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

The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the accompanying notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Business Overview

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

Our mission encompasses the advancement of both mass spectrometry and gas chromatography, two powerful analytical techniques that together enable precise detection and identification of chemical compounds across a wide range of high-demand environments.  We aim to expand access to mass spectrometry by simplifying the complexity of operating these devices within real-time testing environments such as airports, border checkpoints, cargo hubs, infrastructure security, correctional facilities, military bases, law enforcement centers, and industrial locations. We are introducing our new line of products that are ultra-portable, on-site, rugged environmental testing instruments, featuring our proprietary ATI MS and ATi GC to achieve our mission through simplifying the user interface, automating the complicated calibration process, ruggedizing the critical components to endure MS/GC field work, and enabling multiple configurations for sample intake options.

Astrotech Technologies, Inc.

ATI owns and licenses the AMS Technology, the platform MS technology originally developed by 1st Detect. The AMS Technology has been designed to be inexpensive, smaller, and easier to use when compared to traditional mass spectrometers. Unlike other technologies, the AMS Technology works under ultra-high vacuum, which eliminates competing molecules, yielding higher resolution and fewer false alarms. The intellectual property includes 17 patents granted 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 five wholly-owned subsidiaries of Astrotech on an exclusive basis, including to 1st Detect for use in security and detection applications, to AgLAB for use in agriculture applications, to BreathTech for use in breath analysis applications, to Pro-Control for use in production applications, and to EN-SCAN for use in industrial and environmental applications

1st Detect Corporation

1^st Detect, a licensee of ATI for security and detection applications, has developed the TRACER 1000, the world's first MS based ETD certified by the ECAC and approved by TSA for air cargo. The TRACER 1000 was designed to outperform the ETDs currently used at airports, cargo and other secured facilities, and borders worldwide. We believe that ETD customers are unsatisfied with the currently deployed ETD technology, which is driven by ion mobility spectrometry ("IMS"). We further believe that some IMS-based ETDs have issues with false positives, as they often misidentify personal care products and other common household chemicals as explosives, causing facility shutdowns, unnecessary delays, frustration, and significant wasted security resources. In addition, there are hundreds of different types of explosives, but IMS-based ETDs have a very limited threat detection library reserved only for those few explosives of largest concern. Adding additional compounds to the detection library of an IMS-based ETD fundamentally reduces the instrument's performance, further increasing the likelihood of false alarms. In contrast, adding additional compounds to the TRACER 1000's detection library does not degrade its detection capabilities, as it has a virtually unlimited and easily expandable threat library.

AgLAB Inc.

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

BreathTech Corporation

BreathTech, an exclusive licensee of ATI for use in breath analysis applications, was in the process of developing the BreathTest-1000™, a breath analysis tool to screen for VOC metabolites found in a person's breath that could indicate a compromised medical condition.

Pro-Control, Inc.

Pro-Control, Inc. ("Pro-Control") is an exclusive licensee with ATI to utilize its AMS Technology for industrial process control applications involving chemical distillation outside of the agriculture industry. Pro-Control uses advanced mass spectrometer instrumentation to monitor and control the production and operations of manufacturing processes using real-time, in-process samples. Pro-Control provides the vital spectral qualitative and quantitative data needed to control the production parameters (temperatures, flow, speed and pressure) while significantly improving efficiency.

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

EN-SCAN, Inc.

EN-SCAN, Inc. ("EN-SCAN") develops, manufactures and sells advanced environmental testing and monitoring solutions built around rugged, portable gas chromatography-based systems, including the EN-SCAN Handheld GC, EN-SCAN Fenceline Monitor, EN-SCAN Rugged Lab GC-MS, and the Labrador HH-GC, which was commercially launched in May 2026. EN-SCAN plans to incorporate mass spectrometry into future product generations. EN-SCAN's products support industrial, environmental, and regulatory applications, helping organizations meet compliance requirements and environmental safety. EN-SCAN uses proprietary ATi Gas Chromatograph and AMS Technology license from ATI for instant feedback to accurately detect soil, water, and air contamination source location and migration.

Lunar Utilities Corporation

On October 16, 2026, the Certificate of Incorporation was amended to change the corporation's name to Lunar Utilities ("LUC"). LUC is focused on potentially developing infrastructure technologies that could support semiconductor processing, advanced computing systems, and quantum computing manufacturing operations on the lunar surface.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments that directly affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities in our Company's consolidated financial statements and accompanying notes. A critical accounting estimate is one that involves a significant level of estimation or uncertainty and has had or is reasonably likely to have a material impact on our financial condition or results of operations. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Management continuously evaluates its critical accounting policies and estimates, including those used in evaluating the recoverability of long-lived assets, recognition of revenue, valuation of inventory, and the recognition and measurement of loss contingencies, if any. Actual results may differ from these estimates under different assumptions or conditions. We believe that the following accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

Results of Operations

Three months ended September 30, 2026, compared to three months ended September 30, 2025:

Selected consolidated financial data for the three months ended September 30, 2026, and 2025 is as follows:

		Three Months Ended September 30,
(In thousands)		2026				2025
Revenue		$	274			$	297
Cost of revenue			172				109
Gross profit			102				188
Gross margin			37	%			63	%
Operating expenses:
Selling, general and administrative			2,115				1,780
Research and development			1,026				1,944
Total operating expenses			3,141				3,724
Loss from operations			(3,039	)			(3,536	)
Other income and expense, net			91				71
Net loss		$	(2,948	)		$	(3,465	)

Revenue - Total revenue decreased $23 thousand, or 8%, to $274 thousand for the three months ended September 30, 2026, compared to $297 thousand for the three months ended September 30, 2025. The decrease was primarily due to lower contract revenue of $127 thousand and the non-recurrence of $20 thousand of training revenue recognized in the prior-year period. These decreases were partially offset by $107 thousand of product revenue from the sale of three units, $9 thousand of higher warranty revenue, and $7 thousand of higher consumables revenue.

Cost of Revenue - Gross profit is comprised of revenue less cost of revenue. Cost of revenue includes materials, overhead, warranty expenses, shipping, and labor. Cost of revenue increased by $63 thousand during the three months ended September 30, 2026, compared to the same period in 2025. The increase was primarily driven by higher material costs of $67 thousand associated with the sale of three units during the current-year period. As a result, gross margin decreased to 37% for the three months ended September 30, 2026, compared to 63% for the same period in 2025.

Operating Expenses - Operating expenses decreased by $583 thousand, or 16%, during the three months ended September 30, 2026, compared to the same period in 2025. Significant changes to operating expenses include the following:

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Selling, general and administrative expenses increased $335 thousand, or 19%, to $2.1 million from $1.8 million for the three months ended September 30, 2026, compared to the same period in 2025. The increase primarily reflected higher consulting expenses of $371 thousand, including a $200 thousand marketing-services engagement and fees for an interim Chief Financial Officer ("CFO") following the departure of the former CFO; higher facilities expenses of $177 thousand, primarily due to the transfer of Braker facility lease-related costs from research and development to selling, general and administrative expenses; and higher accounting and compliance expenses of $79 thousand. These increases were partially offset by a $245 thousand decrease in employee compensation and related costs resulting from lower headcount, including the former CFO position, and a $188 thousand decrease in legal expenses, primarily reflecting the reclassification of offering-related costs to additional paid-in capital.

●

Research and development expenses decreased $918 thousand, or 47%, to $1.0 million from $1.9 million during the three months ended September 30, 2026, compared with the same period in 2025. The decrease primarily reflected lower employee compensation and related costs of $379 thousand following research and development headcount reductions and the reclassification of certain labor costs to cost of revenue, including labor associated with manufacturing activities and percentage-of-completion contract work, lower contractor and consultant expense of $320 thousand, including a $60 thousand consultant retainer transferred to selling, general and administrative expenses; and lower facilities expense of $149 thousand following the transfer of Braker facility lease-related costs to selling, general and administrative expenses. The decrease also reflected lower depreciation expense of $50 thousand, the absence of $47 thousand of recruiting expense incurred in the prior-year period, and the reclassification of $20 thousand of insurance expense to selling, general and administrative expense. These decreases were partially offset by a $92 thousand increase in materials and equipment expenses, primarily reflecting higher inventory impairment charges on aged inventory.

Other Income and Expense, net - Other income and expense, net increased $20 thousand during the three months ended September 30, 2026, compared to the same period in 2025. The increase primarily reflected the absence of a realized loss on securities recognized in the prior year period, partially offset by lower dividend income due to reduced investment balances.

Liquidity and Capital Resources

Cash Flows

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

		Three Months Ended September 30,
(In thousands)		2026				2025				Change
Change in cash and cash equivalents:
Net cash provided by (used in) operating activities		$	(3,194	)		$	(3,936	)		$	742
Net cash provided by (used in) investing activities			(26	)			3,518				(3,544	)
Net cash provided by (used in) in financing activities			448				(36	)			484
Net change in cash and cash equivalents		$	(2,772	)		$	(454	)		$	(2,318	)

Cash and Cash Equivalents

As of September 30, 2026, cash was $5.6 million, short-term investments were $2.9 million, and working capital was $11.6 million. Cash decreased $2.8 million during the quarter, primarily from operating cash use, partially offset by financing proceeds.

Operating Activities

Cash used in operating activities was approximately $3.2 million for the three months ended September 30, 2026, compared with $3.9 million for the same period in 2025. Cash used in operating activities primarily reflected the Company's net loss of $2.9 million, partially offset by noncash charges of approximately $0.6 million, including stock-based compensation, depreciation and amortization, and amortization of right of use assets. Changes in working capital also used cash during the quarter, including a $273 thousand increase in prepaid expenses and other current assets, primarily related to prepaid insurance, a $116 thousand increase in inventory, a $121 thousand decrease in deferred revenue, primarily related to the recognition of previously deferred revenue, and a $286 thousand decrease in accounts payable and accrued liabilities.

Investing Activities

Cash used in investing activities was approximately $26 thousand for the three months ended September 30, 2026, compared to cash provided by investing activities of approximately $3.5 million for the three months ended September 30, 2025. For the three months ended September 30, 2026, investing activities consisted solely of purchases of property and equipment. The prior-year period included $4.0 million of proceeds from short-term investments, partially offset by $448 thousand of leasehold improvements associated with the Company's relocation to the Braker facility.

Financing Activities

Cash provided by financing activities was approximately $448 thousand for the three months ended September 30, 2026, compared with cash used in financing activities of approximately $36 thousand for the same period in 2025. Cash provided by financing activities during the current-year period consisted primarily of $467 thousand of net proceeds from the Company's at-the-market equity program and $8 thousand of proceeds from stock option exercises, partially offset by $21 thousand of repayments on financing obligations related to internal-use software and $6 thousand of finance lease principal payments.

We did not have any material off-balance sheet arrangements as of September 30, 2026.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As of September 30, 2026, we had cash and cash equivalents of $5.6 million, short-term investments of $2.9 million, and had positive working capital of $11.6 million. We have incurred recurring losses and negative cash flows from operations since inception and had an accumulated deficit of approximately $268.2 million as of September 30, 2026, and reported a net loss of $2.9 million. We regularly monitor potential financing and capital sources, including equity and debt markets, in an effort to meet our planned capital expenditures and liquidity requirements. Our future success may depend on our ability to access outside sources of capital including through public or private equity offerings, additional debt financing, or via strategic collaborations, partnerships, or other arrangements with third parties. The availability and terms of future financing will depend on a variety of factors, including general economic and market conditions, our operating performance, and investor interest. Additional funding may not be available on acceptable terms, if at all. If we are unable to obtain adequate financing when needed, we may be forced to delay, reduce the scope of, or eliminate certain operations, commercialization efforts, or other aspects of our business. In addition, raising additional funds through equity offerings may result in dilution to our stockholders, while debt or other financing could involve covenants or obligations that restrict our business operations. Until we can generate sufficient revenue from product sales, if at all, we expect to finance our operations primarily through existing cash reserves and additional capital-raising activities.

We expect that our short-term and long-term liquidity requirements will consist of working capital and general corporate expenses associated with the growth of our business, including, without limitation, expenses associated with scaling up our operations and continuing to increase our manufacturing capacity, sales and marketing expense associated with rollout of our products to commercial customers, additional research and development expenses associated with expanding our product offerings, and expenses associated with being a public company. In addition, we expect that our strategic initiatives approved by our Board focused on future lunar resource development, autonomous lunar industrial infrastructure, Moon-based advanced computing, semiconductor manufacturing, lunar power generation and related opportunities (our "Lunar Initiatives"), which remain in the explorative planning and design stage and for which no formal business plan or capital budget has been approved, will require substantial capital expenditures to design, develop, expand, and maintain our technologies and infrastructure to support development of such initiatives, including costs associated with research and development, construction and expansion of production capabilities, acquisition of property and equipment, and ongoing maintenance and upgrades to ensure reliability and competitiveness. While management believes that our cash and cash equivalents and short-term investments as of September 30, 2026, together with operational cash flows will fund our current operating plans and meet our anticipated obligations for at least the next 12 months, substantial additional capital may be required to support longer-term growth and operational objectives. Our short-term investments have been utilized as a source of liquidity to fund our operating expenses.

On January 28, 2026, the Company filed a Registration Statement on Form S-3 (Registration No. 333-293023) (the "Shelf Registration Statement"), declared effective on January 30, 2026 by the SEC, which includes a base prospectus that allows the Company to offer and sell, from time to time, in one or more offerings, common stock, preferred stock, debt securities, warrants, rights or units up to an aggregate public offering price of $30 million. As described in the Shelf Registration Statement, pursuant to General Instruction I.B.6 of Form S-3, in no event will the Company sell securities registered on the Shelf Registration Statement, in a public primary offering with a value exceeding more than one-third of the Company's public float in any 12-month period so long as the Company's public float remains below $75 million (the "Baby Shelf Limitation"). The Shelf Registration Statement is intended to preserve the Company's flexibility to raise capital from time to time, if and when needed.

On June 2, 2026, we entered into an at-the-market offering agreement with H.C. Wainwright & Co., LLC (the "ATM Agreement"), pursuant to which we may offer and sell shares of our common stock having aggregate gross proceeds of up to $50.0 million, subject to applicable limitations, including General Instruction I.B.6 of Form S-3. Shares are offered under our shelf registration statement on Form S-3 (File No. 333-297144), declared effective on July 7, 2026. During the three months ended September 30, 2026, we sold 90,000 shares under the ATM Agreement for net proceeds of approximately $467 thousand, and as of September 30, 2026, approximately $42.1 million remained available under the ATM Agreement.

Management continues to monitor liquidity needs closely and will adapt strategy as appropriate to align with both near- and long-term business objectives. Management anticipates that significant additional expenditures will be necessary to develop and expand our business, before significant positive operating cash flows can be achieved, as current available funds are insufficient to complete our business plan and strategic objectives. Until we can generate sufficient revenue from sales, if at all, we expect to finance our operations primarily through existing cash reserves and additional capital-raising activities.

Income Taxes

Provision for Income Tax

The Company's effective tax rate is 0% for income tax for the three months ended September 30, 2026 and the Company expects that its effective tax rate for the full fiscal year 2027 will be (0.05)%. Based on the weight of available evidence, including net cumulative losses and expected future losses, the Company has determined that it is more likely than not that its U.S. federal and state deferred tax assets will not be realized and therefore a full valuation allowance has been provided on the U.S. federal and state net deferred tax assets.

In general, if the Company experiences a greater than 50 percentage point aggregate change in ownership over a three-year period (a Section 382 ownership change), utilization of its pre-change net operating loss (NOL) carryforwards are subject to an annual limitation under Section 382 of the Internal Revenue Code. Generally, U.S. state laws have laws similar to Internal Revenue Code Section 382. The annual limitation generally is determined by multiplying the value of the Company's stock at the time of such ownership change (subject to certain adjustments) by the applicable long-term tax-exempt rate. Such limitations may result in expiration of a portion of the NOL carryforward before utilization.

The Company files U.S. federal and state income tax returns. The Company is not currently subject to any income tax examinations. The Company has net operating loss carryovers dating back to the June 2002 year, which generally allows all tax years to remain open to income tax examinations for all years for which there are loss carryforwards.

Uncertain Tax Positions

The Company recognizes the financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination. The Company currently has approximately $848 thousand of uncertain tax positions as of September 30, 2026, all of which are accounted for as contra-deferred tax assets. The Company does not expect any significant changes to its uncertain tax positions in the coming 12 months.

Income Taxes

There was no income tax expense during the three months ended September 30, 2026 or 2025.