath analysis.
1st Detect
Corporation
1st
Detect, a licensee of ATI, 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 explosives trace
detectors used at airports, secured facilities, and borders
worldwide.
AgLAB Inc.
AgLAB, a licensee of ATI, is developing the AgLAB-1000™ series of
mass spectrometers for use in the agriculture market. These systems are being designed for applications
in the hemp and cannabis markets to maximize processing
efficiencies and to detect trace levels of solvents and
pesticides.
BreathTech Corporation
BreathTech, a licensee of ATI, is developing the BreathTest-1000™,
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 Coronavirus Lung Disease 2019 (“COVID-19”) or
pneumonia.
Our principal executive offices are located at 2028 E. Ben White
Blvd. #240-9530, Austin, TX 78741, and our telephone number is
512-485-9530.
Our common stock trades on The Nasdaq Capital Market under the
symbol “ASTC”.
5
Available
Information
Our principal Internet address is
www.astrotechcorp.com. We make available free of charge
on www.astrotechcorp.com our annual, quarterly and current reports,
and amendments to those reports, as soon as reasonably practicable
after we electronically file such material with, or furnish it to,
the SEC. You may also read and copy any materials we file with the
SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC at
http://www.sec.gov.
Recent Developments
As previously noted in our Form
10-K for the fiscal year ended June 30, 2020, we were not in
compliance with the minimum stockholders’ equity requirement under
Nasdaq Listing Rule 5550(b)(1) for continued listing on The Nasdaq
Capital Market because our stockholders’ equity was below the
required minimum of $2.5 million at June 30, 2020. On September 11,
2020, we received a notice from the Listing Qualifications
Department of the Nasdaq Stock Market LLC (“Nasdaq”) stating that
we were not in compliance with the required stockholder’s equity of
$2.5 million.
The Notice has no immediate effect on our listing on The Nasdaq
Capital Market. The Company originally had until October 26, 2020
to submit a plan to regain compliance with the minimum
stockholders’ equity requirement; however, Nasdaq granted an
extension of the deadline to submit a plan until November 2, 2020.
If our plan to regain compliance is accepted, Nasdaq may grant an
extension of up to 180 calendar days from the date of the Notice to
evidence compliance (the “Compliance Period”).
We are presently evaluating
various courses of action to regain compliance and intend to timely
submit a plan to Nasdaq to regain compliance with the Nasdaq
minimum stockholders’ equity requirement. However, there can be no
assurance that our plan will be accepted or that if it is, we will
be able to regain compliance by the end of the Compliance Period.
If our plan to regain compliance is not accepted, or if it is and
we do not regain compliance during the Compliance Period, or if we
fail to satisfy another Nasdaq requirement for continued listing,
Nasdaq could provide notice that our common stock will become
subject to delisting. In such event, Nasdaq rules would permit us
to appeal the decision to reject our proposed plan to regain
compliance or any delisting determination to a Nasdaq Hearings
Panel.
6
THE
OFFERING
Common stock outstanding prior to this offering
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7,843,770 shares.
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Common stock offered
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7,826,086 shares.
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Common stock to be outstanding after this offering
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15,669,856 shares, assuming no exercise of the warrants issued to
the placement agent (the “Placement Agent Warrants”).
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Use of proceeds
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We estimate that our net proceeds from this offering will be
approximately $16.3 million. This is based on a public offering
price of $2.30 per share, after deducting the estimated placement
agent fees and commissions and estimated offering expenses payable
by us.
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We intend to use the net proceeds of this offering for continuing
operating expenses and working capital.
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Risk factors
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See “Risk Factors” beginning on page 8 of this prospectus, as well
as other information included in this prospectus, for a discussion
of factors you should read and consider carefully before investing
in our securities.
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Nasdaq Capital Markets symbol
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Our common stock is listed on The Nasdaq Capital Markets under the
symbol “ASTC”.
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The number of shares of our common stock to be outstanding after
this offering as shown above is based on 7,843,770 shares
outstanding as of September 30, 2020, and excludes as of that
date:
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265,035 shares of our
common stock issuable upon exercise of outstanding options at a
weighted average exercise price of $5.33 per share;
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85,913 shares of our
common stock issuable upon exercise of outstanding warrants at a
weighted average exercise price of $5.14 per share;
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280,898 shares of common
stock issuable upon the conversion of our Series D Preferred Stock;
and
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2,129,775
shares of our common stock to be reserved for potential future
issuance pursuant to the Astrotech Corporation 2011 Stock Incentive
Plan (the “Plan”).
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Except as otherwise indicated herein, all information in this
prospectus assumes no exercise of options issued under our Plan or
of warrants described above, including the Placement Agent
Warrants.
7
RISK
FACTORS
An investment in our securities involves a high degree of risk.
This prospectus contains a discussion of the risks applicable to an
investment in our securities. Prior to making a decision about
investing in our securities, you should carefully consider the
specific factors discussed within this prospectus. The risks and
uncertainties we have described are not the only ones we face.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also affect our operations.
The occurrence of any of these known or unknown risks might cause
you to lose all or part of your investment in the offered
securities.
We have incurred significant losses since inception and anticipate
that we will incur continued losses for the foreseeable future.
As of June 30, 2020, we had an accumulated deficit of approximately
$199.8 million and a reported net loss of $8.3 million for the
fiscal year 2020. We are unable to
predict the extent of any future losses or when we will become
profitable, if at all. If we are unable to achieve and then
maintain profitability, the market value of our common stock will
likely experience significant decline.
We could face risks related to the potential outcomes of SEC
inquiries, including potential regulatory action or private
litigation, potential penalties, damages or other remedies that
could be imposed on us, substantial legal costs and expenses,
significant management distraction, and potential reputational
damage that we could suffer as a result of adverse findings
resulting from any SEC inquiry.
Since April 2020, the staff of
the Fort Worth Regional Office of the U.S. Securities and Exchange
Commission (the “SEC”) has been conducting an investigation
relating to certain press releases issued by us in March 2020
regarding the BreathTest-1000™ lung disease screening device that
we are currently developing. The SEC has advised us that this
informal, non-public, fact-finding inquiry should not be construed
as an indication that we or anyone else has violated the law or
that the SEC has any negative opinion of any person, entity or
security. In connection with this inquiry, the SEC staff has
requested that we voluntarily provide certain information and
documents relating to the development of BreathTest-1000, the
common stock offerings completed by us in March 2020, and certain
related matters. We have been cooperating with the SEC staff
regarding this inquiry and have provided information and documents
in response to the SEC staff’s request.
On October 20, 2020, the Company received a letter from the staff
of the Fort Worth Regional Office of the SEC informing the Company
that the SEC staff had concluded this inquiry. The letter advised
the Company that the SEC staff does not intend to recommend an
enforcement action against the Company.
Our business units are in development
stage. They have earned limited revenues and it is uncertain
whether they will earn any revenues in the future or whether any of
them will ultimately be profitable.
Our business units are in an early stage with a limited operating
history. Their future operations are subject to all of the risks
inherent in the establishment of a new business including, but not
limited to, risks related to capital requirements, failure to
establish business relationships, and competitive disadvantages
against larger and more established companies. These business units
will require substantial amounts of funding to continue to
commercialize their products. If such funding comes in the form of
equity financing, such equity financing may involve substantial
dilution to existing shareholders. Even with funding, our products
may fail to be effective or attractive to the market or lack the
necessary financial or other resources or relationships to be
successful.
These business units can be expected to experience continued
operating losses until they can generate sufficient revenues to
cover their operating costs. Furthermore, these business units may
not be able to develop, manufacture, or market additional products
in the future, that future revenues will be significant, that any
sales will be profitable, or that the business units will have
sufficient funds available to complete their commercialization
efforts.
Any products and technologies developed and manufactured by our
business units may require regulatory approvals prior to being
made, marketed, sold, and used. Regulatory approval of any products
may not be obtained. In particular, FDA approval will be required
to market the BreathTest-1000 in the United States. Obtaining FDA
approval is a complex and lengthy process, and FDA approval for the
BreathTest-1000 may not be granted on a timely basis or at all.
8
The
commercial success of any of our business units will depend, in
part, on obtaining patent and other intellectual property
protection for
the technologies contained in any products it developed. In
addition, our business units may need to license intellectual
property to commercialize future products or avoid infringement of
the intellectual property rights of others. Licenses may not
be
available on acceptable terms and conditions, if at all. Our
business units may suffer if any licenses terminate, if the
licensors fail to abide by the terms of the license or fail to
prevent infringement by third parties, if the licensed patents or
other
rights are found to be invalid, or if our respective business
unit is unable to enter into necessary licenses on acceptable
terms. If such business unit, or any third-party, from whom it
licenses intellectual property, fails to obtain adequate patent or
other
intellectual property protection for intellectual property covering
its products, or if any protection is reduced or eliminated, others
could use the intellectual property covering the products,
resulting in harm to the competitive business position of
this business unit. In addition, patent and other intellectual
property protection may not provide our business units with a
competitive advantage against competitors that devise ways of
making competitive products without infringing any patents that
this
business unit owns or has rights to. Such competition could
adversely affect the prices for any products or the market share of
any of our business units and could have a material adverse effect
on its results of operations and financial condition.
Our cash and cash equivalents may not be sufficient to fund our
operating expenses, capital equipment requirements, and other
expected liquidity requirements.
Our future capital requirements will depend on a number of factors,
including our success in developing and expanding markets for our
products, payments under possible future strategic arrangements,
continued progress of our research and development of potential
products, the need to acquire licenses to new technology, costs
associated with increasing our manufacturing and development
facilities, costs associated with strategic acquisitions including
integration costs and assumed liabilities, litigation expense, the
status of competitive products, and potential cost associated with
both protecting and defending our intellectual property.
Additionally, actions taken as a result of the ongoing internal
evaluation of our business could result in expenditures that are
not currently contemplated. Factors that could affect our capital
requirements, in addition to those listed above include continued
collections of accounts receivable consistent with our historical
experience and our ability to manage product development
efforts.
We may not be able to successfully develop the BreathTest-1000™ or
any other new products or services.
Our business strategy outlines the use of the decades of experience
we have accumulated to expand the services and products we offer to
both U.S. government agencies and commercial industries. These
services and products are in the development stage and involve new
and untested technologies and business models. These technologies
and business models may not be successful, which could result in
the loss of any investment we make in developing them, including
the development of the BreathTest-1000.
Furthermore, we are subject to risks including, but not limited to,
the following with respect to the development of the
BreathTest-1000:
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the governmental
approval process could be lengthy, time consuming and is inherently
unpredictable, and we cannot guarantee that the required approvals
for our products, including FDA approvals, will be granted on a
timely basis or at all or that we will ever have a marketable
product;
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customers must be
persuaded that using our products are effective alternatives to
other existing detection methods available for COVID-19 in order
for our products to be commercially successful;
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if we fail to comply
with healthcare regulations, we could face substantial enforcement
actions, including civil and criminal penalties and our business,
operations and financial condition could be adversely
affected.
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Product development involves a high degree of risk and uncertainty,
and our potential products may not be successfully developed,
achieve their intended benefits, receive full market authorization,
or be commercially successful. Moreover, as the COVID-19 pandemic
persists and further information continues to develop, we are
learning of increased risks and uncertainties in developing and
commercializing new products and services in these unprecedented
and evolving circumstances.
9
We
face various risks related to health epidemics, pandemics and
similar outbreaks, which may have material adverse effects on our
business, financial position, results of operations,
and/or cash flows.
We face various risks related to
health epidemics, pandemics and similar outbreaks, including the
global outbreak of COVID-19. The COVID-19 pandemic has
significantly reduced airline passenger traffic, which reduces
demand for certain of our security screening products and services.
To slow and limit the transmission of COVID-19, governments across
the world have imposed significant air travel restrictions and
businesses and individuals have canceled air travel plans. These
restrictions and cancelations have reduced demand for security
screening products and related services at airport checkpoints
globally as the number of airline passengers requiring screening
has fallen. The pandemic has also hampered our ability to meet with
our customers and prospective customers. The continued spread of
COVID-19 has also led to recent disruption and volatility in the
global capital markets, which increases the cost of capital and
adversely impacts access to capital. If significant portions of our
workforce are unable to work effectively, including because of
illness, quarantines, government actions, facility closures or
other restrictions in connection with the COVID-19 pandemic, our
operations will likely be impacted. We may be unable to perform
fully on our contracts and our costs may increase as a result of
the COVID-19 outbreak. These costs may not be recoverable or
adequately covered by insurance.
It is possible that the continued spread of COVID-19 could also
further cause disruption in our supply chain; cause delay, or limit
the ability of customers to perform, including in making timely
payments to us; cause delay in regulatory certification testing of
our instruments; and cause other unpredictable events. If any of
our supply chain phases were interrupted or terminated, we could
experience delays in our product development including the
availability of products for clinical testing. The occurrence of
one or more of these items could have a material adverse effect on
our business, liquidity, financial condition, and/or results of
operations. The effects of the COVID-19 pandemic may negatively
impact productivity, disrupt our business and delay our clinical
programs and timelines, the magnitude of which will depend, in
part, on the length and severity of the restrictions and other
limitations on our ability to conduct our business in the ordinary
course. These and similar, and perhaps more severe, disruptions in
our operations could negatively impact our business, operating
results and financial condition.
In addition, any future clinical trials may be affected by the
COVID-19 pandemic. Clinical site initiation and patient enrollment
may be delayed due to prioritization of hospital resources toward
the COVID-19 pandemic. Also, some patients may not be
able to comply with clinical trial protocols if quarantines impede
patient movement or interrupt healthcare services. Similarly, our
ability to recruit and retain patients and principal investigators
and site staff who, as healthcare providers, may have heightened
exposure to COVID-19 and adversely impact our clinical trial
operations.
If we fail to comply with the continued listing requirements
of The Nasdaq Capital Market LLC, our common
stock may be delisted and the price of our common stock and our
ability to access the capital markets could be negatively
impacted.
As previously noted in our Form 10-K for the fiscal year ended June
30, 2020, we were not in compliance with the minimum stockholders’
equity requirement under Nasdaq Listing Rule 5550(b)(1) for
continued listing on The Nasdaq Capital Market because our
stockholders’ equity was below the required minimum of $2.5 million
at June 30, 2020. On September 11, 2020, we received a notice from
the Listing Qualifications Department of the Nasdaq Stock Market
LLC (“Nasdaq”) stating that we were not in compliance with the
required stockholder’s equity of $2.5 million.
The Notice has no immediate
effect on our listing on The Nasdaq Capital Market. The Company
originally had until October 26, 2020 to submit a plan to regain
compliance with the minimum stockholders’ equity requirement;
however, Nasdaq granted an extension of the deadline to submit a
plan until November 2, 2020. If our plan to regain compliance is
accepted, Nasdaq may grant an extension of up to 180 calendar days
from the date of the Notice to evidence compliance (the “Compliance
Period”).
We are presently evaluating various courses of action to regain
compliance and intend to timely submit a plan to Nasdaq to regain
compliance with the Nasdaq minimum stockholders’ equity
requirement. However, there can be no assurance that our plan will
be accepted or that if it is, we will be able to regain compliance
by the end of the Compliance Period. If our plan to regain
compliance is not accepted, or if it is and we do not regain
compliance during the Compliance Period, or if we fail to satisfy
another Nasdaq requirement for continued listing, Nasdaq could
provide notice that our common stock will become subject to
delisting. In such event, Nasdaq rules would permit us to appeal
the decision to reject our proposed plan to regain compliance or
any delisting determination to a Nasdaq Hearings Panel.
10
We
cannot be certain that additional financing will be available on
reasonable terms when needed, or at all, which could seriously harm
our business.
We have incurred net losses and negative cash flow from operations
in recent prior periods, and we may not achieve or maintain
profitability in the future. Our cash on hand at June 30, 2020
is expected to fund our operations into the second quarter of
fiscal 2021. As a result, we may need additional financing to
execute our business plan. We may pursue additional funding through
various financing sources, including additional public offerings,
the issuance of debt securities, fees associated with licensing
some or all of our technology, joint ventures with capital partners
and project type financing. Our ability to obtain additional
financing, if and when required, will depend on investor demand,
our operating performance, the condition of the capital markets,
and other factors. Therefore, we may need to raise additional funds
and we cannot assure investors that additional financing will be
available to us on favorable terms when required, or at all. If we
raise additional funds through the issuance of equity,
equity-linked, or debt securities, those securities may have
rights, preferences, or privileges senior to the rights of our
common stock, and our existing stockholders may experience
dilution. If financing is not available on satisfactory
terms, we may be unable to further pursue our business plan and we
may be unable to continue operations, in which case you may lose
some or all of your investment.
There is substantial doubt about our ability to continue as a going
concern, indicating the possibility that we may not be able to
operate in the future. The report of our independent registered
public accounting firm also includes an explanatory paragraph about
our ability to continue as a going concern.
As of June 30, 2020, we had working capital of $0.3
million. For the fiscal year 2020, we reported a net loss of $8.3
million and net cash used in operating activities of $6.9 million.
For the fiscal year 2019, we reported a net loss of $7.5
million and net cash used in operating activities of $8.5
million. This raises substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going
concern is contingent upon, among other factors, the sale of the
shares of our common stock or obtaining alternate financing.
On April 14, 2020, we entered into a $542 thousand Paycheck
Protection Program Promissory Note and Agreement (the “PPP
Promissory Note”) with a commercial bank under the Coronavirus Aid,
Relief, and Economic Security Act (the “CARES Act”) The PPP
Promissory Note bears interest at a rate of 1.0% per annum.
Payments are due monthly beginning November 10, 2020. The remaining
principal amount of the PPP Promissory Note along with any unpaid
interest is due on April 1, 2022. The principal and interest may be
forgiven if the proceeds are used for forgivable purposes as
defined by the terms in the PPP Promissory Note, and we have used
the proceeds from the PPP Promissory Note for forgivable purposes
as defined by the terms of the PPP Promissory Note. We have applied
for forgiveness under the provisions of the CARES Act and escrowed
the repayment with the lender. Forgiveness is subject to the sole
approval of the Small Business Administration and it may deny our
application for forgiveness in whole or in part.
We remain resolute in identifying the optimal solution to our
liquidity issue. We are currently evaluating several potential
sources of additional liquidity. These include, but are not limited
to, selling the Company or a portion thereof, debt financing,
equity financing, merging, or engaging in a strategic partnership.
We are currently evaluating potential offerings of any
combination of common stock, preferred stock, debt securities,
warrants to purchase common stock, preferred stock or debt
securities, or any combination of the foregoing, either
individually or as units comprised of one or more of the other
securities. However, additional funding may not be available when
needed or on terms acceptable to us. If we are unable to
generate funding within a reasonable timeframe, we may have to
delay, reduce or terminate our research and development programs,
limit strategic opportunities, or curtail our business
activities. Astrotech’s consolidated financial statements as
of June 30, 2020 do not include any adjustments that
might result from the outcome of this uncertainty.
Our success depends significantly on the establishment and
maintenance of successful relationships with our customers.
Our customer base is limited; therefore, we continue to work on
diversifying our customer base, while going to great lengths to
satisfy the needs of our current customer base. Due to the limited
number of customers, if any of our customers terminate their
relationship with us, it could materially harm our business and
results of operations.
11
Third
parties may claim we are infringing their
intellectual property rights, and we could suffer significant
litigation or licensing expenses or be prevented from selling
products.
As we introduce any new and potentially promising product or
service, or improve existing products or services with new features
or components, companies possessing competing technologies, or
other companies owning patents or other intellectual property
rights, may be motivated to assert infringement claims in order to
generate royalty revenues, delay or diminish potential sales, and
challenge our right to market such products or services. Even if
successful in defending against such claims, patent and other
intellectual property related litigation is costly and time
consuming. In addition, we may find it necessary to initiate
litigation in order to protect our patent or other intellectual
property rights, and even if the claims are well-founded and
ultimately successful, such litigation is typically costly and
time-consuming and may expose us to counterclaims, including claims
for intellectual property infringement, antitrust, or other such
claims. Third parties could also obtain patents or other
intellectual property rights that may require us to either redesign
products or, if possible, negotiate licenses from such third
parties. Adverse determinations in any such litigation could result
in significant liabilities to third parties or injunctions, or
could require us to seek licenses from third parties, and if such
licenses are not available on commercially reasonable terms,
prevent us from manufacturing, importing, distributing, selling, or
using certain products, any one of which could have a material
adverse effect on us. In addition, some licenses may be
non-exclusive, which could provide our competitors access to the
same technologies. Under any of these circumstances, we may incur
significant expenses.
Our ongoing success is dependent upon the continued availability of
certain key employees.
We are dependent in our operations on the continued availability of
the services of our employees, many of whom are individually key to
our current and future success, and the availability of new
employees to implement our growth plans. The market for skilled
employees is highly competitive, especially for employees in
technical fields. While our compensation programs are intended to
attract and retain the employees required for us to be successful,
ultimately, we may not be able to retain the services of all of our
key employees or a sufficient number to execute on our plans. In
addition, we may not be able to continue to attract new employees
as required.
Our operating results may be adversely affected by increased
competition.
We generally sell our products in industries that have increased
competition through frequent new product and service introductions,
rapid technological changes, and changing industry standards.
Without the timely introduction of new products, services, and
enhancements, our products and services will become technologically
obsolete over time, in which case our revenue and operating results
would suffer. The success of our new products and services will
depend on several factors, including our ability to:
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properly identify
customer needs and predict future needs;
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innovate and develop new
technologies, services, and applications;
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successfully
commercialize new technologies in a timely manner;
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manufacture and deliver
our products in sufficient volumes and on time;
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differentiate our
offering from our competitors’ offerings;
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price our products
competitively;
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anticipate our
competitors’ development of new products, services, or
technological innovations; and
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control product quantity
in our manufacturing process.
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Our insurance coverage may be inadequate to cover all significant
risk exposures.
We are exposed to liabilities that are unique to the products and
services we provide. We maintain insurance for certain risks, and
we believe our insurance coverage is consistent with general
practices within our industry. However, the amount of our insurance
coverage may not cover all claims or liabilities and we may be
forced to bear substantial costs.
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Increased
cybersecurity requirements, vulnerabilities, threats, and more
sophisticated and targeted computer crime could pose a risk to our
systems, networks, products, services,
and data.
Increased global cybersecurity vulnerabilities, threats, and more
sophisticated and targeted cyber-related attacks pose a risk to the
security of our and our customers’, suppliers’, and third-party
service providers’ products, systems, and networks and the
confidentiality, availability, and integrity of our and our
customers’ data. Although we have implemented policies, procedures,
and controls to protect against, detect, and mitigate these
threats, we remain potentially vulnerable to additional known or
unknown threats. We also have access to sensitive, confidential, or
personal data or information that is subject to privacy and
security laws, regulations, and customer-imposed controls. Despite
our efforts to protect sensitive, confidential, or personal data or
information, we may be vulnerable to material security breaches,
theft, misplaced or lost data, programming errors, employee errors,
and/or malfeasance that could potentially lead to the compromising
of sensitive, confidential, or personal data or information,
improper use of our systems or networks, unauthorized access, use,
disclosure, modification, or destruction of information, defective
products, production downtimes, and operational disruptions. In
addition, a cyber-related attack could result in other negative
consequences, including damage to our reputation or competitiveness
and remediation or increased protection costs, and could subject us
to fines, damages, litigation, and enforcement actions.
Our facilities located in Houston are susceptible to damage caused
by hurricanes or other natural disasters.
Our 1st Detect
facilities in Houston are susceptible to damage caused by
hurricanes or other natural disasters. Although we insure our
properties and maintain business interruption insurance, there can
be no guarantee that the coverage would be sufficient or a claim
will be fulfilled. A natural disaster could result in a temporary
or permanent closure of our business operations, thus impacting our
future financial performance.
If we are unable to anticipate technological advances and customer
requirements in the commercial and governmental markets, our
business and financial condition may be adversely affected.
Our business strategy employs our personnel’s decades of experience
to expand the services and products we offer to our customers. We
believe that our growth and future financial performance depend
upon our ability to anticipate technological advances and customer
requirements. We may not be able to achieve the necessary
technological advances for us to remain competitive. Our failure to
anticipate or respond adequately to changes in technological and
market requirements, or delays in additional product development or
introduction, could have a material adverse effect on our business
and financial performance. Additionally, the cost of capital to
fund these businesses will likely require dilution of
shareholders.
Significant safety concerns could arise for our BreathTest-1000™
product, which could have a material adverse effect on our future
revenues and financial condition.
If the development of the BreathTest-1000 is successfully
completed, FDA approval will need to be obtained to market the
BreathTest-1000 in the United States. Health care products
typically receive regulatory approval based on data obtained in
controlled clinical trials of limited duration. Following
regulatory approval, these products will be used over longer
periods of time in many patients. Investigators may also conduct
additional, and perhaps more extensive, studies. If new safety
issues are reported, we may be required to amend the conditions of
use. For example, we may be required to provide additional warnings
on the BreathTest-1000 label or narrow its approved intended use,
either of which could reduce the product’s market acceptance. If
serious safety issues arise with the BreathTest-1000 product, sales
of the product could be halted by us or by regulatory authorities.
Safety issues affecting suppliers’ or competitors’ products also
may reduce the market acceptance of our products.
We incur substantial upfront, non-reimbursable costs in preparing
proposals to bid on contracts or to receive research and
development grants that we may not be awarded.
Preparing a proposal to bid on a contract or to receive a research
and development grant is labor-intensive and results in the
incurrence of substantial costs that are generally not retrievable.
Additionally, although we may be awarded a contract or grant, work
performance does not commence for several months following
completion of the bidding process. If funding problems by the party
awarding the contract or grant or other matters further delay our
commencement of work, these delays may lower the value of the
contract or grant, or possibly render it unprofitable.
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A
failure of a key information technology system, process, or site
could have a material adverse impact on our ability to conduct
business.
We rely extensively on information technology systems to interact
with our employees and our customers. These interactions include,
but are not limited to, ordering and managing materials from
suppliers, converting materials to finished products, shipping
product to customers, processing transactions, summarizing and
reporting results of operations, transmitting data used by our
service personnel and by and among our personnel and facilities,
complying with regulatory, legal, and tax requirements, and other
processes necessary to manage our business. If our systems are
damaged or cease to function properly due to any number of causes,
ranging from the failures of third-party service providers, to
catastrophic events, to power outages, to security breaches, and
our business continuity plans do not effectively compensate on a
timely basis, we may suffer interruptions in our ability to manage
operations which may adversely impact our results of operations
and/or financial condition.
A sale of a substantial number of shares of the common stock may
cause the price of our common stock to decline.
If our shareholders sell, or the market perceives that our
shareholders intend to sell for various reasons, substantial
amounts of our common stock in the public market may make it more
difficult for us to sell equity or equity-related securities in the
future at a time and price that we deem reasonable or
appropriate.
We are a smaller reporting company and, as a result of the reduced
disclosure and governance requirements applicable to such
companies, our common stock may be less attractive to
investors.
We are a smaller reporting company, (i.e. a company with less than
$250 million of public float) and we are eligible to take advantage
of certain exemptions from various reporting requirements
applicable to other public companies. We have elected to adopt
these reduced disclosure requirements. We cannot predict if
investors will find our common stock less attractive as a result of
our taking advantage of these exemptions. If some investors find
our common stock less attractive as a result of our choices, there
may be a less active trading market for our common stock and our
stock price may be more volatile.
We are required to evaluate the effectiveness of our internal
control over financial reporting on an annual basis and publicly
disclose any material weaknesses in our controls. Any adverse
results from such evaluation could result in a loss of investor
confidence in our financial reports and significant expense to
remediate, and ultimately could have an adverse effect on our stock
price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires our
management to assess the effectiveness of our internal control over
financial reporting and to disclose if such controls were unable to
provide assurance that a material error would be prevented or
detected in a timely manner. We have an ongoing program to review
the design of our internal controls framework in keeping with
changes in business needs, implement necessary changes to our
controls design, and test the system and process controls necessary
to comply with these requirements. Because of the inherent
limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud,
if any, within our Company will have been detected.
If we or our independent registered public accounting firm
identifies material weaknesses in our internal controls, the
disclosure of that fact, even if quickly remedied, may cause
investors to lose confidence in our financial statements and our
stock price may decline. Remediation of a material weakness could
require us to incur significant expenses and, if we fail to remedy
any material weakness, our ability to report our financial results
on a timely and accurate basis may be adversely affected, our
access to the capital markets may be restricted, our stock price
may decline, and we may be subject to sanctions or investigation by
regulatory authorities, including the SEC or Nasdaq. We may also be
required to restate our financial statements from prior periods.
Execution of restatements create a significant strain on our
internal resources and could cause delays in our filing of
quarterly or annual financial results, increase our costs, and
cause management distraction. Restatements may also significantly
affect our stock price in an adverse manner.
We can sell additional shares of common stock without consulting
shareholders and without offering shares to existing shareholders,
which would result in dilution of shareholders’ interests in the
Company and could depress our stock price.
Our
Certificate of Incorporation authorizes 50,000,000 shares of common
stock, of which 7,843,770 were outstanding as of September 30,
2020, and our Board is authorized to issue additional shares of our
common stock. In addition, our Certificate of Incorporation
authorizes 2,500,000 shares of “blank check preferred
stock.” Shares of “blank check preferred stock” may
be
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issued in such series and
with such rights, privileges, and limitations as the Board may, in
its sole discretion, determine. Our Board has designated
300,000 shares as Series A Junior Preferred Stock, none
of which are outstanding. The Board has also designated
Series
C and Series
D
Preferred Stock,
of which no shares and 280,898 shares are outstanding,
respectively, as of
September 30, 2020.
Although our Board intends to utilize its reasonable business
judgment to fulfill its fiduciary obligations to our then existing
shareholders in connection with any future issuance of our capital
stock, the future issuance of additional shares of our capital
stock would cause immediate, and potentially substantial, dilution
to our existing shareholders, which could also have a material
effect on the market value of the shares. Furthermore, our Board
may authorize the issuance of a series of preferred stock that
would grant to holders the preferred right to our assets upon
liquidation, the right to receive dividend payments before
dividends are distributed to the holders of common stock, and the
right to the redemption of the shares, together with a premium,
prior to the redemption of the common stock. In addition, our Board
could authorize the issuance of a series of preferred stock that
has greater voting power than the common stock or that is
convertible into our common stock, which could decrease the
relative voting power of the common stock or result in dilution to
our existing shareholders.
Our Certificate of Incorporation provides that the Court of
Chancery of the State of Delaware will be the sole and exclusive
forum for many disputes between us and our stockholders, which
could limit stockholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors or officers.
Our Certificate of Incorporation provides that unless we consent in
writing to the selection of an alternative forum, the Court of
Chancery for the State of Delaware is the sole and exclusive
forum for claims brought by a stockholder, including claims in the
right of the corporation, (i) that are based upon a violation of a
duty by a current or former director or officer or stockholder in
such capacity or (ii) as to which the Delaware General Corporation
Law (the “DGCL”) confers jurisdiction upon the Court of
Chancery of the State of Delaware. The provision indicates that if
the Court of Chancery does not have jurisdiction, then the Superior
Court of the State of Delaware, or, if such other court does not
have jurisdiction, the United States District Court for the
District of Delaware, shall be the exclusive forum for such
action.
This choice of forum provision may limit a stockholder’s ability to
bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors or officers, which may discourage
such lawsuits against us and our directors and officers.
Alternatively, if a court were to find our choice of forum
provision to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving such action in
other jurisdictions, which could harm our business, results of
operations, and financial condition.
Our products and operations are
subject to extensive governmental regulation, and failure to comply
with applicable requirements could cause our business to
suffer.
The medical technology industry is regulated extensively by
governmental authorities, principally the FDA, and state regulatory
agencies with oversight of various aspects of drug and device
distribution, sale, and use. The regulations are very complex, have
become more stringent over time, and are subject to rapid change
and varying interpretations. Regulatory restrictions or changes
could limit our ability to carry on or expand our operations or
result in higher than anticipated costs or lower than anticipated
sales. The FDA and other federal and state governmental agencies
regulate numerous elements of our business, including:
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product design and
development;
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pre‑clinical and
clinical testing and trials;
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establishment
registration and product listing;
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marketing,
manufacturing, sales and distribution;
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pre‑market clearance or
approval;
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servicing and
post‑marketing surveillance, including reporting of deaths or
serious injuries and malfunctions that, if they recurred, could
lead to death or serious injury;
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advertising and
promotion;
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post‑market approval
studies;
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product import and
export; and
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recalls
and field‑safety corrective actions.
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Before we can market or sell a new regulated product or a
significant modification to an existing product in the United
States, we must obtain either clearance under Section 510(k) of the
FDCA, grant of a de novo
classification request, or approval of a pre‑market approval, or
PMA, application from the FDA, unless an exemption from pre‑market
review applies. In the 510(k) clearance process, the FDA must
determine that a proposed device is “substantially equivalent” to a
legally marketed “predicate” device (in most cases Class II
devices, with a few exceptions), with respect to intended use,
technology and safety and effectiveness, in order to clear the
proposed device for marketing. Class III devices approved under the
PMA process cannot serve as predicates. Clinical data are sometimes
required to support substantial equivalence. In the de novo process, the FDA must determine
that general and special controls are sufficient to provide
reasonable assurance of the safety and effectiveness of a device,
which is low to moderate risk and has no predicate (in other words,
the applicant must justify the “down-classification” to Class I or
II for a new product type that would otherwise automatically be
placed into Class III, but is lower risk). The PMA process requires
an applicant to demonstrate the safety and effectiveness of the
device based on extensive data, including, but not limited to,
technical, preclinical, clinical trial, manufacturing and labeling
data. The PMA process is typically required for devices that are
deemed to pose the greatest risk, such as life‑sustaining,
life‑supporting or implantable devices. Products that are approved
through a PMA application generally need FDA approval before they
can be modified. Similarly, some modifications made to products
cleared through a 510(k) may require a new 510(k). The 510(k),
de novo, and PMA processes
can be expensive and lengthy and require the payment of significant
fees, unless an exemption applies. The FDA’s 510(k) clearance
process usually takes from 3 to 12 months, but may take longer. The
FDA’s stated goal is to review de
novo classification requests within 150 days, 50% of the
time, but in reality the process for many applicants generally
takes even longer, up to a year or more. The process of obtaining a
PMA is much more costly and uncertain than the 510(k) clearance
process and generally takes from one to three years, or longer,
from the time the application is submitted to the FDA until an
approval is obtained. The process of obtaining regulatory
clearances, approvals, and emergency use authorization to market a
medical device can be costly and time‑consuming, and we may not be
able to obtain these clearances, approvals, or authorizations on a
timely basis, or at all for our proposed products.
If the FDA requires us to go through a lengthier, more rigorous
examination for marketing authorization of the BreathTest-1000 or
future modifications to the BreathTest-1000 than we had expected,
our product introductions or modifications could be delayed or
canceled, which could cause our sales to decline or to not increase
in line with our forecasts. In addition, the FDA may determine that
future products will require the more costly, lengthy and uncertain
PMA process. Although we do not market any devices under PMA, the
FDA may demand that we obtain a PMA prior to marketing certain of
our future products. Further, even with respect to those future
products where a PMA is not required, we cannot assure you that we
will be able to obtain the 510(k) clearances with respect to those
products.
The FDA can delay, limit or deny clearance, approval, or
authorization of a device for many reasons, including:
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we may not be able to
demonstrate that our products are safe and effective for their
intended users;
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the data from our
clinical trials may be insufficient to support clearance, approval,
or authorization; and
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the manufacturing
process or facilities we use may not meet applicable
requirements.
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In addition, the FDA may change its clearance and approval
policies, adopt additional regulations or revise existing
regulations, or take other actions which may prevent or delay
approval or clearance of our products under development. Any delay
in, or failure to obtain or maintain, clearance or approval for our
products under development could prevent us from generating revenue
from these products and adversely affect our business operations
and financial results. Additionally, the FDA and other regulatory
authorities have broad enforcement powers. Regulatory enforcement
or inquiries, or other increased scrutiny on us, could dissuade
some customers from using our products and adversely affect our
reputation and the perceived safety and efficacy of our product.
Failure to comply with applicable regulations could jeopardize our
ability to sell our products and result in enforcement actions such
as fines, civil penalties, injunctions, warning letters, recalls of
products, delays in the introduction of products into the market,
refusal of the FDA or other regulators to grant future clearances
or approvals, and the suspension or withdrawal of existing
clearances or approvals by the FDA or other regulators. Any of
these sanctions could result in higher than anticipated costs or
lower than anticipated sales and negatively impact our reputation,
business, financial condition and operating results. Furthermore,
any operations or product applications outside of the United States
will subject us to various additional regulatory and legal
requirements under the applicable laws and regulations of the
international markets we enter. These additional regulatory
requirements may involve significant costs and expenditures and, if
we are not able to comply with any such requirements, our
international expansion and business could be significantly
harmed.
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Failure to obtain clearance or authorization for the
BreathTest-1000, or other delays in the development of the
BreathTest-1000, would adversely affect our ability to grow our
business.
Commercialization of the BreathTest-1000 may require an Emergency
Use Authorization (EUA), FDA clearance of a 510(k) premarket
notification submission, or authorization of a de novo submission. The process for
submitting and obtaining FDA clearance of a 510(k), authorization
of a de novo submission, or
EUA can be expensive and lengthy. The FDA’s review process can take
several months or longer, and we may not be able to obtain FDA
clearance, de novo
authorization, or Emergency use Authorization for the
BreathTest-1000 on a timely basis, if at all. The FDA’s refusal of,
or any significant delays in receiving 510(k) clearance,
de novo authorization, or
Emergency use Authorization of the BreathTest-1000, would have an
adverse effect on our ability to expand our
business. Thus far, we have not performed any clinical
testing of the BreathTest-1000, which will likely be required
before the device can be marketed. Even if a clinical
trial is completed, there can be no assurance that the data
generated during a clinical trial will meet the safety and
effectiveness endpoints or otherwise produce results that will lead
the FDA to grant marketing clearance, approval, or
authorization. In addition, any other delays in the
development of the BreathTest-1000, for example, unforeseen issues
during product validation, would have an adverse effect on our
ability to commercialize the BreathTest-1000.
FDA’s policy with respect to Emergency Use Authorizations is
evolving and may limit the ability for medical products, including
the BreathTest-1000, to be eligible for commercialization under an
Emergency Use Authorization.
We intend to submit an application with the FDA for Emergency Use
Authorization (EUA) for the BreathTest-1000. The FDA has the
authority to grant an Emergency Use Authorization to allow
unapproved medical products to be used in an emergency to diagnose,
treat or prevent serious or life-threatening diseases or conditions
when there are no adequate, approved and available alternatives. If
we are granted an Emergency Use Authorization for the
BreathTest-1000 for the diagnosis of COVID-19, we would be able to
commercialize the BreathTest-1000 for the diagnosis of COVID-19
prior to FDA clearance or authorization of a 510(k) or de novo submission, respectively.
However, the FDA does not have review deadlines with respect to
such submissions and, therefore, the timing of any approval of an
EUA submission is uncertain. We cannot guarantee that the FDA will
review our data in a timely manner, or that the FDA will accept the
data when reviewed. The FDA may decide that our data are
insufficient for an EUA and require additional pre-clinical,
clinical or other studies and refuse to approve our application. In
addition, the FDA may revoke an Emergency Use Authorization where
it is determined that the underlying health emergency no longer
exists or warrants such authorization, and we cannot predict how
long, if ever, an Emergency Use Authorization would remain in
place. Further, the FDA’s policy with respect to EUAs
related to COVID-19 is continuously evolving and may in the future
limit the ability for medical products, including the
BreathTest-1000, to be eligible for an EUA. If we are
unsuccessful in obtaining an EUA for the BreathTest-1000 in a
timely manner or at all, or if any granted EUA is revoked after a
short period of time, it could have a material adverse effect on
our future business, financial condition, operating results and
cash flows.
Modifications to our products may require new 510(k) clearances, de
novo submissions, or pre‑market approvals, or may require us to
cease marketing or recall the modified products until clearances
are obtained.
Any modification to a 510(k)‑cleared device that could
significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, design, or
manufacture, requires a new 510(k) clearance or, possibly, a
de novo or PMA. The FDA
requires every manufacturer to make this determination in the first
instance, and provides some guidance on decision making, but the
FDA may review any manufacturer’s decision at any time. The FDA may
not agree with our decisions regarding whether new clearances or
approvals are necessary. If the FDA disagrees with our
determination and requires us to submit new 510(k) notifications,
de novo submissions or PMAs
for modifications to our previously cleared or approved products
for which we have concluded that new clearances or approvals are
unnecessary, we may be required to cease marketing or to recall the
modified product until we obtain clearance or approval, and we may
be subject to significant regulatory fines or penalties.
If we or our third‑party suppliers fail to comply with the FDA’s
good manufacturing practice regulations or fail to adequately,
timely, or sufficiently respond to an FDA Form 483 or subsequent
Warning Letter, this could impair our ability to market our
products in a cost‑effective and timely manner and could result in
FDA enforcement action.
We and our
third‑party suppliers are required to comply with the FDA’s Quality
System Regulation, or QSR, and Current Good Manufacturing Practices
(cGMP) which covers the methods and documentation of the design,
testing, production, control, quality assurance, labeling,
packaging, sterilization, storage and shipping of our product. The
FDA audits compliance
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with the QSR, cGMP and related regulations through periodic
announced and unannounced inspections of manufacturing and other
facilities. The FDA
may conduct these inspections or audits at any time. If, during the
inspection, FDA identifies issues which, in FDA’s judgment, may
constitute violations of the Federal Food, Drug, and Cosmetic Act
or FDA’s regulations, the FDA inspector may issue an FDA
Form 483 listing these observations.
Note that if an entity does not address observations found in an
FDA Form 483 to FDA’s satisfaction, the FDA could take enforcement
action, including any of the following sanctions:
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untitled letters,
warning letters, fines, injunctions, consent decrees and civil
penalties;
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customer notifications
or repair, replacement, refunds, recall, detention or seizure of
our product;
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operating restrictions
or partial suspension or total shutdown of production;
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refusing or delaying our
requests for 510(k) clearance or pre‑market approval of new
products or modified products;
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withdrawing 510(k)
clearances or pre‑market approvals that have already been
granted;
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refusal to grant export
approval for our product; or
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Any of the foregoing actions could have a material adverse effect
on our reputation, business, financial condition and operating
results.
A recall of our product, or the discovery of serious safety issues
with our product, could have a significant adverse impact on
us.
The FDA has the authority to require the recall of commercialized
products in the event of material deficiencies or defects in design
or manufacture or in the event that a product poses an unacceptable
risk to health.
Manufacturers may, under their own initiative, recall a product if
any material deficiency in a device is found. A government‑mandated
or voluntary recall by us or one of our distributors could occur as
a result of an unacceptable risk to health, component failures,
manufacturing errors, design or labeling defects or other
deficiencies and issues. Recalls of our products would divert
managerial and financial resources and have an adverse effect on
our reputation, financial condition and operating results, which
could impair our ability to produce our products in a
cost‑effective and timely manner.
Further, under the FDA’s medical device reporting, or MDR
regulations, we are required to report to the FDA any incident in
which our products may have caused or contributed to a death or
serious injury or in which our products malfunctioned and, if the
malfunction were to recur, would likely cause or contribute to
death or serious injury. Repeated product malfunctions may result
in a voluntary or involuntary product recall, which could divert
managerial and financial resources, impair our ability to
manufacture our products in a cost‑effective and timely manner and
have an adverse effect on our reputation, financial condition and
operating results. Depending on the corrective action we take to
redress a product’s deficiencies or defects, the FDA may require,
or we may decide, that we will need to obtain new approvals or
clearances for the device before we may market or distribute the
corrected device. Seeking such approvals or clearances may delay
our ability to replace the recalled devices in a timely manner.
Moreover, if we do not adequately address problems associated with
our devices, we may face additional regulatory enforcement action,
including FDA warning letters, product seizure, injunctions,
administrative penalties, or civil or criminal fines. We may also
be required to bear other costs or take other actions that may have
a negative impact on our sales as well as face significant adverse
publicity or regulatory consequences, which could harm our
business, including our ability to market our products in the
future.
Any adverse event involving our products could result in future
voluntary corrective actions, such as recalls or customer
notifications, or regulatory agency action, which could include
inspection, mandatory recall or other enforcement action. Any
corrective action, whether voluntary or involuntary, will require
the dedication of our time and capital, distract management from
operating our business and may harm our reputation and financial
results.
We may be liable if the FDA or other U.S. enforcement agencies
determine we have engaged in the off‑label promotion of our
products or have disseminated false or misleading labeling or
promotional materials.
Our
promotional materials and training methods must comply with FDA and
other applicable laws and regulations, including laws and
regulations prohibiting marketing claims that promote the off‑label
use of our products or that make false or
18
misleading statements. Healthcare
providers may use our products off‑label, as the FDA does not
restrict or regulate a physician’s choice of treatment within the
practice of medicine. FDA also could conclude that a performance
claim is misleading if it determines that there are
inadequate
non‑clinical and/or clinical data supporting the claim. If the FDA
determines that our promotional materials or training promote of an
off‑label use or make false or misleading claims, it could request
that we modify our training or promotional materials
or subject us to regulatory or enforcement actions, including the
issuance of an untitled letter, a warning letter, injunction,
seizure, civil fines and criminal penalties. It is also possible
that other federal, state or foreign enforcement
authorities
might take action if they determine that our promotional or
training materials promote an unapproved use or make false or
misleading claims, which could result in significant fines or
penalties. Although our policy is to refrain from statements that
could
be considered off‑label promotion of our products or false or
misleading, the FDA or another regulatory agency could disagree.
Violations of the FDCA may also lead to investigations alleging
violations of federal and state health care fraud and abuse
laws,
as well as state consumer protection laws, which may lead to costly
penalties and may adversely impact our business. Recent court
decisions have impacted FDA’s enforcement activity regarding
off-label promotion in light of First Amendment
Considerations;
however, there are still significant risks in this area, in part
due to the potential for False Claims Act exposure. In addition,
the off‑label use of our products may increase the risk of product
liability claims. Product liability claims are expensive
to defend and could result in substantial damage awards against us
and harm our reputation.
Legislative or regulatory healthcare reforms may make it more
difficult and costly for us to obtain reimbursement for our
products or regulatory clearance or approval of our future
products, and to produce, market and distribute those products
after clearance or approval is obtained.
Recent political, economic and regulatory influences are subjecting
the healthcare industry to fundamental changes. Both the federal
and state governments in the United States and foreign governments
continue to propose and pass new legislation and regulations
designed to contain or reduce the cost of healthcare. Such
legislation and regulations may result in decreased reimbursement
for our product, which may further exacerbate industry‑wide
pressure to reduce the prices charged for our product. This could
harm our ability to market our products and generate sales. In
addition, FDA regulations and guidance are often revised or
reinterpreted by the FDA in ways that may significantly affect our
business and our current products and future products. Any new
regulations or revisions or reinterpretations of existing
regulations may impose additional costs or lengthen review times of
our products. Delays in receipt of or failure to receive regulatory
clearances or approvals for any future products would negatively
impact our long‑term business strategy.
In the U.S., there have been a number of legislative and regulatory
changes and proposed changes regarding the healthcare system that
restrict or regulate post‑approval activities, which may affect our
ability to profitably sell product candidates for which we obtain
marketing approval. Such government‑adopted reform measures may
adversely impact the pricing of healthcare products and services in
the United States or internationally and the amount of
reimbursement available from third‑party payors.
Our financial performance may be adversely affected by medical
device tax provisions in healthcare reform laws.
The Patient Protection and Affordable Care Act (the “PPACA”)
imposed, among other things, an excise tax of 2.3% on any entity
that manufactures or imports medical devices offered for sale in
the United States. Under these provisions, the Congressional
Research Service predicted that the total cost to the medical
device industry may be up to $20 billion over a decade. The
Internal Revenue Service issued final regulations implementing the
tax in December 2012, which required, among other
things, bi-monthly payments and quarterly reporting. The
Consolidated Appropriations Act, 2016 (Pub.
L. 114-113), signed into law in December 2015, included
a two-year moratorium on the medical device excise tax. A
second two-year moratorium on the medical device excise
tax was signed into law in January 2018 as part of the Extension of
Continuing Appropriations Act, 2018 (Pub.
L. 115-120), extending the moratorium through
December 31, 2019. On December 20, 2019, President Trump
signed into law a permanent repeal of the medical device tax under
the PPACA, but there is no guarantee that Congress or the President
will not reverse course in the future. If such an excise tax on
sales of our products in the United States is enacted, it could
have a material adverse effect on our business, results of
operations and financial condition.
19
Risks
Related to this Offering and our Common Stock
You will experience immediate dilution in the net tangible book
value per share of the common stock you purchase.
The public offering price of our common stock is substantially
higher than our net tangible book value per share of common stock.
Based on the public offering price of $2.30 per share, investors
purchasing shares in this offering will, therefore, incur immediate
dilution of $1.22 in net tangible book value per share. This
dilution figure deducts the estimated fees and estimated offering
expenses payable from the public offering price. See "Dilution" on
page 22.
Because we will have broad discretion and flexibility in how the
net proceeds from this offering are used, we may use the net
proceeds in ways in which you disagree.
We intend to use the net proceeds from the sale of shares for
continuing operating expenses and working capital. See "Use of
Proceeds" on page 23. We have not allocated specific amounts
of the net proceeds from this offering for any of the foregoing
purposes. Accordingly, our management will have significant
discretion and flexibility in applying the net proceeds of this
offering. You will be relying on the judgment of our management
with regard to the use of these net proceeds, and you will not have
the opportunity, as part of your investment decision, to assess
whether the net proceeds are being used appropriately. It is
possible that the net proceeds will be invested in a way that does
not yield a favorable, or any, return for us. The failure of our
management to use such funds effectively could have a material
adverse effect on our business, financial condition, operating
results, and cash flow.
The market price of our common stock may be volatile and adversely
affected by several factors.
The market price of our common stock could fluctuate significantly
in response to various factors and events, including:
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the effect of
coronavirus on our business model and on the markets in
general;
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our ability to integrate
operations, technology, products, and services;
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our ability to execute
our business plan;
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our issuance of
additional securities, including debt or equity or a combination
thereof, which will be necessary to fund our operating
expenses;
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announcements of
technological innovations or new products by us or our
competitors;
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loss of any strategic
relationship;
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industry developments,
including, without limitation, changes in healthcare policies or
practices or third-party reimbursement policies;
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economic and other
external factors;
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period-to-period
fluctuations in our financial results; and
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whether an active
trading market in our common stock is maintained and whether we
maintain compliance with Nasdaq Listing Rules.
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In addition, the securities markets have from time to time
experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies.
These market fluctuations may also materially and adversely affect
the market price of our common stock.
20
CAUTIONARY STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, which reflect
the views of our management with respect to future events and
financial performance. These forward-looking statements are subject
to a number of uncertainties and other factors that could cause
actual results to differ materially from such statements.
Forward-looking statements are identified by words such as
“anticipates,” “believes,” “estimates,” “expects,” “intends,”
“plans,” “projects,” “targets,” and similar expressions. Such
forward-looking statements may be contained in the sections “Risk
Factors,” and “Business,” among other places in this prospectus.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which are based on the information
available to management at this time and which speak only as of
this date. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. For a discussion of some of the factors
that may cause actual results to differ materially from those
suggested by the forward-looking statements, please read carefully
the information under “Risk Factors.”
The identification in this document of factors that may affect
future performance and the accuracy of forward-looking statements
is meant to be illustrative and by no means exhaustive. All
forward-looking statements should be evaluated with the
understanding of their inherent uncertainty. You may rely only on
the information contained in this prospectus.
We have not authorized anyone to provide information different from
that contained in this prospectus. Neither the delivery of this
prospectus nor the sale of our common stock means that information
contained in this prospectus is correct after the date of this
prospectus. This prospectus is not an offer to sell or solicitation
of an offer to buy these securities in any circumstances under
which the offer or solicitation is unlawful.
21
DILUTION
If you purchase shares of our common stock in this offering, you
will experience dilution to the extent of the difference between
the price per share you pay in this offering and the net tangible
book value per share of our common stock immediately after this
offering. The net tangible book value of our common stock on June
30, 2020 was approximately $0.6 million, or approximately $0.08 per
share. Net tangible book value per share is equal to the amount of
our total tangible assets, less total liabilities, divided by the
aggregate number of shares of our common stock outstanding.
After giving effect to the assumed sale by us of shares of our
common stock in this offering at a public offering price of $2.30
per share of common stock, after deducting the placement agent’s
fees and estimated offering expenses payable by us, our as adjusted
net tangible book value as of June 30, 2020 would have been
approximately $16.9 million, or approximately $1.08 per share
of common stock. This represents an immediate increase in net
tangible book value of approximately $1.00 per share to
existing stockholders and an immediate dilution of approximately
$1.22 per share to new investors purchasing shares of our
common stock in this offering. The following table illustrates this
per share dilution:
Public offering price per share
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$
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2.30
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Net tangible book value per share as of June 30, 2020
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$
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0.08
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Increase per share attributable to new investors in this
offering
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$
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1.00
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As adjusted net tangible book value per share as of June 30, 2020
after giving effect to this offering
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$
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1.08
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Dilution per share to investors participating in this offering
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$
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1.22
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The foregoing discussion and table does not take into account
further dilution to investors in this offering that could occur
upon the exercise of outstanding options and warrants having a per
share exercise price less than the public offering price per share
in this offering.
The number of shares of our common stock to be outstanding after
this offering is based on 7,843,770 shares outstanding as of
September 30, 2020 and excludes as of that date:
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265,035 shares of our
common stock issuable upon exercise of outstanding options at a
weighted average exercise price of $5.33 per share;
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85,913 shares of our
common stock issuable upon exercise of outstanding warrants at a
weighted average exercise price of $5.14 per share;
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280,898 shares of common
stock issuable upon the conversion of our Series D Preferred
Stock;
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2,129,775 shares of our
common stock to be reserved for potential future issuance pursuant
to the Astrotech Corporation 2011 Stock Incentive Plan (the
“Plan”); and
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shares of
common stock issuable upon the exercise of warrants to be issued to
the placement agent as compensation in connection with the
offering, as described in the section entitled “Plan of
Distribution.”
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USE
OF PROCEEDS
We estimate that our net proceeds from this offering will be
approximately $16.3 million based on a public offering price of
$2.30.
We intend to use the net proceeds of this offering for continuing operating expenses and working
capital.
We may also use a portion of the net proceeds of this offering to
invest in or acquire complementary businesses, products, or
technologies, or to obtain the right to use such complementary
technologies. We have no commitments with respect to any
acquisition or investment and we are not currently involved in any
negotiations with respect to any such transactions.
As of the date of this prospectus, we cannot specify with certainty
all of the particular uses for the net proceeds to be received upon
the completion of this offering. The amounts and timing of our
actual expenditures will depend on numerous factors, including the
status of our product development efforts, sales and marketing
activities, technological advances, amount of cash generated or
used in operations, and competition. Accordingly, our management
will have broad discretion in the application of the net proceeds
and investors will be relying on the judgment of our management
regarding the application of the proceeds of this offering.
23
BUSINESS
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.
Our efforts are focused on commercializing its platform mass
spectrometry technology through our wholly-owned subsidiaries:
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Astrotech Technology,
Inc. (“ATI”) owns and licenses the intellectual property related to
the Astrotech Mass
Spectrometer Technology™ (the “AMS Technology”).
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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.
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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.
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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.
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Our Business Units
Astrotech Technology, Inc.
ATI owns and licenses the AMS Technology, the platform mass
spectrometry technology originally developed by 1st Detect.
The intellectual property includes 37 granted patents and five
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.
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 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.
24
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
airports and cargo facilities outside of the U.S. that accept ECAC
certification.
On June 26, 2019, we 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 both TSA and TSA Air Cargo towards 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 (“ITF”) to conduct live
screening at Miami International Airport. With similar
protocols as ECAC testing, we have received valuable feedback from
all programs. Following ECAC certification and the Company's early
traction within the cargo market, testing for both passenger
checkpoint and cargo security continued with the TSA, but emphasis
was placed on obtaining cargo security approval. With the
COVID-19 pandemic, all testing within the TSA was put on
hold. However, cargo non-detection testing resumed this summer
and on September 9, 2020, we announced that the TRACER 1000 passed
TSA’s Air Cargo Screening Technology Qualification Test’s (“ACSQT”)
non-detection testing. Detection testing, which is the next and
final step in the TSA approval process, is expected to commence
shortly. Once the TRACER 1000 passes detection testing, it will be
listed on the Air Cargo Screening Technology List (“ACSTL”) as an
approved cargo screening device and thereby approved for sales in
the United States. Given the deterioration in air traffic caused by
the pandemic, TSA certification testing for passenger checkpoint
security has been put on indefinite hold.
AgLAB Inc.
AgLAB is a licensee of ATI and has developed the AgLAB-1000™ series
of mass spectrometers for use in the agriculture industry for both
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 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 our 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.
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 highly uncertain and difficult to predict, as the
responses that we, other businesses, and governments are taking
continue to evolve. The COVID-19 pandemic has significantly reduced
airline passenger traffic, which reduces demand for certain of our
security screening products and services. To slow and limit the
transmission of COVID-19, governments across the world have imposed
significant air travel restrictions and businesses and individuals
have canceled air travel plans. These restrictions and cancelations
have reduced demand for security screening products and related
services at airport checkpoints globally as the number of airline
passengers requiring screening has fallen. The pandemic has also
hampered our ability to meet with our customers and prospective
customers. 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
25
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, operational fees throughout Europe largely come from
airline ticket fees, and with a reduction in air travel caused by
the pandemic, we are seeing a reduction in near-term demand for
ETDs at checkpoints.
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 us; 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 on
our financial condition, liquidity, or results of operations is
uncertain.
Business Strategy
1st Detect
There are more than 30,000 IMS instruments deployed in the field
today, with many nearing their end of life. As the current
generation of IMS technology is replaced, we are working to
position ourselves as the next-generation solution for the ETD
market with the introduction of the world’s first ETD driven by a
mass spectrometer. With mass spectrometry being the gold standard
of chemical detection, an MS-ETD significantly improves detection
capabilities, dramatically reduces the number of false positives
and the associated costs, and allows for a much more expansive
library of compounds of interest, yielding an instrument that we
believe is far superior to the currently deployed IMS instruments,
at a similar price point and a lower operating cost.
AgLAB Inc.
Initial interest for the
AgLAB-1000 series has come from the hemp and cannabis industry.
Many derivative hemp and cannabis products are being manufactured
using cannabinoids present in the plant, primarily
tetrahydrocannabinol (“THC”) for cannabis and cannabidiol (“CBD”)
for hemp. Extraction equipment is used to remove the cannabinoids
from the raw plant matter to create an oil that is used in many
manufactured products. AgLAB has launched the first of several
planned products, the AgLAB-1000-D2™, that has been designed to
assist in the oil extraction and distillation process by maximizing
the final product quality and yield.
Current efforts are focused on the U.S. market, but international
markets present attractive future growth opportunities as the
number of countries with legal recreational or medicinal use
continues to expand.
BreathTech Corporation
The BreathTest-1000 product that is currently under development is
being designed to provide an inexpensive, non-invasive, and
self-serve screening device for COVID-19 and associated lung
diseases that can offer results on-site in a very short period of
time, which we believe could be as little as approximately 60
seconds. We believe there is a strong market need for a quick,
frequent or daily, lung disease test for use in high density and
critical locations. Currently available tests either take too long
or are invasive and painful. The market need for a quick and
painless test is considered significant in the following target
markets:
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Convention and
conference centers
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Products
and Services
1st Detect
We believe 1st Detect’s
TRACER 1000 significantly outperforms currently deployed
competitive trace detection solutions. The TRACER 1000 was launched
in the summer of 2019 and it has consistently outperformed IMS-ETDs
in a number of side-by-side comparisons during field trials,
specifically related to false alarm rate, probability of detection,
and unit up-time. Initial interest has come from the cargo security
industry, as we announced our first commercial sales to a global
shipping and logistics company in November 2019. Further, once
the TRACER 1000 passes TSA’s detection testing, it will be listed
by the TSA as an approved cargo screening device and available for
sale in the United States.
AgLAB Inc.
Leveraging the platform AMS Technology, AgLAB is currently
designing its product line to serve applications in the hemp and
cannabis markets. AgLAB has launched the AgLAB-1000-D2 that is
designed to increase consistency, potency, and productivity during
the extraction and distillation processes.
BreathTech Corporation
The BreathTest-1000 is being developed to provide an inexpensive,
non-invasive, and self-serve screening device for COVID-19 and
associated lung diseases. Leveraging work that was previously
completed using breath samples to analyze lung diseases, we have
determined that the AMS Technology platform can be used to detect
VOC metabolites found in a person’s
breath that could indicate they may have an infection, including
COVID-19 or pneumonia, using a disposable collection tube
and reporting results in what we believe could be as little as
approximately 60 seconds.
Customers, Sales, and Marketing
1st
Detect
Marketing efforts at 1st Detect
are currently focused on foreign airports and commercial companies
in aviation and cargo security. The Company is uses both direct
sales and channel sales through distributors. During fiscal year 2020, we conducted business in
seven countries. While we have had some degree of success
with direct sales, much of the pipeline has seen delays due to
reduced near-term demand from airports caused by the COVID-19
pandemic.
AgLAB Inc.
We have launched the AgLAB-1000-D2 for the hemp oil processing
market and plans to develop other future products for the hemp and
cannabis market. We use only direct sales at this time. We are in
discussions with various channel partners, largely companies with
existing distribution channels in the hemp and cannabis market,
that will help sell our products to target customers.
BreathTech Corporation
Marketing efforts are currently focused on organizations that are
significantly impacted by COVID-19. The goal is to have a qualified
list of prospective customers in greatest need of the Company’s
solution as we get closer to completing the development of and
application for regulatory approval for the BreathTest-1000.
Competition
1st Detect
Competition for the TRACER 1000 comes primarily from IMS-based
ETDs. There are several vendors that compete directly with
1st Detect;
however, we believe the TRACER 1000 has a number of attributes that
are superior to competing products.
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IMS-ETD
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1st
Detect’s TRACER 1000
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•High false
alarms
•Lower
probability of detection
•Numerous unscheduled
bake-outs and calibrations
•Limited library of
compounds of interest
•Addition of new
compounds may require hardware changes
•Causes delays at
security/inspection checkpoints
•Low price chemical
detector
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•Near-zero
false alarm rate
•Higher
probability of detection
•Near 100%
up-time
•Unlimited library of
compounds of interest
•Instantaneous library
updates
•Improves throughput at
checkpoints
•Competitive price to
IMS
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These claims have been confirmed in numerous discussions with
industry experts and verified in our many field trials.
AgLAB Inc.
We believe the AgLAB-1000-D2 is the only solution on the market
that can provide crucially needed data collected during the
extraction and distillation process to optimize the equipment
settings to maximize potency and weight yields. To the best of our
knowledge, all other competition is too slow and requires a full
laboratory analysis, which takes several days. We believe that any
customers using the AgLAB-1000-D2 will be able to generate higher
quality products with an increased yield, improving their revenue
and thus justifying their investment in the instrument.
BreathTech Corporation
The BreathTest-1000 product that is currently under development is
being designed to screen for
VOC metabolites found in a person’s breath that could indicate they
may have an infection, including COVID-19 or pneumonia. Given that
breath samples are quick, inexpensive, and painless, we anticipate
that the BreathTest-1000 will be in demand by hospitals, nursing
homes, companies, airlines, hotels, cruise lines, military,
sporting events, performing arts venues, convention and conference
centers, schools, and likely anywhere that has high concentrations
of people. This product is not expected to compete with the
currently available molecular tests like RT-PCR, but is intended to
only be a screening device that, upon a positive test, will suggest
a visit to a doctor for a more thorough evaluation. While we know
that other researchers are working on a breath screening solution
for COVID-19, to the best of our knowledge, they are not
commercially available.
Research and Development
1st Detect
We invest considerable resources into our internal research and
development functions. Much of our research and development
(“R&D”) investment is devoted to the cross-platform AMS
Technology as the R&D team continually works to develop new
derivative products, improve system functionality, optimize design,
reduce cost, and streamline and simplify the software and user
experience. Each market, however, typically requires unique sample
introduction technology, library development, and customized
adjustments to the user interface. While 1st
Detect’s TRACER 1000 is fully commercialized, we do continue to
invest in cross-platform improvements.
AgLAB Inc.
The AgLAB-1000 series uses the core AMS Technology and is
continuing its development of its cannabinoid, terpene, solvent,
and pesticide libraries. In addition, AgLAB plans to expand its
product line to include other valuable products specific to the
hemp and cannabis industry.
BreathTech Corporation
The BreathTest-1000 employs the core AMS Technology. BreathTech
R&D activities are being devoted to sample introduction and
library development, which is needed to identify the specific
compounds present in the breath that are indicative of the presence
of lung infections.
We have
been in correspondence with the U.S. Food and Drug Administration
(“FDA”) regarding how the FDA will classify the BreathTest-1000 and
the classification has not yet been determined. The
classification will inform the required FDA premarket submission
and review process that will follow. If premarket notification
(510(k) submission) is required, we intend
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to submit a pre-submission request to the FDA. The
pre-submission is a formal mechanism for requesting feedback from
FDA prior to submitting a medical device application. The timeframe
for receiving feedback from a pre-submission
request is approximately 70 calendar days, but may be shorter or
longer.
Simultaneously, we are exploring how to accelerate our time to
market for the BreathTest-1000 by utilizing the Emergency Use
Authorization (“EUA”) that was initially announced on March 24,
2020 related to COVID-19. EUAs allow the FDA to authorize the
use of unapproved and uncleared In-Vitro Diagnostic (“IVD”) tests
that have not gone through the FDA’s review process in anticipation
of a potential emergency or during an actual emergency involving a
chemical, biological, radiological, or nuclear agent, or an
emerging infectious disease. Several other COVID-19 diagnostic
tests have been authorized through the EUA process, and such
authorization remains in effect until the Secretary of the
Department of Health and Human Services (“HHS”) declares the public
health emergency is terminated or the conditions of the EUA are not
fulfilled. We have not submitted a request for an EUA but are
hopeful that we will be able to obtain authorization under the EUA
to get the BreathTest-1000 to market as quickly as possible. The
timeframe for authorization of an EUA is highly variable and
depends on, among other things, the complexity of the product,
completeness of the submission, and technical requirements of the
FDA. Authorization, if granted, may take as little as one month or
as long as a few months.
Certain Regulatory Matters
We are subject to United States federal, state, and local laws and
regulations designed to protect the environment and to regulate the
discharge of materials into the environment. We are also beholden
to certain regulations designed to protect our domestic technology
from unintended foreign exploitation and regulate certain business
practices. We believe that our policies, practices, and procedures
are properly designed to prevent unreasonable risk of environmental
damage and consequential financial liability. Our operations are
also subject to various regulations under federal laws regarding
the international transfer of technology, as well as to various
federal and state laws related to business operations. In addition,
we are subject to federal contracting procedures, audit, and
oversight. Compliance with environmental laws and regulations and
technology export requirements has not had and, we believe, will
not have in the future, material effects on our capital
expenditures, earnings, or competitive position.
Federal regulations that impact our operations include the
following:
Foreign Corrupt Practices Act. The
Foreign Corrupt Practices Act establishes rules for U.S. companies
doing business internationally. Compliance with these rules is
achieved through established and enforced corporate policies,
documented internal procedures, and financial controls.
Iran Nonproliferation Act of 2000.
This act authorizes the President of the United States to take
punitive action against individuals or organizations known to be
providing material aid to weapons of mass destruction programs in
Iran.
Federal Acquisition Regulations.
Goods and services provided by us to U.S. Government agencies are
subject to Federal Acquisition Regulations (“FAR”). These
regulations provide rules and procedures for invoicing,
documenting, and conducting business under contract with such
entities. The FAR also subjects us to audit by federal auditors to
confirm such compliance.
Truth in Negotiations Act. The
Truth in Negotiations Act was enacted for the purpose of providing
full and fair disclosure by contractors in the conduct of
negotiations with the U.S. Government. The most significant
provision included in the Truth in Negotiations Act is the
requirement that contractors submit certified cost and pricing data
for negotiated procurements above a defined threshold.
Export Administration Act. This
act provides authority to regulate exports, to improve the
efficiency of export regulation, and to minimize interference with
the ability to engage in commerce.
Export Administration Regulations. The Export Administration Regulations (“EAR”)
govern whether a person or company may export goods from the U.S.,
re-export goods from a foreign country, or transfer goods from one
person or company to another in a foreign country.
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Medical
Device Regulation
FDA Premarket Clearance and Approval
Requirements. Unless an
exemption applies, each medical device commercially distributed in
the U.S. requires either FDA clearance of a 510(k) premarket
notification submission, granting of a de novo request, or premarket application (“PMA”)
approval. Under the Federal Food Drug and Cosmetic Act, or FDCA,
administered by the FDA, medical devices are classified into one of
three classes, Class I, Class II, or Class III, depending on the
degree of risk associated with each medical device and the extent
of manufacturer and regulatory control needed to ensure its safety
and effectiveness. Class I includes devices with the lowest risk to
the patient and are those for which safety and effectiveness can be
assured by adherence to the FDA’s general controls for medical
devices, which include compliance with the applicable portions of
the Quality System Regulation (“QSR”), facility registration and
product listing, reporting of adverse medical events, and truthful
and non-misleading labeling, advertising, and promotional
materials. Some Class I devices may require premarket notification
to the FDA.
Class II devices are moderate risk devices and are subject to the
FDA’s general controls, and special controls as deemed necessary by
the FDA to ensure the safety and effectiveness of the device. These
special controls can include performance standards, post-market
surveillance, patient registries, and FDA guidance documents. While
most Class I devices are exempt from the 510(k) premarket
notification requirement, manufacturers of most Class II devices
are required to submit to the FDA a premarket notification under
Section 510(k) of the FDCA requesting permission to commercially
distribute the device. The FDA’s permission to commercially
distribute a device subject to a 510(k) premarket notification is
generally known as 510(k) clearance. Under the 510(k) process, the
manufacturer must submit to the FDA a premarket notification
demonstrating that the device is “substantially equivalent” to
either a device that was legally marketed prior to May 28, 1976,
the date upon which the Medical Device Amendments of 1976 were
enacted, or another commercially available device that was cleared
to through the 510(k) or de
novo process.
Devices deemed by the FDA to pose the greatest risks, such as
life-sustaining, life-supporting or some implantable devices, or
devices that have a new intended use, or use advanced technology
that is not substantially equivalent to that of a legally marketed
device, are placed in Class III, requiring approval of a PMA. For a
device that is Class III by default (because it is a novel device
that was not previously classified and has no predicate), the
device manufacturer may request that FDA reclassify the device into
Class II or Class I via a de
novo request.
510(k) Marketing Clearance. To
obtain 510(k) clearance, a premarket notification submission must
be submitted to the FDA demonstrating that the proposed device is
“substantially equivalent” to a predicate device. A predicate
device is a legally marketed device that is not subject to
premarket approval, i.e., a device that was legally marketed prior
to May 28, 1976 (pre-amendments device) and for which a PMA is not
required, a device that has been reclassified from Class III to
Class II or I (e.g., via the de novo classification process), or a device that was
previously cleared through the 510(k) process. The FDA’s 510(k)
review process usually takes from three to six months, but may take
longer. The FDA may require additional information, including
clinical data, to make a determination regarding substantial
equivalence. If the FDA agrees that the device is substantially
equivalent to a predicate device, it will grant 510(k) clearance to
market the device.
After a device receives 510(k) marketing clearance, any
modification that could significantly affect its safety or
effectiveness, or that would constitute a major change or
modification in its intended use, will require a new 510(k)
marketing clearance or, depending on the modification, a
de novo request or PMA
approval. The FDA requires each manufacturer to determine whether
the proposed change requires submission of a 510(k), de novo or a PMA in the first instance,
but the FDA can review that decision and disagree with a
manufacturer’s determination. If the FDA disagrees with a
manufacturer’s determination, the FDA can require the manufacturer
to cease marketing and/or request the recall of the modified device
until FDA has cleared or approved a 510(k), de novo or PMA for the change. Also, in
these circumstances, the manufacturer may be subject to significant
regulatory fines or penalties.
De Novo
Process. If a previously
unclassified new medical device does not qualify for the 510(k)
pre-market notification process because no predicate device to
which it is substantially equivalent can be identified, the device
is automatically classified into Class III. The Food and Drug
Administration Modernization Act of 1997 established a new route to
market for low to moderate risk medical devices that are
automatically placed into Class III due to the absence of a
predicate device, called the “Request for Evaluation of Automatic
Class III Designation,” or the de novo classification procedure.
This procedure allows a manufacturer whose novel device is
automatically classified into Class III to request
down-classification of its medical device into Class I or Class II
on the basis that the device presents low or moderate risk, rather
than requiring the submission and approval of a PMA. Prior to the
enactment of the Food and Drug Administration Safety and Innovation
Act, or FDASIA, in
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July 2012, a medical device could
only be eligible for de novo classification if the manufacturer
first submitted a 510(k) pre-market notification and received a determination
from the FDA that the device was not substantially equivalent.
FDASIA streamlined the de novo classification pathway by permitting
(under Section 513(f)(2) of the FDCA) manufacturers to request de
novo classification
directly without first submitting a 510(k) pre-market notification
to the FDA and receiving a not substantially equivalent
determination. FDASIA sets a review time for FDA of 120 days
following receipt of the de novo application, but FDA does not
always meet this timeline
and has publicly only committed to a review of 150 days for 50% of
applications. If the manufacturer seeks reclassification into Class
II, the manufacturer must include a draft proposal for special
controls that are necessary to provide a reasonable assurance of the safety and
effectiveness of the medical device. The FDA may reject the
reclassification petition if it identifies a legally marketed
predicate device that would be appropriate for a 510(k) or
determines that the device is not low to moderate risk or that general
controls would be inadequate to control the risks and special
controls cannot be developed. If the FDA agrees with the
down-classification, the
de novo applicant will then
receive authorization to market the device, and a classification regulation will be
established for the device type. The device can then be used as a
predicate device for future 510(k) submissions by the manufacturer
or a competitor. In December 2018 FDA issued proposed regulations
to govern the
de
novo classification
process, which if finalized would further impact this path to
market.
As an alternative to the de
novo process, a company could also file a reclassification
petition, or FDA could initiate such a process, seeking to change
the automatic Class III designation of a novel postamendment device
under Section 513(f)(3) of the FDCA.
Premarket Approval Process. Class
III devices require submission through the Premarket Approval (PMA)
process before they can be marketed. The PMA process is
more demanding than the 510(k) premarket notification process. In a
PMA, the manufacturer must demonstrate that the device is safe and
effective, and the PMA must be supported by extensive data,
including data from preclinical studies and human clinical trials.
The PMA must also contain, among other things, a full description
of the device and its components, a full description of the
methods, facilities and controls used for manufacturing, and
proposed labeling. Following receipt of a PMA submission, the FDA
determines whether the application is sufficiently complete to
permit a substantive review. If the FDA accepts the application for
review, it has 180 days under the FDCA to complete its review of a
PMA, although in practice, the FDA’s review often takes
significantly longer, and can take up to several years. An advisory
panel of experts from outside the FDA may be convened to review and
evaluate the application and provide recommendations to the FDA as
to the approvability of the device. The FDA may or may not accept
the panel’s recommendation. In addition, the FDA will generally
conduct a preapproval inspection of the applicant or its
third-party manufacturers’ or suppliers’ manufacturing facility or
facilities to ensure compliance with the QSR.
The FDA will approve the new device for commercial distribution if
it determines that the data and information in the PMA application
constitute valid scientific evidence and that there is reasonable
assurance that the device is safe and effective for its intended
use(s). The FDA may approve a PMA application with post-approval
conditions intended to ensure the safety and effectiveness of the
device, including, among other things, restrictions on labeling,
promotion, sale and distribution, and collection of long-term
follow-up data from patients in the clinical study that supported
PMA approval or requirements to conduct additional clinical studies
post-approval. The FDA may condition PMA approval on some form of
post-market surveillance when deemed necessary to protect the
public health or to provide additional safety and efficacy data for
the device in a larger population or for a longer period of use. In
such cases, the manufacturer might be required to follow certain
patient groups for a number of years and to make periodic reports
to FDA on the clinical status of those patients. Failure to comply
with the conditions of approval can result in material adverse
enforcement action, including withdrawal of the approval.
Certain changes to an approved device, such as changes in
manufacturing facilities, methods, or quality control procedures,
or changes in the design performance specifications, which affect
the safety or effectiveness of the device, require submission of a
PMA supplement. PMA supplements often require submission of the
same type of information as a PMA, except that the supplement is
limited to information needed to support any changes from the
device covered by the original PMA and may not require as extensive
clinical data or the convening of an advisory panel. Certain other
changes to an approved device require the submission of a new PMA,
such as when the design change causes a different intended use,
mode of operation, and technical basis of operation, or when the
design change is so significant that a new generation of the device
will be developed, and the data that were submitted with the
original PMA are not applicable for the change in demonstrating a
reasonable assurance of safety and effectiveness.
Emergency
Use Authorization. The
Commissioner of the FDA, under delegated authority from the
Secretary of DHHS may, under certain circumstances, issue an
Emergency Use Authorization (“EUA”), that would permit the use of
an unapproved
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medical device or unapproved use
of an approved medical
device. Before an EUA may be issued, the Secretary must declare an
emergency based on one of the following grounds:
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a determination by the
Secretary of the Department of Homeland Security that there is a
domestic emergency, or a significant potential for a domestic
emergency, involving a heightened risk of attack with a specified
biological, chemical, radiological or nuclear agent or
agents;
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a determination by the
Secretary of DoD that there is a military emergency, or a
significant potential for a military emergency, involving a
heightened risk to U.S. military forces of attack with a specified
biological, chemical, radiological, or nuclear agent or agents;
or
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a determination by the
Secretary of DHHS of a public health emergency that effects or has
the significant potential to affect, national security, and that
involves a specified biological, chemical, radiological, or nuclear
agent or agents, or a specified disease or condition that may be
attributable to such agent or agents.
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In order to be the subject of an EUA, the FDA Commissioner must
conclude that, based on the totality of scientific evidence
available, it is reasonable to believe that the product may be
effective in diagnosing, treating, or preventing a disease
attributable to the agents described above, that the product’s
potential benefits outweigh its potential risks and that there is
no adequate, approved alternative to the product.
Clinical Trials. Clinical trials
are almost always required to support de novo or a PMA and are sometimes required to support
a 510(k) submission. All clinical investigations of investigational
devices to determine safety and effectiveness must be conducted in
accordance with the FDA’s Investigational Device Exemption ("IDE")
regulations which govern investigational device labeling, prohibit
promotion of the investigational device, and specify an array of
recordkeeping, reporting and monitoring responsibilities of study
sponsors and study investigators. If the device presents a
“significant risk” to human health, as defined by the FDA, the FDA
requires the device sponsor to submit an IDE application to the
FDA, which must become effective prior to commencing human clinical
trials. A significant risk
device is one that presents a potential for serious risk to the
health, safety or welfare of a patient and either is implanted,
used in supporting or sustaining human life, substantially
important in diagnosing, curing, mitigating or treating disease or
otherwise preventing impairment of human health, or otherwise
presents a potential for serious risk to a subject. An IDE
application must be supported by appropriate data, such as animal
and laboratory test results, showing that it is safe to test the
device in humans and that the testing protocol is scientifically
sound. The IDE will automatically become effective 30 days after
receipt by the FDA, unless the FDA notifies the manufacturer that
the investigation may not begin or is subject to a clinical hold.
If the FDA determines that there are deficiencies or other concerns
with an IDE for which it requires modification, the FDA may permit
a clinical trial to proceed under a conditional
approval.
In addition, clinical studies must be approved by, and conducted
under the oversight of, an Institutional Review Board ("IRB") for
each clinical site. The IRB is responsible for the initial and
continuing review of the IDE, and may pose additional requirements
for the conduct of the trial. If an IDE application is approved by
the FDA and one or more IRBs, human clinical trials may begin at a
specific number of investigational sites with a specific number of
patients, as approved by the FDA. If the device presents a
non-significant risk to the patient, a sponsor may begin the
clinical trial after obtaining approval for the trial by one or
more IRBs without separate approval from the FDA, but must still
follow abbreviated IDE requirements, such as monitoring the
investigation, ensuring that the investigators obtain informed
consent, and labeling and record-keeping requirements. An IDE
supplement must be submitted to, and approved by the FDA before a
sponsor or investigator may make a change to the investigational
plan.
During a clinical trial, the sponsor is required to comply with the
applicable FDA requirements, including, for example, trial
monitoring, selecting clinical investigators and providing them
with the investigational plan, ensuring IRB review, adverse event
reporting, record keeping, and prohibitions on the promotion of
investigational devices or on making safety or effectiveness claims
for them. The clinical investigators in the clinical study are also
subject to FDA regulations and must obtain patient informed
consent, rigorously follow the investigational plan and study
protocol, control the disposition of the investigational device,
and comply with all reporting and recordkeeping requirements.
Additionally, after a trial begins, we, the FDA, or the IRB could
suspend or terminate a clinical trial at any time for various
reasons, including a belief that the risks to study subjects
outweigh the anticipated benefits.
Post-market Regulation. After a
device is cleared or approved for marketing, numerous and pervasive
regulatory requirements continue to apply. These
include:
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establishment
registration and device
listing with the FDA;
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state
licensure requirements for the manufacturing and distribution of
medical devices;
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QSR requirements, which
require manufacturers, including third-party manufacturers, to
follow stringent design, testing, control, documentation, and other
quality assurance procedures during all aspects of the design and
manufacturing process;
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labeling and marketing
regulations, which require that promotion is truthful, not
misleading, fairly balanced, provide adequate directions for use,
and that all claims are substantiated, and also prohibit the
promotion of products for unapproved or “off-label” uses and impose
other restrictions on labeling; FDA guidance on off-label
dissemination of information and responding to unsolicited requests
for information;
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clearance or approval of
product modifications to 510(k)-cleared devices that could
significantly affect safety or effectiveness or that would
constitute a major change in intended use of one of our cleared
devices, or approval of a supplement for certain modifications to
PMA devices;
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medical device reporting
regulations, which require that a manufacturer report to the FDA if
a device it markets may have caused or contributed to a death or
serious injury, or has malfunctioned and the device or a similar
device that it markets would be likely to cause or contribute to a
death or serious injury, if the malfunction were to
recur;
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correction, removal, and
recall reporting regulations, which require that manufacturers
report to the FDA field corrections and product recalls or removals
if undertaken to reduce a risk to health posed by the device or to
remedy a violation of the FDCA that may present a risk to
health;
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complying with the new
federal law and regulations requiring Unique Device Identifiers on
devices and also requiring the submission of certain information
about each device to the FDA’s Global Unique Device Identification
Database;
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the FDA’s recall
authority, whereby the agency can order device manufacturers to
recall from the market a product that is in violation of governing
laws and regulations;
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post-market surveillance
activities and regulations, which apply when deemed by the FDA to
be necessary to protect the public health or to provide additional
safety and effectiveness data for the device;
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the federal Physician
Sunshine Act and various state and foreign laws on reporting
remunerative relationships with health care customers;
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the federal
Anti-Kickback Statute (and similar state laws) prohibiting, among
other things, soliciting, receiving, offering or providing
remuneration intended to induce the purchase or recommendation of
an item or service reimbursable under a federal healthcare program,
such as Medicare or Medicaid. A person or entity does not have to
have actual knowledge of this statute or specific intent to violate
it to have committed a violation; and
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the federal False Claims
Act (and similar state laws) prohibiting, among other things,
knowingly presenting, or causing to be presented, claims for
payment or approval to the federal government that are false or
fraudulent, knowingly making a false statement material to an
obligation to pay or transmit money or property to the federal
government or knowingly concealing, or knowingly and improperly
avoiding or decreasing, an obligation to pay or transmit money to
the federal government. The government may assert that claim
includes items or services resulting from a violation of the
federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the false claims statute.
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We may be subject to similar foreign laws that may include
applicable post-marketing requirements such as safety surveillance.
Our manufacturing processes, or those of any contract manufacturer
that we engage, are required to comply with the applicable portions
of the QSR, which cover the methods and the facilities, controls
for the design, manufacture, testing, production, processes,
controls, quality assurance, labeling, packaging, distribution,
installation, and servicing of finished devices intended for human
use. The QSR also requires, among other things, maintenance of a
device master file, device history file, and complaint files. The
discovery of previously unknown problems with any of our products,
including unanticipated adverse events or adverse events of
increasing severity or frequency, whether resulting from the use of
the device within the scope of its clearance or off-label by a
physician in the practice of medicine, could result in restrictions
on the device, including the removal of the product from the market
or voluntary or mandatory device recalls.
The FDA has broad regulatory compliance and enforcement powers. If
the FDA determines that we failed to comply with applicable
regulatory requirements, it can take a variety of compliance or
enforcement actions, which may result in any of the following
sanctions:
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warning letters,
untitled letters, fines, injunctions, consent decrees, and civil
penalties;
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recalls, withdrawals, or
administrative detention or seizure of our products;
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operating
restrictions or partial suspension or total shutdown of production
(due to violations of the QSR or other applicable regulations)
refusing or delaying requests for 510(k) marketing clearance or PMA
approvals of new products or modified products;
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withdrawing 510(k)
clearances or PMA approvals that have already been
granted;
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refusal to grant export
or import approvals for our products; or
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Regulation of Medical Devices in the EEA. Medical devices placed on
the market in the European Economic Area, or EEA must meet the
relevant essential requirements laid down in Annex I of Directive
93/42/EEC concerning medical devices ("the Medical Devices
Directive"). The most fundamental essential requirement is that a
medical device must be designed and manufactured in such a way that
it will not compromise the clinical condition or safety of
patients, or the safety and health of users and others. In
addition, the device must achieve the performances intended by the
manufacturer and be designed, manufactured, and packaged in a
suitable manner. The European Commission has adopted various
standards applicable to medical devices. These include standards
governing common requirements, such as sterilization and safety of
medical electrical equipment and product standards for certain
types of medical devices. There are also harmonized standards
relating to design and manufacture. While not mandatory, compliance
with these standards is viewed as the easiest way to satisfy the
essential requirements as a practical matter. Compliance with a
standard developed to implement an essential requirement also
creates a rebuttable presumption that the device satisfies that
essential requirement.
To demonstrate compliance with the essential requirements laid down
in Annex I to the Medical Devices Directive, medical device
manufacturers must undergo a conformity assessment procedure, which
varies according to the type of medical device and its
classification. Conformity assessment procedures require an
assessment of available clinical evidence, literature data for the
product, and post-market experience in respect of similar products
already marketed. Except for low-risk medical devices (Class I
non-sterile, non-measuring devices), where the manufacturer can
self-declare the conformity of its products with the essential
requirements (except for any parts which relate to sterility or
metrology), a conformity assessment procedure requires the
intervention of a Notified Body. Notified bodies are often separate
entities and are authorized or licensed to perform such assessments
by government authorities. The notified body would typically audit
and examine a product’s technical dossiers and the manufacturers’
quality system. If satisfied that the relevant product conforms to
the relevant essential requirements, the notified body issues a
certificate of conformity, which the manufacturer uses as a basis
for its own declaration of conformity. The manufacturer may then
apply the CE Mark to the device, which allows the device to be
placed on the market throughout the EEA. Once the product has been
placed on the market in the EEA, the manufacturer must comply with
requirements for reporting incidents and field safety corrective
actions associated with the medical device.
In order to demonstrate safety and efficacy for their medical
devices, manufacturers must conduct clinical investigations in
accordance with the requirements of Annex X to the Medical Devices
Directive ("MDD"), Annex 7 of the Active Implantable Medical
Devices Directive ("AIMDD"), and applicable European and
International Organization for Standardization standards, as
implemented or adopted in the EEA member states. Clinical trials
for medical devices usually require the approval of an ethics
review board and approval by or notification to the national
regulatory authorities. Both regulators and ethics committees also
require the submission of serious adverse event reports during a
study and may request a copy of the final study report.
On April 5, 2017, the European Parliament passed the Medical
Devices Regulation (Regulation 2017/745), which repeals and
replaces the E.U. Medical Devices Directive and the Active
Implantable Medical Devices Directive. Unlike directives, which
must be implemented into the national laws of the EEA member
States, the regulations would be directly applicable, i.e., without
the need for adoption of EEA member State laws implementing them,
in all EEA member States and are intended to eliminate current
differences in the regulation of medical devices among EEA member
States. The Medical Devices Regulation, among other things, is
intended to establish a uniform, transparent, predictable, and
sustainable regulatory framework across the EEA for medical devices
and ensure a high level of safety and health while supporting
innovation. The Medical Device Regulation will become applicable in
May 2021. The new regulations:
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strengthen the rules on
placing devices on the market and reinforce surveillance once they
are available;
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establish explicit
provisions on manufacturers’ responsibilities for the follow-up of
the quality, performance, and safety of devices placed on the
market;
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improve the traceability
of medical devices throughout the supply chain to the end-user or
patient through a unique identification number;
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set
up a central database to provide patients, healthcare
professionals, and the public with comprehensive information on
products available in the E.U.;
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strengthened rules for
the assessment of certain high-risk devices, such as implants,
which may have to undergo an additional check by experts before
they are placed on the market.
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In the European Union, member states are responsible for enforcing
the EU’s medical device rules and for ensuring that only compliant
medical devices are placed on the market or put into service in
their jurisdictions. They have powers to suspend the marketing and
use, or demand the recall, of unsafe or non-compliant devices. They
also have the power to bring enforcement action against companies
or individuals for breaches of the device rules. Non-compliance may
also result in Notified Bodies revoking any certificate of
conformity that they have issued for a device or the manufacturer’s
quality system.
We are subject to regulations and product registration requirements
in many foreign countries in which we may sell our products,
including in the areas of:
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design, development, and
manufacturing;
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product safety
reporting;
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marketing, sales, and
distribution;
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packaging and storage
requirements;
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content and language of
instructions for use;
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record keeping
procedures;
|
|
•
|
advertising and
promotion;
|
|
•
|
recalls and field
corrective actions;
|
|
•
|
post-market
surveillance, including reporting of deaths or serious injuries and
malfunctions that, if they were to recur, could lead to death or
serious injury;
|
|
•
|
import and export
restrictions;
|
|
•
|
tariff regulations,
duties, and tax requirements;
|
|
•
|
registration for
reimbursement; and
|
|
•
|
necessity of testing
performed in country by distributors for licensees.
|
The time required to obtain clearance required by foreign countries
may be longer or shorter than that required for FDA clearance, and
requirements for licensing a product in a foreign country may
differ significantly from FDA requirements.
Federal, State, and Foreign Fraud and Abuse and Physician Payment
Transparency Laws. In addition to
FDA restrictions on marketing and promotion of drugs and devices,
other federal and state laws may restrict our business practices if
our products will be reimbursable under federal healthcare
programs. These laws include, without limitation, foreign, federal,
and state anti-kickback and false claims laws, as well as
transparency laws regarding payments or other items of value
provided to healthcare providers.
The federal Anti-Kickback Statute prohibits, among other things,
knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in kind to
induce or in return for purchasing, leasing, ordering or arranging
for or recommending the purchase, lease or order of any good,
facility, item or service reimbursable, in whole or in part, under
Medicare, Medicaid or other federal healthcare programs.
Violations of the federal Anti-Kickback Statute may result in civil
monetary penalties up to $100,000 for each violation, plus up to
three times the remuneration involved. Civil penalties for such
conduct can further be assessed under the federal False Claims Act.
Violations can also result in criminal penalties, including
criminal fines of up to $100,000 and imprisonment of up to 10
years. Similarly, violations can result in exclusion from
participation in government healthcare programs, including Medicare
and Medicaid. Liability under the federal Anti-Kickback Statute may
also arise because of the intentions or actions of the parties with
whom we do business.
35
The
federal civil False Claims Act prohibits,
among other things, any person or entity from knowingly presenting,
or causing to be presented, a false or fraudulent claim for payment
or approval to the federal government or knowingly making, using or
causing to be made or used a false record or
statement
material to a false or fraudulent claim to the federal government.
A claim includes “any request or demand” for money or property
presented to the U.S. government. The federal civil False Claims
Act also applies to false submissions that cause the
government
to be paid less than the amount to which it is entitled, such as a
rebate. Intent to deceive is not required to establish liability
under the federal civil False Claims Act.
In addition, private parties may initiate “qui tam” whistleblower
lawsuits against any person or entity under the federal civil False
Claims Act in the name of the government and share in the proceeds
of the lawsuit. Penalties for federal civil False Claim Act
violations include fines for each false claim, plus up to three
times the amount of damages sustained by the federal government
and, most critically, may provide the basis for exclusion from the
federally funded healthcare program The criminal False Claims Act
prohibits the making or presenting of a claim to the government
knowing such claim to be false, fictitious or fraudulent and,
unlike the federal civil False Claims Act, requires proof of intent
to submit a false claim. When an entity is determined to have
violated the federal civil False Claims Act, the government may
impose civil fines and penalties ranging from $11,181 to $22,363
for each false claim, plus treble damages, and exclude the entity
from participation in Medicare, Medicaid, and other federal
healthcare programs.
The Civil Monetary Penalty Act of 1981 imposes penalties against
any person or entity that, among other things, is determined to
have presented or caused to be presented a claim to a federal
healthcare program that the person knows or should know is for an
item or service that was not provided as claimed or is false or
fraudulent, or offering or transferring remuneration to a federal
healthcare beneficiary that a person knows or should know is likely
to influence the beneficiary’s decision to order or receive items
or services reimbursable by the government from a particular
provider or supplier.
The Health Insurance Portability and Accountability Act of 1996
("HIPAA") also created additional federal criminal statutes that
prohibit among other actions, knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit
program, including private third-party payors, knowingly and
willfully embezzling or stealing from a healthcare benefit program,
willfully obstructing a criminal investigation of a healthcare
offense, and knowingly and willfully falsifying, concealing or
covering up a material fact or making any materially false,
fictitious or fraudulent statement in connection with the delivery
of or payment for healthcare benefits, items or services. Similar
to the federal Anti-Kickback Statute, a person or entity does not
need to have actual knowledge of the statute or specific intent to
violate it in order to have committed a violation.
Many foreign countries have similar laws relating to healthcare
fraud and abuse. Foreign laws and regulations may vary greatly from
country to country. For example, the advertising and promotion of
our products is subject to E.U. directives concerning misleading
and comparative advertising and unfair commercial practices, as
well as other EEA Member State legislation governing the
advertising and promotion of medical devices. These laws may limit
or restrict the advertising and promotion of our products to the
general public and may impose limitations on our promotional
activities with healthcare professionals. Also, many U.S. states
have similar fraud and abuse statutes or regulations that may be
broader in scope and may apply regardless of payor, in addition to
items and services reimbursed under Medicaid and other state
programs.
Data Privacy and Security Laws. In
the future, we may also be subject to various federal, state, and
foreign laws that protect personal information including certain
patient health information, such as the E.U. General Data
Protection Regulation (“GDPR”) and the California Consumer Privacy
Act (“CCPA”), and restrict the use and disclosure of patient health
information, such as HIPAA, as amended by the Health Information
Technology for Economic and Clinical Health Act (“HITECH”), in the
U.S.
HIPAA established uniform standards governing the conduct of
certain electronic healthcare transactions and requires certain
entities, called covered entities, to comply with standards that
include the privacy and security of Protected Health Information
(“PHI”). HIPAA also requires business associates, such as
independent contractors or agents of covered entities that have
access to PHI in connection with providing a service to or on
behalf of a covered entity, of covered entities to enter into
business associate agreements with the covered entity and to
safeguard the covered entity’s PHI against improper use and
disclosure.
The HIPAA
privacy regulations cover the use and disclosure of PHI by covered
entities as well as business associates, which are defined to
include subcontractors that create, receive, maintain, or transmit
PHI on behalf of a business associate. They also set forth certain
rights that an individual has with respect to his or her PHI
maintained by a covered entity, including the right to access or
amend certain records containing PHI, or to request restrictions on
the use or disclosure of PHI. The security
36
regulations establish requirements for safeguarding the
confidentiality, integrity, and availability of PHI that is
electronically transmitted
or electronically stored. HITECH, among other things, established
certain health information security breach notification
requirements. A covered entity must notify any individual whose PHI
is breached according to the specifications set forth in the
breach
notification rule. The HIPAA privacy and security regulations
establish a uniform federal “floor” and do not supersede state laws
that are more stringent or provide individuals with greater rights
with respect to the privacy or security of, and access
to, their records containing PHI or insofar as such state laws
apply to personal information that is broader in scope than PHI as
defined under HIPAA.
HIPAA requires the notification of patients, and other compliance
actions, in the event of a breach of unsecured PHI. If notification
to patients of a breach is required, such notification must be
provided without unreasonable delay and in no event later than 60
calendar days after discovery of the breach. In addition, if the
PHI of 500 or more individuals is improperly used or disclosed, we
would be required to report the improper use or disclosure to HHS
which would post the violation on its website, and to the media.
Failure to comply with the HIPAA privacy and security standards can
result in civil monetary penalties up to $58,490 per violation, not
to exceed $1.75 million per calendar year for non-compliance of an
identical provision, and, in certain circumstances, criminal
penalties with fines up to $250,000 per violation and/or
imprisonment.
HIPAA authorizes state attorneys general to file suit on behalf of
their residents for violations. Courts are able to award damages,
costs and attorneys’ fees related to violations of HIPAA in such
cases. While HIPAA does not create a private right of action
allowing individuals to file suit against us in civil court for
violations of HIPAA, its standards have been used as the basis for
duty of care cases in state civil suits such as those for
negligence or recklessness in the misuse or breach of PHI. In
addition, HIPAA mandates that the Secretary of HHS conduct periodic
compliance audits of HIPAA covered entities, and their business
associates for compliance with the HIPAA privacy and security
standards. It also tasks HHS with establishing a methodology
whereby harmed individuals who were the victims of breaches of
unsecured PHI may receive a percentage of the civil monetary
penalty paid by the violator.
In addition, California enacted the CCPA, effective January 1,
2020, which, among other things, creates new data privacy
obligations for covered companies and provides new privacy rights
to California residents, including the right to opt out of certain
disclosures of their information. The CCPA also creates a private
right of action with statutory damages for certain data breaches,
thereby potentially increasing risks associated with a data breach.
Although the law includes limited exceptions, including for
“protected health information” maintained by a covered entity or
business associate, it may regulate or impact our processing of
personal information depending on the context.
In the EEA, we may become subject to laws which restrict our
collection, control, processing, and other use of personal data
(i.e. data relating to an identifiable living individual) including
the GDPR (and any national laws implementing the GDPR). As part of
our operations, we process personal data belonging to data subjects
in the EEA, including employees, contractors, suppliers,
distributors, service providers, customers, patients, or clinical
trial participants. For patients or clinical trial participants, we
process special categories of personal data like health and medical
information. We need to ensure compliance with the GDPR (and any
applicable national laws implementing the GDPR) in each applicable
EEA jurisdiction.
Healthcare Reform. The U.S. and
some foreign jurisdictions are considering or have enacted a number
of legislative and regulatory proposals to change the healthcare
system in ways that could affect our ability to sell our products
profitably. Among policy makers and payors in the U.S. and
elsewhere, there is significant interest in promoting changes in
healthcare systems with the stated goals of containing healthcare
costs, improving quality or expanding access. Current and future
legislative proposals to further reform healthcare or reduce
healthcare costs may limit coverage of or lower reimbursement for
the procedures associated with the use of our products. The cost
containment measures that payors and providers are instituting and
the effect of any healthcare reform initiative implemented in the
future could impact our revenue from the sale of our
products.
We expect additional state and federal healthcare reform measures
to be adopted in the future, any of which could limit the amounts
that federal and state governments will pay for healthcare products
and services, which could result in reduced demand for our products
or additional pricing pressure.
Regulatory Compliance and Risk Management
We maintain compliance with regulatory requirements and manage our
risks through a program of compliance, awareness, and insurance,
which includes maintaining certain insurances and a continued
emphasis on safety to mitigate any risks.
37
Employees
As of September 25, 2020, we employed 20 employees, none of which
were covered by any collective bargaining agreements.
Properties
Astrotech leased office space consisting of 5,219 square feet in
Austin, Texas that housed executive management, finance and
accounting, sales, and marketing and communications. The lease
began in November 2016 and originally expired in December 2023. On
August 11 2020, the Company terminated this lease.
In May 2013, 1st Detect
completed build-out of a new 16,540 square foot leased research and
development and production facility in Webster, Texas. This
new facility is equipped with state-of-the-art laboratories, a
clean room, a production shop, and offices for staff. The
term of the lease was 62 months and included options to extend for
two additional five-year periods. In February 2015, 1st Detect
exercised its right of first refusal on the adjoining space of
9,138 square feet. The original lease began in May 2013 and was to
expire in June 2018; these dates were amended in October 2014 with
the amended lease beginning February 1, 2015, and expiring April
30, 2020, with provisions to renew and extend the lease for the
entire premises, but not less than the entire premises, for two
renewal terms of five years each. On June 1, 2018, we entered into
our third amendment of the original lease removing 8,118 square
feet from its leased space, leaving leased premises with a total
square footage of 17,560.
We believe that our current facilities and equipment are well
maintained, in good condition, and are adequate for our present and
foreseeable needs.
Legal
Proceedings
We are subject to legal proceedings and business disputes involving
ordinary routine legal matters and claims incidental to our
business. The ultimate legal and financial liability with respect
to such matters generally cannot be estimated with certainty and
requires the use of estimates in recording liabilities for
potential litigation settlements or awards against us. Estimates
for losses from litigation are made after consultation with outside
counsel. If estimates of potential losses increase or the related
facts and circumstances change in the future, we may be required to
record either more or less litigation expense. As of June 30,
2020, we are not involved in any pending or threatened legal
proceedings that we believe could reasonably be expected to have a
material adverse effect on our financial condition, results of
operations, or cash flows.
38
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
Certain Relationships and Related Transactions
During fiscal year 2020, we entered into two private placement
transactions in the form of secured promissory notes totaling $2.5
million with Mr. Thomas B. Pickens, III, our Chief Executive
Officer and Chairman of the Board of Directors. The promissory
notes originally matured on September 5, 2020; however, on August
24, 2020, we and Mr. Pickens agreed to extend the maturity date of
the promissory notes to September 5, 2021. Interest on the
promissory notes accrues at 11% per annum.
Except as set forth above, there were no other transactions or
series of similar transactions to which we were a party, and there
is currently no proposed transactions or series of similar
transactions to which we will be a party, in which the amount
involved exceeded or will exceed the lesser of (i) $120,000 or (ii)
one percent of the average of our total assets at year-end for the
last two completed fiscal years and in which any related person had
or will have a direct or indirect material interest.
Director Independence
The Board of Directors has determined each of the following
directors and director nominees to be an “independent director” as
such term is defined by Rule 5605(a)(2) of The Nasdaq Listing
Rules:
Mark Adams
Daniel T. Russler, Jr.
Ronald W. Cantwell
Tom Wilkinson
The Board of Directors has also determined that each member of the
Audit Committee, Compensation Committee, and Corporate Governance
and Nominating Committee during the past fiscal year and the
proposed nominees for the upcoming fiscal year meets the
independence requirements applicable to those Committees prescribed
by The Nasdaq Listing Rules and SEC rules.
39
SECURITY
OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The following table sets forth as of September 30, 2020 certain
information regarding the beneficial ownership of outstanding
Common Stock held by (i) each person known by us to be a
beneficial owner of more than 5% of any outstanding class of
Astrotech’s capital stock, (ii) each of the our directors and
director nominees, (iii) Astrotech’s Chief Executive Officer
and two most highly compensated executive officers at the end of
our last completed fiscal year, and (iv) all directors and
executive officers of Astrotech as a group. Unless otherwise
described below, each of the persons listed in the table below has
sole voting and investment power with respect to the shares
indicated as beneficially owned by each party.
|
|
Shares of Common Stock (#)
|
|
|
Unvested Restricted Stock Grants (#)
|
|
|
Shares Subject to Options Exercisable Within 60 Days of
September 30, 2020
|
|
|
Preferred Shares with an Option to Convert on a 1:1 Basis
|
|
|
Total Number of Shares Beneficially Owned
|
|
|
Percentage of Class (1)
|
|
Certain Beneficial Owners
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Huckleberry Investments LLP (2)
|
|
|
488,050
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
488,050
|
|
|
|
6.2
|
%
|
Winn Interests, Ltd. (4)
|
|
|
654,284
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
654,284
|
|
|
|
8.3
|
%
|
Non-Employee Directors: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Adams
|
|
|
109,670
|
|
|
|
3,333
|
|
|
|
17,000
|
|
|
—
|
|
|
|
130,003
|
|
|
|
1.7
|
%
|
Daniel T. Russler
|
|
|
17,467
|
|
|
|
3,333
|
|
|
|
17,000
|
|
|
—
|
|
|
|
37,800
|
|
|
*
|
|
Ronald W. Cantwell
|
|
|
13,332
|
|
|
|
6,667
|
|
|
|
8,000
|
|
|
—
|
|
|
|
27,999
|
|
|
*
|
|
Tom Wilkinson
|
|
|
10,952
|
|
|
|
10,000
|
|
|
—
|
|
|
—
|
|
|
|
20,952
|
|
|
*
|
|
Named Executive Officers: (3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas B. Pickens III
|
|
|
1,575,018
|
|
|
|
23,333
|
|
|
|
82,500
|
|
|
|
280,898
|
|
|
|
1,961,749
|
|
|
|
23.9
|
%
|
Eric Stober
|
|
|
96,628
|
|
|
|
6,667
|
|
|
|
24,800
|
|
|
—
|
|
|
|
128,095
|
|
|
|
1.6
|
%
|
Rajesh Mellacheruvu
|
|
|
49,866
|
|
|
|
23,333
|
|
|
|
67,671
|
|
|
—
|
|
|
|
140,870
|
|
|
|
1.8
|
%
|
All Directors and Executive Officers as a Group (7 persons)
|
|
|
1,872,933
|
|
|
|
76,666
|
|
|
|
216,971
|
|
|
|
280,898
|
|
|
|
2,447,468
|
|
|
|
29.3
|
%
|
*Indicates beneficial ownership of less than 1% of the outstanding
shares of common stock.
|
1.
|
Calculated pursuant to Rule
13d-3(d) of the Securities Exchange Act of 1934. Under Rule
13d-3(d), shares not outstanding that are subject to options,
warrants, rights or conversion privileges exercisable within 60
days are deemed outstanding for the purpose of calculating the
number and percentage owned by a person, but not deemed outstanding
for the purpose of calculating the number and percentage owned by
any other person listed. As of September 30,
2020, we had
7,843,770 shares of common
stock outstanding.
|
|
2.
|
Information based on Form
13G/A filed with the SEC by Huckleberry Investments LLP on February
10, 2020. Huckleberry Investments LLP, is a fund manager based in
the United Kingdom with its principal business conducted
at 28 Devereux Lane, London, SW13 8DA, UK.
|
|
3.
|
The applicable address for all non-employee directors and named
executive officers is c/o Astrotech Corporation, 2028 E. Ben White
Blvd., Suite 240-9530, Austin, Texas 78741.
|
|
Information
based on
shares
owned
as of our
fiscal year 2019 proxy
record date of May 8, 2020 and
includes
an additional
280,898
shares due to the conversion
of Series C preferred shares on May 12, 2020.
|
|
40
DESCRIPTION
OF OUR COMMON
AND PREFERRED
STOCK
As of the date of this prospectus, our authorized capital stock
consisted of 50,000,000 shares of common stock, $0.001 par value
per share, and 2,500,000 shares of preferred stock, $0.001 par
value per share. Our Board may establish the rights and preferences
of the preferred stock from time to time. As of September 30, 2020,
there were 7,843,770 shares of our common stock outstanding and
280,898 shares of preferred stock outstanding.
Common Stock
Holders of our common stock are entitled to one vote per share. Our
Certificate of Incorporation does not provide for cumulative
voting. Holders of our common stock are entitled to receive ratably
such dividends, if any, as may be declared by our Board out of
legally available funds. However, the current policy of our Board
is to retain earnings, if any, for the operation and expansion of
our Company. Upon liquidation, dissolution or winding-up, the
holders of our common stock are entitled to share ratably in all of
our assets which are legally available for distribution, after
payment of or provision for all liabilities. The holders of our
common stock have no preemptive, subscription, redemption or
conversion rights.
Preferred Stock
We have available to be issued Series A Junior, Series B, Series C
convertible, and Series D convertible preferred stock. Both Series
C and Series D Preferred Shares are convertible to common stock on
a one-to-one basis. The Preferred C and Preferred D are not
callable by us. The holders of the preferred stock are entitled to
receive, and we shall pay, dividends on shares equal to and in the
same form as dividends actually paid on shares of the common stock
when, and if, such dividends are paid on shares of common stock. No
other dividends are paid on the preferred
shares. Preferred shares have no voting rights. Upon
liquidation, dissolution, or winding-up of Astrotech, whether
voluntary or involuntary, the preferred shares have preference over
common stock.
Our Certificate of Incorporation provides that unless we consent in
writing to the selection of an alternative forum, the Court of
Chancery for the State of Delaware is the sole and exclusive
forum for claims brought by a stockholder, including claims in the
right of the corporation, (i) that are based upon a violation of a
duty by a current or former director or officer or stockholder in
such capacity or (ii) as to which the Delaware General Corporation
Law (the “DGCL”) confers jurisdiction upon the Court of
Chancery of the State of Delaware. The provision indicates that if
the Court of Chancery does not have jurisdiction, then the Superior
Court of the State of Delaware, or, if such other court does not
have jurisdiction, the United States District Court for the
District of Delaware, shall be the exclusive forum for such
action.
This choice of forum provision may limit a stockholder’s ability to
bring a claim in a judicial forum that it finds favorable for
disputes with us or our directors or officers, which may discourage
such lawsuits against us and our directors and officers.
Alternatively, if a court were to find our choice of forum
provision to be inapplicable or unenforceable in an action, we may
incur additional costs associated with resolving such action in
other jurisdictions, which could harm our business, results of
operations, and financial condition.
Placement Agent Warrants
In addition, we have agreed to issue to the placement agent the
Placement Agent Warrants to purchase up to 6% of the aggregate
number of shares of our common stock included to be sold in this
offering. The Placement Agent Warrants will have a term of five
years and an exercise price equal to 125% of the purchase price per
share of common stock in this offering.
Securities Exchange Listing
Our common stock is listed on The Nasdaq Capital Market under the
symbol “ASTC.”
Transfer Agent and Registrar
The transfer agent and registrar for our common stock
is American Stock Transfer &
Trust Company, LLC.
41
PLAN OF DISTRIBUTION
Pursuant to an engagement agreement,
dated as of July 23, 2020, as amended, we have engaged H.C.
Wainwright & Co., LLC, or the placement agent, to act as our
exclusive placement agent to solicit offers to purchase the
securities offered pursuant to this prospectus on a reasonable best
efforts basis. The engagement agreement does not give rise to any
commitment by the placement agent to purchase any of our
securities, and the placement agent will have no authority to bind
us by virtue of the engagement agreement. The placement agent is
not purchasing or selling any of the securities offered by us under
this prospectus, nor is it required to arrange for the purchase or
sale of any specific number or dollar amount of securities. The
placement agent does not guarantee that it will be able to raise
new capital in any prospective offering. The placement agent may
engage sub-agents or selected dealers to assist with the
offering.
We will enter into a securities
purchase agreement directly with certain institutional investors,
at such investor’s option, which purchase our securities in this
offering. Investors that do not enter into a securities purchase
agreement shall rely solely on this prospectus in connection with
the purchase of our securities in this offering. There is no
minimum number of securities or amount of proceeds that is a
condition to closing of this offering.
We expect to deliver the securities
being offered pursuant to this prospectus on or about October
23, 2020.
Fees and Expenses
The following table shows the per
share and total placement agent fees we will pay in connection with
the sale of the securities in this offering.
|
|
Per Share
|
|
Placement Agent Fees
|
|
$
|
0.161
|
|
Total
|
|
$
|
1,260,000
|
|
We have agreed to pay the placement
agent a cash fee equal to 7.0% of the gross proceeds raised in this
offering and a management fee of 0.6% of the gross proceeds raised
in this offering. In addition, we have agreed to pay the placement
agent for its legal fees and expenses and other out-of-pocket
expenses in an amount up to $100,000 and its clearing expenses in
the amount of $12,900. We estimate the total offering expenses of
this offering that will be payable by us, excluding the placement
agent fees and expenses, will be approximately $194,700.
Placement Agent Warrants
In addition, we have agreed to issue to the placement agent or its
designees warrants to purchase up to 469,565 shares of common stock (which represents
6.0% of the aggregate number of shares of common stock issued in
this offering) with an exercise price of $2.875 per share
(representing 125% of the public offering price per share) and
exercisable for five years from the date of the commencement of
sales in this offering. The placement agent warrants are registered
on the registration statement of which this prospectus is a part.
The form of the placement agent warrant has been included as an
exhibit to this registration statement of which this prospectus
forms a part.
Tail
We have also agreed to pay the placement agent a tail fee
equal to the cash and warrant compensation in this offering, if any
investor, who was contacted or introduced to us by the placement
agent during the term of its engagement, provides us with capital
in any public or private offering or other financing or capital
raising transaction during the 12-month period following expiration
or termination of our engagement of the placement agent.
42
Lock-up
Agreements
Our officers and directors have
agreed with the representative to be subject to a lock-up period of
90 days following the date of closing of the offering pursuant to
this prospectus. This means that, during the applicable lock-up
period, such persons may not offer for sale, contract to sell,
sell, distribute, grant any option, right or warrant to purchase,
pledge, hypothecate or otherwise dispose of, directly or
indirectly, any of our shares of common stock or any securities
convertible into, or exercisable or exchangeable for, shares of
common stock, subject to customary exceptions. We have also agreed
to similar lock-up restrictions on the issuance and sale of our
securities for 30 days following the closing of this offering,
subject to certain customary exceptions. The placement agent may
waive the terms of these lock-up agreements in its sole discretion
and without notice. In addition, we have agreed to not issue any
securities that are subject to a price reset based on the trading
prices of our common stock or upon a specified or contingent event
in the future, or enter into any agreement to issue securities at a
future determined price for a period of one year following the
closing date of this offering, subject to an exception. The
placement agent may waive this prohibition in its sole discretion
and without notice.
Regulation M
The placement agent may be deemed to be an underwriter within the
meaning of Section 2(a)(11) of the Securities Act, and any
commissions received by it and any profit realized on the resale of
the securities sold by it while acting as principal might be deemed
to be underwriting discounts or commissions under the Securities
Act. As an underwriter, the placement agent would be required to
comply with the requirements of the Securities Act and the Exchange
Act, including, without limitation, Rule 10b-5 and Regulation M
under the Exchange Act. These rules and regulations may limit the
timing of purchases and sales of our securities by the placement
agent acting as principal. Under these rules and regulations, the
placement agent (i) may not engage in any stabilization activity in
connection with our securities and (ii) may not bid for or purchase
any of our securities or attempt to induce any person to purchase
any of our securities, other than as permitted under the Exchange
Act, until it has completed its participation in the
distribution.
Indemnification
We have agreed to indemnify the placement agent against certain
liabilities, including certain liabilities arising under the
Securities Act, or to contribute to payments that the placement
agent may be required to make for these liabilities.
Determination
of Public Offering Price and Warrant Exercise Price
The actual public offering price of the securities we are offering
has been negotiated between us and the investors in the
offering based on the trading of our shares of common stock
prior to the offering, among other things. Other factors considered
in determining the public offering price of the securities we are
offering include our history and prospects, the stage of
development of our business, our business plans for the future and
the extent to which they have been implemented, an assessment of
our management, the general conditions of the securities markets at
the time of the offering and such other factors as were deemed
relevant.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format
may be made available on the websites maintained by the placement
agent, if any, participating in this offering and the placement
agent may distribute prospectuses electronically. Other than the
prospectus in electronic format, the information on these websites
is not part of this prospectus or the registration statement of
which this prospectus forms a part, has not been approved or endorsed by us or the
placement agent, and should not be relied upon by investors.
Other Relationships
From time to time, the placement agent or its affiliates have in
the past or may in the future provide in the future, various
advisory, investment and commercial banking and other services to
us in the ordinary course of business, for which they have received
and may continue to receive customary fees and commissions. The
placement agent acted as our exclusive placement agent in
connection with our two registered direct offerings we consummated
in March 2020, for which it received compensation. However, except
as disclosed in this prospectus, we have no present arrangements
with the placement agent for any further services.
43
Listing
Our shares of common stock are listed on The Nasdaq Capital Market
under the symbol “ASTC.”
44
LEGAL
MATTERS
Sheppard, Mullin, Richter & Hampton LLP, New York, New York,
will pass upon the validity of the shares of our common stock
offered hereby. Certain legal matters in connection with this offer
will be passed upon for the placement agent by Thompson Hine LLP,
New York, New York.
EXPERTS
Armanino LLP, an independent registered public accounting firm, has
audited our consolidated financial statements included in our
Annual Report on Form 10-K for the year ended June 30, 2020, as set
forth in their report, which includes an explanatory paragraph as
to our ability to continue as a going concern, dated September 8,
2020, which is incorporated by reference in this prospectus and
elsewhere in the registration statement. Our consolidated financial
statements are incorporated by reference in reliance on Armanino
LLP’s report, given on the authority of such firm as experts in
accounting and auditing.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the securities offered by
this prospectus. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set
forth in the registration statement, some of which is contained in
exhibits to the registration statement as permitted by the rules
and regulations of the SEC. For further information with respect to
us and our securities, we refer you to the registration statement,
including the exhibits filed as a part of the registration
statement. Statements contained in this prospectus concerning the
contents of any contract or any other document is not necessarily
complete. If a contract or document has been filed as an exhibit to
the registration statement, please see the copy of the contract or
document that has been filed. Each statement is this prospectus
relating to a contract or document filed as an exhibit is qualified
in all respects by the filed exhibit. We are subject to the
informational requirements of the Exchange Act and in accordance
therewith file annual, quarterly and current reports, proxy
statements and other information with the SEC. The SEC maintains an
Internet website that contains reports, proxy statements and other
information about issuers, like us, that file electronically with
the SEC. The address of that website
is www.sec.gov. The
registration statement and the documents referred to below under
“Incorporation of Documents By Reference” are also available on our
website, www.astrotechcorp.com. We have not incorporated by
reference into this prospectus the information on our website, and
you should not consider it to be a part of this prospectus.
45
INCORPORATION
OF DOCUMENTS BY REFERENCE
This prospectus is part of the registration statement but the
registration statement includes and incorporates by reference
additional information and exhibits. The SEC permits us to
“incorporate by reference” the information contained in documents
we file with the SEC, which means that we can disclose important
information to you by referring you to those documents rather than
by including them in this prospectus. Information that is
incorporated by reference is considered to be part of this
prospectus and you should read it with the same care that you read
this prospectus. Information that we file later with the SEC will
automatically update and supersede the information that is either
contained, or incorporated by reference, in this prospectus, and
will be considered to be a part of this prospectus from the date
those documents are filed. We have filed with the SEC, and
incorporate by reference in this prospectus:
|
•
|
Current
Reports
on Form 8-K, filed with the SEC on July
2, 2020,
August
26, 2020,
September
8, 2020,
September
10, 2020,
September
14, 2020,
and
October
20, 2020;
|
|
•
|
the description of our
common stock and our Series A Junior Participating Preferred Stock
contained in our Registration Statement on Form 8-A12B/A filed
with the Commission on August
6, 2018,
and any amendments or reports filed updating such
description.
|
In addition, all documents subsequently filed by us pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934, as amended, prior to the termination of the offering
(excluding any information furnished rather than filed) shall be
deemed to be incorporated by reference into this prospectus.
Notwithstanding the statements in the preceding paragraphs, no
document, report or exhibit (or portion of any of the foregoing) or
any other information that we have “furnished” to the SEC pursuant
to the Securities Exchange Act of 1934, as amended shall be
incorporated by reference into this prospectus.
We will furnish without charge to you, on written or oral request,
a copy of any or all of the documents incorporated by reference in
this prospectus, including exhibits to these documents. You should
direct any requests for documents to:
Astrotech Corporation
2028 E. Ben White Blvd. #240-9530
Austin, Texas 78741
Phone: (512) 485-9530
You also may access these filings on our website at
http://www.astrotechcorp.com. We do not incorporate the information
on our website into this prospectus or any supplement to this
prospectus and you should not consider any information on, or that
can be accessed through, our website as part of this prospectus or
any supplement to this prospectus (other than those filings with
the SEC that we specifically incorporate by reference into this
prospectus or any supplement to this prospectus).
Any statement
contained in a document incorporated or deemed to be incorporated
by reference in this prospectus will be deemed modified, superseded
or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus modifies, supersedes or
replaces such statement. Any statement contained herein or in any
document incorporated or deemed to be incorporated by reference
shall be deemed to be modified or superseded for purposes of the
registration statement of which this prospectus forms a part to the
extent that a statement contained in any other subsequently filed
document which also is or is deemed to be incorporated by reference
modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed to
constitute a part of the registration statement of which this
prospectus forms a part, except as so modified or superseded.
46

ASTROTECH CORPORATION
PROSPECTUS
$18,000,000
consisting of 7,826,086 Shares of Common Stock
And Placement Agent Warrants to Purchase up to 469,565 Shares of
Common Stock
H.C. WAINWRIGHT & CO.
October 21, 2020
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